Fifteen Eighty Four

Academic perspectives from Cambridge University Press


Black (Economic) Lives Matter: Confronting Systemic Racism and Exploitation

Janis Sarra, Cheryl Wade

Until Debt Tear Us Apart image

The media is currently replete with American corporations signalling that they are going to pursue diversity on their corporate boards, in the C-suite, and among their employees. Some have made statements about addressing systemic racism as it relates to their relationships with consumers, employees, and the communities in which they do business. These declarations may be a positive sign if there is really action to back-up the promises. The reality is that many companies and financial institutions in the United States are the primary cause of the widening wealth gap between black Americans and other Americans. Since the 2008 global financial crisis, more than 17 million Americans have lost their homes to foreclosure, with African Americans disproportionately affected by the sub-prime mortgage market meltdown. Black Americans were four times as likely as similarly situated white Americans to pay sub-prime rates on their mortgages, even when controlling for factors such as borrower income and property location. Millions of middle-class and high-income African Americans who qualified for regular fixed-rate, long-term mortgages were steered to sub-prime mortgages as lenders capitalized on years of structural racism. More than a decade later, many black Americans are still fighting to prevent financial institutions from taking away their homes. Lenders lobbied the U.S. Senate and prevented enactment of meaningful reform, which resulted in a vitally important missed opportunity to give a lifeline to millions facing foreclosure.

Potently durable stereotypes about African Americans are at the heart of the sub-prime mortgage debacle and the continuing housing crisis. African Americans were targeted for predatory lending more than any other group because of the intractability of the myth of black intellectual inferiority and enduring anti-black bias that foments their economic exploitation. It has left a legacy of intergenerational harm that impedes wealth accumulation by black Americans. It is now well documented that lenders, brokers, and mortgage servicers engaged in conduct that was fraudulent and misleading. The mortgage market charged excessively high rates and fees, engaged in high-pressure sales tactics, imposed unnecessarily harsh prepayment penalties, and distorted loan structures to avoid the application of consumer protection statutes.

The recent attention to systemic racism reveals similar patterns across every economic and social sphere. It reveals that the harm that results from structural racism cannot be mitigated without understanding how white Americans have benefitted and continue to benefit from systemic racism. This understanding is just as important as acknowledging the ways that black borrowers are disadvantaged. Even the huge lawsuits against the predatory and fraudulent mortgage practices that settled or were won reflect a systemic bias, the vast majority of the monetary damages went to investors rather than black mortgage holders. The actual relief given to families suffering the devastating effects of the meltdown was woefully inadequate. The lack of attention to reform of the structural features of financial markets has resulted in a failure to address much of the harm, and safeguards have not been put in place against future predatory lending.

Institutional policies in private organizations, such as banks and other financial institutions, and the institutional policies of public bodies, such as housing agencies and the court system, provide little or no redress for black Americans who continue to be scammed by predatory lending in the housing and consumer products markets. These policies entrench and exacerbate the racial wealth gap. A burgeoning new U.S. market, non-prime mortgages, has in the past two years moved into the sub-prime market space. It is another form of predatory lending that many pundits and policymakers had concluded could never happen again.

None of the financial institutions that paid billions to settle lawsuits alleging predatory lending admitted culpability. Wells Fargo, for example, made no admission of predation even though several former Wells Fargo officers swore in depositions that the bank steered black people into predatory loans because they were not considered ‘savvy’ enough to understand the mortgage terms. One Wells Fargo officer testified that black consumers were referred to as ‘mud people’ and the predatory loans were called ‘ghetto loans’. More than a decade later, in 2020, after a Minneapolis police officer killed an unarmed black man by kneeling on his neck for more than eight minutes as he detained him, Wells Fargo joined the chorus of firms that issued statements inspired by the incident. Wells Fargo CEO Charlie Scharf emailed employees pledging to support diversity and inclusion values at the bank. But diversity and inclusion are not at issue when it comes to police violence against black Americans. Diversity and inclusion were not the issue when Wells Fargo loan officers discriminated against black borrowers. The issue is racism, both individual and systemic. Scharf’s email failed to mention racism at all.

Most mortgage companies are still unwilling to approve mortgage modifications for black borrowers who were predatory lending victims. Perhaps more racial diversity at the firms would inure to the benefit of black consumers. The only effective antidote, however, is antiracist action (rather than antiracism rhetoric) in the form of mortgage modifications. Bold changes in lending practices and the enactment of legislative protections against predatory lending are imperatives. But the failure to acknowledge and address individual and systemic racism precludes meaningful reform.

Featured image by Alice Pasqual on Unsplash

Predatory Lending and the Destruction of the African-American Dream by Janis Sarra, Cheryl Wade
Predatory Lending and the Destruction of the African-American Dream by Janis Sarra, Cheryl Wade

About The Authors

Janis Sarra

Janis Sarra is Professor of Law at the University of British Columbia, Peter A. Allard School of Law, and was the founding Director of the National Centre for Business Law. Over 10...

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Cheryl Wade

Cheryl Wade is the Dean Harold F. McNiece Professor of Law at St. John's University School of Law, New York. A member of the American Law Institute, Professor Wade has written over...

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