Loan complaints reveal racial and wealth disparities

The Consumer Financial Protection Bureau (CFPB) released a report showing a significant difference in the patterns of loan complaints, depending on the wealth and racial makeup of the community.

How complaints highlight a racial and economic divide

Between 2018 and 2020, the Consumer Financial Protection Bureau received nearly a million complaints, and in a recent report, the first of its kind, the agency provided insight into how complaint patterns vary depending on race and wealth.

For this report, the CPFB has linked complaints to what it calls the “credit life cycle,” which is the granting of loans; the service of productive loans; service and recovery of delinquent and distressed loans; and credit reports. Credit scoring can occur at any of the other three points in the cycle. For example, lenders typically use credit reports to decide whether to grant a loan, report the borrower’s regular payments to the credit bureaus, and also report whether those loans go unpaid or go into collection.

Here are some of the main findings of the report:

• Consumers who live in low-income, predominantly Black and Hispanic communities have filed complaints about credit reports and overdue loan service at a higher rate than residents of high-income, predominantly White communities, non-Hispanic.
• In contrast, those in the wealthier, predominantly white non-Hispanic communities were more likely to complain about the origination of loans and the servicing of performing loans.
• Asian-American and Pacific Islander communities filed credit report complaints at a higher rate than predominantly white and non-Hispanic communities, but they had a lower share of complaints about service overdue loans.
• Complaints about loan origination increased by 50% in 2020, mainly for mortgages. The increase came disproportionately from higher income neighborhoods and those with fewer people of color.
• Residents of communities with the highest proportion of black consumers submitted the most complaints per resident – complaints from communities where 95% or more of residents are black occurred at more than twice the complaint rate of communities where 5 % or less of residents were black.
• Low-income census tracts — those at or below 40% of their region’s median income — filed about 30% more complaints per capita than census tracts, which represent about 100% of their region’s median income.

The report’s findings highlight the different experiences and concerns people of color have compared to white consumers when interacting with financial institutions. The agency said it would use the information to inform its work to protect consumers from unfair and illegal practices in the financial services industry.

Consumers who have a complaint about a financial institution can report it on the CFPB website.