But some institutions already do this voluntarily. One explanation is that a lack of financial sophistication on the part of some minority borrowers might make it difficult for any loan officer to evaluate their creditworthiness, regardless of the officer's race. 9 Such individuals may also lack demonstrable experience in managing credit. This lack of experience in dealing with financial institutions may make it more difficult for some minority applicants to convince a lender of their creditworthiness. Furthermore, it can be very difficult for a lender to assess the true creditworthiness of an applicant who has this kind of unconventional financial background.
Educational programs are costly, however.
Furthermore, lenders may fail to reap all the benefits of providing financial education to potential borrowers if some of those they teach end up applying for loans at other institutions. The expense of such programs and institutions' inability to capture their benefits may explain why lenders have not undertaken more of them voluntarily. The fact that educational programs are costly, and that the benefits of reducing discrimination accrue to society at large rather than to individual lenders, suggests that subsidizing financial counseling and education programs, supporting specialized community development institutions, and encouraging lenders to experiment with innovative underwriting criteria for low-income and minority applicants may all be appropriate ways to reduce discrimination induced by cultural affinity problems. Some might be inclined to dismiss efforts to understand the sources of discrimination as a pretext for delaying any action. Nonetheless, from a policymaker's perspective, the why is vitally important.