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Banks Denying Credit Based On Geography: Is Your Neighborhood Getting Shafted?

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It was a case of reverse lobbying. Earlier this month, a Massachusetts resident opened a letter from CapitalOne informing her that she'd been denied a credit card. The problem, the company explained over the phone when she protested, was simple: the woman -- a doctor, in fact -- lived in a poor neighborhood. Statistically, they reasoned, it wasn't worth the risk to give credit cards to folks in her area.

Fortunately for the rejected doc, her congressional representative is also the chairman of the House Financial Services Committee. She contacted a local district office and told a staffer to Rep. Barney Frank about the company's practice.

Frank's office quickly identified two problems with the company's move. First, the doctor lived in a wealthy Dartmouth neighborhood. But more importantly, it smacked of "redlining," a banned practice banks previously engaged in to discriminate against certain customers, often related to race.

Congress passed the Community Reinvestment Act and the Equal Credit Opportunity Act to address the problem. An effort is also underway to expand the CRA to encompass non-bank financial institutions.

Agitated by the CapitalOne practice, Frank called a lobbyist connected with the company on Tuesday and demanded the policy be changed, said Frank spokesman Harry Gural. CapitalOne quickly reversed course in a contrite letter dated April 21 and provided to the Huffington Post.

Peter Schnall, CapitalOne's chief risk officer, wrote to Frank later that same day that while they consider the practice legal, they'd stop anyway, saying "we have made a business decision to cease using a consumer's resident in a particular Metropolitan Statistical Area as a criterion in approving credit card applications." The company, he said, "understand[s] the concerns that this practice raises in the current environment."

Frank mentioned the fight with CapitalOne Wednesday on The Rachel Maddow show. Gural said that he is looking into legislation to ban the practice so that CapitalOne and others don't return to it when the "current environment" changes. If you've had a similar experience with a credit card company -- if you've either been rejected or had your interest rate hiked because of where you live -- send your stories to submissions+credit@huffingtonpost.com. We'll forward your stories on to Frank's staff as they prepare legislation -- unless, of course, you indicate in your e-mail that you don't want us to send it on.

The doctor was traveling and couldn't be reached; Schnall's assistant referred calls to CapitalOne's media department, which didn't immediately return a call requesting comment.

The full letter, worth a read:

We appreciate your bringing to our attention the matter of our use of broad geographic criteria in credit card approval decisioning. While we believe that our actions were permissible under the Equal Credit Opportunity Act and other laws governing such lending, we understand the concerns that this practice raises in the current environment, particularly as we seek to partner with Congress and the Administration to support our country's economic recovery. As such, we have made a business decision to cease using a consumer's resident in a particular Metropolitan Statistical Area as a criterion in approving credit card applications.

We hope that this change in policy fully addresses your concerns in this matter. We look forward to continuing to work with you and your staff on critical matters facing consumers and our industry.

Best regards,

Peter Schnall
Chief Risk Officer

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