In previous work we analyzed databases for 95 classes to show that the percent grade scale was correlated with a much higher student fail rate than the 4.0 grade scale. This paper builds on this work and investigates equity gaps occurring under both scales. By employing a "course deficit model" we attribute the responsibility for closing the gaps to those who are responsible for the policies that guide the course. When comparing course grades in classes graded using the percent scale with those in courses graded using the 4.0 scale, we find that students identifying as belonging to racial or ethnic minorities underrepresented in physics suffer a grade penalty under both grade scales but suffer an extra penalty under percent scale graded courses. We then use the fraction of A grades each student earns on individual exam items as a proxy for the instructor's perception of each student's understanding of the course material to control for student understanding and find that the extra grade penalty students from groups underrepresented in physics students suffer under percent scale grading is independent of the student's understanding of physics. When we control for more student level variables to determine the source of the grade scale dependent penalty, we find that it is primarily the low F grades (partial credit scores) on exam problems that are the source of these inequities. We present an argument that switching from percent scale grading to a 4.0 grade scale (or similar grades scale) could reduce equity gaps by 20%–25% without making any other course changes or controlling for any incoming differences between students.