"Rational" Inner City Disinvestment: A Critique of Lenders' Negative Economic Rights and a Foucaultian Analysis of Creditworthiness Evaluation

David Scott Black

Georgetown University Law Center; Class of 1996

"This Note seeks to explain the function of the creditworthiness evaluation by lenders and its relationship to the flow of investment capital away from inner city communities. The standards used by banks to evaluate loan applicants bear a direct causal link to inner city disinvestment." The legal structure regulating the creditworthiness evaluation legitimizes the diversion of investment away from inner city communities. As a result, inner cities are denied economic opportunity and a decent living environment as the investment capital flows to the suburbs.

Part I describes the methods lenders use to determine creditworthiness in loan applicants and how these methods, which are "rational" from the lenders perspective, keep investment capital out of the inner cities . In addition, Part I also describes the debilitating effect of this disinvestment. Part II focuses on the pithy legal regulations of lenders creditworthiness evaluations and the manner in which these laws implicitly endorse current lending practices and their detrimental consequences. Part III analyzes the function of creditworthiness in society from a Foucaultian perspective by looking at how normative judgements embodied in social institutions order society by punishing, or threatening to punish, those who deviate from the acceptable social-economic norms.

Ultimately, a lasting solution will require cultural change. Lenders should see themselves as "fiduciaries to the communities they serve..." and re-evaluate their roles to focus not only on a desire for financial profit, but on their ability to facilitate the long term growth of the community.

Vol. II, No. 2, p. 303 (1995)

 

Revised July 17, 2003 (MD)