JUNE 2004

Discriminatory Lending

The Justice Department has reached a $3.2 million dollar settlement with the Old Kent Bank. In his excellent article in the Wall Street Journal, Gary Fields explains the basis for this action by the Justice Department. It charged discrimination by a lender who, allegedly, refused to do business with a small minority-owned firm. Several studies by government and university faculty provided evidence for the action by Justice. Georgetown University Professor Ken Cavalluzo and John Wolken of the Federal Reserve found that Hispanics andAfrican-American business owners were denied credit at more than 2 ½ times the rate of whites.

A crucial, but unanswered question is: What was the credit standing of the applicants that had been rejected compared to the credit standing of those who had been accepted? Without these essential data, we are not justified in reaching a conclusion regarding racial discrimination in the granting of consumer credit.