Not everyone has equal access to our financial markets. In fact, centuries of discrimination, segregation, and disinvestment have led to the creation of a dual credit market. Simply put, some people are fortunate enough to live in communities with access to banks and credit unions. Others aren’t as fortunate and live in credit deserts where the only financial institutions are payday lenders, check cashiers, buy-here-pay-here auto lenders and other high-cost lenders. This has serious implications for wealth disparities and the racial wealth gap. NFHA is working with a wide range of stakeholders to ensure that everyone has access to quality credit opportunities – free from discrimination – enabling people to develop good credit scores, build wealth for their families and secure their financial futures.
The U.S. has a dual credit market driven by centuries of discriminatory policies and practices. The graphic below illustrates this concept with safer, more regulated financial institutions reflected on the blue side and non-traditional, poorly regulated and often less safe financial institutions reflected on the tan side of the graphic. NFHA promotes policies that expand credit access in the financial mainstream (the blue side of the graphic) because accessing credit in this space yields financial opportunities that inure to the benefit of the consumer.
Many alternative financial services providers (the tan side of the graphic) do not report positive credit payments to credit reporting agencies. This means that consumers who access credit from the fringe market typically will not gain the benefit of making positive payments because other creditors cannot see that positive payment history. But consumers who access credit from the financial mainstream typically gain positive benefits by having their timely payments reported. The ability to access credit from financial institutions who will report timely payments to credit reporting agencies is so important because this information is used to enable consumers to develop and build solid credit scores.
Consumers who primarily access credit from the tan side of the graphic are often credit invisible – those who lack sufficient credit data to generate a credit score, and people of color are disproportionately represented among the credit invisible. As the graphic below illustrates, a lack of access to financial mainstream institutions has lead to people of color obtaining credit from alternative financial services providers at much higher levels than their white counterparts.
NFHA’s goal is to help all consumers gain better access to the financial mainstream and lenders who offer affordable, quality, sustainable credit. We know that communities without credit are communities without hope. Every community deserves to have access to quality credit. Every community deserves to have hope.