Female relationships may have been one of the great themes of Western culture – Karenina, Bovary and all that – but the story of female finances has surely been an even more powerful thread. Think of beautiful, broken Lily Bart in The House of Mirth, forced into an awkward acquaintance with the stock market; the Dashwood sisters and their mother, patiently calculating what sum would be sufficient for setting up a house; infuriating, complicated Gwendolen Harleth, paying for her gambling in Daniel Deronda, not to mention Woolf’s advice on the importance of affording a room of one’s own.
But in the twenty-first century, a woman’s access to money is still fraught, even in the developed world. Globally, women own less than 10% of available credit, but even in the west a woman’s access to credit is riddled with road-blocks, from gender stereotyping when women seek loans as private customers to disparities between how male and female entrepreneurs are treated by lenders. In a recent IPPR report, ‘Women and banks: are female customers facing discrimination?’ economist Noreena Hertz highlighted ongoing discriminatory practices in the UK and other western countries, ranging from discrimination against female entrepreneurs seeking business loans and female home-buyers seeking mortgages, to an indication of discriminatory practices against would-be mortgage-holders who are pregnant or on maternity leave. And this is not a case of the often-discussed issue that this is ‘only’ indirect discrimination because women’s business start-ups are less attractive or too small, or the business-world belief in women being more ‘risk-averse’, but a case of direct discrimination of women because they are women. It seems that, in response to the post-economic crisis demand that banks regulate their lending more closely, the result has been not a methodical approach to finding more appropriate lending practices, but instead arbitrarily making it harder to get a loan if you’re a woman. In a feminised recession, with women bearing the brunt of job losses (and, in the UK, the government austerity measures), do we now need to add another grim example – women being undermined by their banks?
To begin with the issue of discrimination against female home-buyers seeking mortgages, the anecdotes of the recession era have begun to reach a critical mass: there are now reportedly over 200 cases in America of women whose mortgage loan applications were turned down when the bank found out they were pregnant or on maternity leave. The practice varies from case to case: take the 2010 example that the ACLU declared an illegal practice, where a woman was asked about her ‘family planning’ when applying for a home mortgage, or the case of an oncologist who was informed via email that she was approved for a loan, but when the email prompted an ‘out of office’ reply from her work email which said she was on maternity leave, she received a second email this time denying her loan approval.
As such cases began to amass in the last few years, in the US the Department of Housing and Urban Development launched a series of investigations to see if mortgage lenders were violating the Fair Housing Act, but the trend appears to be replicating in the UK and other west European countries. The IPPR report outlines the cases of women who in recent years have been told by major high street banks that their salaries would not be taken into account in a mortgage due to their maternity leave status, even when the women’s full-time salaries were higher than their partner’s. There are pages of anecdotes on social media sites such as Mumsnet citing such instances of discriminatory practices by many of the largest UK high street banks – including cases where the bank disregarded a woman’s own statement that she would return to work after her maternity leave, instead making the decision on her behalf that they ‘could not be sure she would be committed to her job’ after giving birth. (Not only is this gender stereotyping, but it’s also a very inaccurate reading of the reality: most UK women return to work within six months of giving birth).
Many attribute this new wave of discriminatory or gender-imbalanced lending to a new fervour for regulation in light of the recession. For instance, ACLU notes “some lenders [are]...applying newly tightened restrictions on home loan credit in the wake of the foreclosure crisis, that has resulted in pregnant women, women on parental leave, couples and families with children being inappropriately questioned about irrelevant aspects of their personal lives and subjected to pregnancy discrimination and sex stereotypes.”
But if the economic collapse of 2008 indicated a legitimate need for tighter regulation of loan practices, one of the themes of the post-recession world has been encouraging entrepreneurship to kick-start failing economies. In this capacity, at least, you would think women would be given a fair chance, if only for the sake of buoying the economy with new entrepreneurs – after all, last year Home Secretary Theresa May noted that the UK would benefit from an additional 150,000 start-ups each year if women could launch businesses at the same rate as men. Moreover, as women have often faced the brunt of job losses during this recession, the ability to start a business is crucial for many women to maintain their financial independence. Yet the treatment female entrepreneurs are likely to receive by banks hardly encourages entrepreneurship – and this road-block in fair access to credit may explain why, although female entrepreneurs make up a growing proportion of the market, in the US only 30% of businesses are majority-owned by women, while the figure stands at 27% in the UK and just 15% in Ireland.
The gender-inequality in access to credit for would-be entrepreneurs manifests in various ways, a series of road-blocks: first, studies such as a 2008 study of Italian banks found female entrepreneurs had to provide greater collateral than their male counterparts; secondly, once a female entrepreneur does receive a loan – often after having had to provide greater collateral – evidence suggests they then have to pay higher interest rates than men. Both the 2008 study of Italian banks and a 2009 pan-national study using data from the Business Environment and Enterprise Performance Survey found evidence suggesting that female-owned businesses pay higher interest rates than comparable male-owned firms. To add a further road-block: the IPPR report gives examples of female entrepreneurs being questioned more often than their male counterparts on whether they can demonstrate sufficient research into their business. With the banks placing so many obstacles in your path, who wouldn’t think twice about starting a business?
Of course, the counter-argument to this is that the banks were not discriminating against female would-be entrepreneurs because they were women, but because the business plans were less viable, too small, or – as is frequently noted as a ‘soft discrimination’ of constraining gender roles – women are less likely to ‘take risks’ in business. Yet further examination seems to reveal that these examples of female entrepreneurs being denied access to credit are neither a coincidence nor merely ‘soft’ discrimination – the studies compared ‘like with like’ examples of enterprises, controlling for a large number of characteristics of the type of business, the borrower and the structure of the credit market. And if we look at what happens when women do start enterprises – for example, in America female-led high-tech start-ups have lower failure rates and a greater capital efficiency than male-led ones, and the average venture-backed female-run tech company is started with one-third less capital yet has annual revenues 12% higher than those of their male counterparts – making it more difficult for women to access loans than men is hardly good business sense.
And yet here we are, over four years into a crippling recession, discovering that women are finding it more difficult than men both to access loans in their capacity as private customers when seeking a mortgage, and when they seek loans as businesswomen.
To bring the issue full circle, there is a horrible irony underlying all of this: access to credit is more difficult now, as a result of regulations brought in after the economic collapse of 2008 and 2009 – a crisis precipitated by the sub-prime mortgage market, which had its own gendered dimension. In fact, despite the issues outlined above that women are now unfairly discriminated against in access to credit, in the pre-recession sub-prime bubble, encouraging female access to credit was high on the priorities of US banks – the problem being, women were disproportionately pushed towards subprime loans. During the last housing boom in America, women became an increasingly important part of the housing market and, capitalising on this, banks targeted women for subprime loans even when they had the same credit rating as men: studies of lending practices for home-buyers in the mid-2000s indicated that the main US banks targeted sub-prime lending on women and ethnic minorities, meaning their terms and conditions of loan repayment were less favourable than their similarly situated male counterparts.
The issue of the sub-prime targeting of female borrowers in the mid-2000s seems to underscore the continued gender inequality in lending practices and access to credit: women were targeted by rotten loans before the bubble burst, and now, in the post-recession era of stricter regulation of lending, women – pregnant women and women on maternity leave seeking mortgages; female entrepreneurs hoping to start up their business – are arbitrarily denied access to credit, ostensibly under the guise of ‘more cautious lending practices’, an otherwise noble aim that unfortunately seems to be covering up for arbitrary discrimination by banks. Regrettably, it seems that women again face a double-bind, bearing the brunt of banks' practices both in the build up to, and in the wake of, the economic crisis.
Encouraging female entrepreneurs, ensuring that the UK’s high street banks are providing fair access to credit for applicants regardless of their gender, and mitigating against stereotyping in lending practices are duties for the government and the banks themselves. In the meantime, one thing we can do is speak out if the banks we use demonstrate gender discrimination – because, no, your bank should not be allowed to ask you about your ‘family planning’.
Acknowledgement: Heather McRobie contributed research to the IPPR report ‘Women and banks: are female customers facing discrimination?’