Leasing License Practice Exam

A lending institution that requires different rates and terms for minorities is an example of what practice?

1. Redlining

2. Blockbusting

3. Discrimination

4. Predatory Lending

The correct answer is: Redlining

The practice of a lending institution requiring different rates and terms based solely on an individual's race or ethnicity is referred to as redlining. This term originated from the literal red lines drawn on maps by lenders to delineate neighborhoods they considered risky for loans, often predominantly inhabited by minorities. Redlining systematically denied access to financial resources and favorable loan terms, contributing to wider inequalities in homeownership and economic advancement. This discriminatory practice highlights the broader issue of systemic racism within lending and housing policy, wherein certain groups, particularly minorities, face barriers to equitable treatment in financial products and services. It is important to recognize that redlining not only affects individual borrowers but also perpetuates community disinvestment and entrenches cycles of poverty. Although other terms like discrimination or predatory lending relate to unjust practices in lending, they do not capture the specific geographical and policy-related essence of redlining as it does. Blockbusting is concerned with real estate practices aimed at inducing property sales in neighborhoods to capitalize on racial fears, which is also a separate issue. Therefore, redlining is the most accurate description of the situation presented in the question.