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 uppose
that a financial institution handled home-loan applications over
the phone, as many do. Suppose further that the law prohibited racial
discrimination in such lending, as it does. Would it be a good idea
or a bad idea, then, if the federal government required lenders
to ask phone applicants about their race? This is the question raised
by a proposed
rule published on February 7 by the Federal Reserve board of
governors.
According to
the proposed rule, the Fed's current policy is to permit, but not
require, such questions for "an application made entirely by
telephone." The Fed already requires that this data be collected
when applications are made in-person, over the Internet, or by regular
mail. The new proposal would extend the data-collecting to over-the-phone
loans, too, and the Fed now "solicits comment on the benefits
and burden of this proposal."
Well, here
are my comments. There are three possible situations when a lender
is talking with an applicant over the phone: (1) he can't guess
the applicant's race; (2) he thinks he can guess the applicant's
race, but really can't; or (3) he really has correctly guessed the
applicant's race.
In the first
instance, it clearly does not advance the cause of nondiscrimination
to require the lender to ask the applicant's race. If he doesn't
know the race, he can't discriminate on that basis. By giving him
that information now, you have made racial discrimination possible
when before it wasn't. That's not progress.
It also makes
no sense in the second instance to require the lender to ask the
applicant's race. Either the lender was going to engage in discrimination
based on an incorrect assumption — or he wasn't. If he wasn't,
then you haven't helped matters by setting him straight. And if
he was, why should we be helping him to discriminate more efficiently?
Which leaves
us with the third instance. I will note at the outset that it assumes
we can tell a person's race by his voice. Articles of politically
correct faith to the contrary notwithstanding, this is certainly
true sometimes (though it is also frequently false). The Fed has
urged lenders to train employees to better evaluate race and ethnicity
by "visual observation"; perhaps the Fed contemplates
similar training for "auditory identification." But if
the lender already knows the applicant's race, why should
we require him to ask about it?
The answer
is, I guess, that this will "provide data that assist in identifying
possible discriminatory lending patterns and enforcing antidiscrimination
statutes" — to quote from another Fed rule in this area.
Is this plausible?
Well, let's
suppose that the lender is deliberately discriminating. He knows
this is illegal, and he won't want to be caught. So if the Fed tells
him he has to document the case against himself, what will he do?
He might stop discriminating — or he might just lie. In other
words, he'll cover his tracks by claiming that some of the applicants
whom he knows to be black and plans to turn down had told him that
they were white. If he's caught — not likely — he's no
worse off than before. And it's his word against the applicants'
(who, after all, would have an incentive to lie about their race
if they suspected they were being discriminated against). Or he
could claim he just made an honest mistake — you know how easy
it is to make a writing error when you're trying to carry on a conversation
over the phone.
Alternatively,
suppose the lender is unintentionally discriminating. That is, he
intends to treat blacks and whites equally, but subconsciously he
views applicants of one race as better than applicants of the other.
Such subconscious discrimination is certainly possible, but it seems
rather unlikely in the lending context, where the criteria are overwhelmingly
objective: amount of savings, income level, credit history, size
of the loan, and so forth.
So we are left
with one other possibility, and I suspect that this is what many
of the rule's proponents are really after. They're not trying to
stop discrimination at all. Rather, they want to encourage it.
That is, they
want to pressure lenders into making loans on a racially "proportionate"
basis. If lenders have selection criteria — such as wealth,
income, credit history, etc. — that have a disproportionate
effect on one racial group or another, they want the lender either
to get rid of those criteria, or to apply them to applicants of
one race differently than they apply them to applicants of a different
race.
Either way,
the result is discrimination. If a lender were to jiggle his selection
criteria with an eye toward reducing the percentage of loans
given to blacks, the civil-rights establishment would rightly object.
But it would violate the same principle if lenders jiggled their
criteria with an eye toward increasing the loans given to
blacks. Either would necessarily mean that some other folks who
would have gotten loans before will not get them now.
Or, of course,
if the criteria are to be left in place but applied differently
to different groups, then that itself would be discrimination, by
any reasonable person's definition.
The civil-rights
groups will object that criteria are being used now that lenders
think make sense but that really don't. Sorry, but I'm pretty dubious
that lenders are likely to be acting irrationally in lending out
their money, making loans they shouldn't and missing better opportunities
elsewhere. And I'm even more dubious about letting Jesse Jackson
— or even a civil-rights bureaucrat or a federal judge —
set the criteria for other people to use in lending their money.
So the benefits
of the Fed's proposed rule seem pretty small and the potential mischief
pretty big. And, last but not least, there is one other potential
cost: that we'll be further institutionalizing race-consciousness.
We will be
doing so, moreover, at a time of international struggle in which
our skin-color differences seem quite petty, and where the nation
has a unique opportunity to move decisively away from bean-counting.
Indeed, to judge from the Fed's own statistics, more and more Americans
are refusing to claim any race other than human.
The major reason
for the proposed rule, according to the Fed, is that more and more
home-loan applications are being submitted without racial and ethnic
data on them (thank goodness, you can still get the loan even if
you won't check a box). Maybe this is a result of there being more
applications by phone — or maybe it's simply because more and
more people are refusing to fill out what Ward
Connerly calls "the silly little boxes."
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