What is the "redlining" practice in lending?

Redlining refers to a discriminatory practice in lending whereby financial institutions refuse to provide loans or insurance to individuals based on the geographic area in which they live, often correlating to racial or ethnic demographics. This practice has historically targeted neighborhoods predominantly inhabited by people of color, resulting in systemic disadvantages and limited access to mortgages and home ownership for those residents.

The term "redlining" originated from the practice of using red ink to delineate areas on maps that depicted neighborhoods deemed undesirable for lending. This geographical discrimination not only restricts financial opportunities for affected individuals but also perpetuates economic inequality and hinders community development. This is a clear violation of federal laws aimed at promoting equitable lending practices, such as the Fair Housing Act.

The other options do not accurately capture the essence of redlining. While a refusal to lend to any applicant is related to lending practices, it does not reflect the geographic discrimination aspect that defines redlining. Evaluating creditworthiness and determining interest rates for loans are standard practices in lending that do not involve discriminatory factors based on location or demographics.