What is Redlining? Definition, Legality, and Effects


Redlining is a discriminatory practice that restricts access to financial services for residents of certain areas based on their race or ethnicity. This article delves into the origins, effects, legality, and the factors banks consider in lending decisions. Despite being illegal now, the legacy of redlining still affects communities today, making understanding its history and implications crucial.

What is redlining?

Redlining is a discriminatory practice that limits access to essential services, particularly financial ones, for residents of specific areas based on their racial or ethnic background. This practice is illegal and stands as a stark reminder of historical discrimination in the United States.

How redlining works

Coined by sociologist John McKnight in the 1960s, the term “redlining” derives from the practice of drawing literal red lines on maps by government bodies and lenders to mark neighborhoods they wouldn’t invest in due to demographics alone. This practice disproportionately affected black inner-city neighborhoods, which were often denied financial services that were granted to lower-income white borrowers. This led to exploitative housing contracts, resulting in exorbitant housing costs and minimal equity for black residents.

Effects of redlining

Redlining’s impact has been long-lasting. Even though the federal government began redlining real estate in the 1930s, its consequences are still evident. Research by Zillow in 1996 revealed that homes in redlined neighborhoods were worth significantly less than those in favored areas, and this disparity has continued to grow over time. Discrimination stemming from redlining extends beyond mortgages to areas like student loans, credit cards, and insurance.

Legality of redlining

Redlining is illegal when lending institutions employ race as a basis for excluding neighborhoods from loans. The Fair Housing Act, part of the Civil Rights Act of 1968, prohibits discrimination in lending based on racial composition. However, geological factors like fault lines or flood zones can still influence lending decisions. Redlining’s detrimental effects extend beyond economics, impacting health, longevity, and overall quality of life in minority neighborhoods.

What factors are lenders allowed to consider?

Lenders can consider various economic factors when deciding on loans. These include credit history, income sources, property condition, neighborhood amenities, and portfolio diversification. Discrimination based on race, religion, national origin, sex, or marital status is against U.S. law. However, economic factors are taken into account, and banks have the right to evaluate applicants based on these factors.

Addressing discrimination

To address housing discrimination, individuals who believe they’ve been discriminated against can report to the Consumer Financial Protection Bureau or HUD. While racial redlining is now illegal, the struggle against discrimination continues, necessitating the vigilance of fair housing centers and regulatory bodies.

Weigh the risks and benefits

Here is a list of the benefits and the drawbacks to consider.

  • Raises awareness about historical and ongoing discrimination.
  • Encourages efforts to promote fair lending practices.
  • Leads to legislation protecting against discrimination.
  • Continued disparities in housing values and loan access.
  • Challenges in enforcing anti-discrimination laws.
  • Impact on health and well-being of affected communities.


Redlining’s historical impact on racial discrimination remains evident in today’s society. While the practice is illegal, its consequences persist. Understanding redlining is crucial to promoting fair lending practices and creating a more equitable financial landscape.

Frequently asked questions

Why was redlining practiced?

Redlining aimed to segregate minority communities and perpetuate economic inequality by denying housing and financial opportunities.

How did redlining affect education?

Limited housing access led to poor educational opportunities, deepening disparities in education outcomes.

Did redlining affect property values?

Yes, redlining lowered property values, hindering wealth accumulation and perpetuating poverty.

Is redlining still evident in housing markets?

While explicit redlining is illegal, its impact persists in subtle ways, affecting lending rates and housing conditions.

Can redlining be reversed?

Efforts including community development, equitable lending policies, and addressing systemic racism can mitigate redlining’s impact.

Are other discriminatory lending practices prevalent?

Yes, modern practices like “reverse redlining” and biased algorithms perpetuate discriminatory lending.

What role does technology play?

Technology can be used to implement redlining strategies or to identify discrimination patterns and amplify fairness concerns in lending practices. It all depends on how it is used.

How can individuals combat redlining?

Educate, support housing equality organizations, engage in community discussions, and advocate for inclusive policies.

Has redlining been global?

Yes, similar discriminatory lending practices based on race exist worldwide, reflecting systemic inequalities.

Key takeaways

  • Redlining is a discriminatory practice that denies financial services based on race or ethnicity and has far-reaching consequences.
  • Originating in the 1930s, redlining resulted in inequities in housing values and access to loans.
  • Laws like the Fair Housing Act aim to curb discrimination, but disparities persist.
  • Lenders can consider economic factors but not factors like race, religion, or sex when making lending decisions.
  • Efforts to combat discrimination continue through reporting and regulatory oversight.
View article sources
  1. Fair Housing Act – Federal Reserve
  2. Understanding redlining – Consumer Financial Protection Bureau
  3. Identifying and Mitigating Potential Redlining Risks – Federal Deposit Insurance Corporation (FDIC)
  4. Redlining – Cornell Law School
  5. Ultimate List Of Credit Card Decline Codes (2023 Update) – SuperMoney