Color and Credit: Race, Regulation, and the Quality of Financial Services

53 Pages Posted: 24 Mar 2017 Last revised: 14 Jun 2018

Taylor A. Begley

Washington University in St. Louis - John M. Olin Business School

Amiyatosh K. Purnanandam

University of Michigan, Stephen M. Ross School of Business

Date Written: June 4, 2018

Abstract

The incidence of mis-selling, fraud, and poor customer service by retail banks is significantly higher in markets with lower income and educational attainment. Further, areas with a higher share of minority population experience significantly worse outcomes even after controlling for factors such as income, education, and house price changes. Regulations aimed at improving access to credit to such areas are partly responsible for these findings. Specifically, low-to-moderate-income (LMI) areas targeted by the Community Reinvestment Act have significantly worse outcomes, and this effect is larger for LMI areas with a high-minority population share. The results highlight an unintended adverse consequence of such quantity-focused regulations on the quality of credit to poor and minority customers.

Keywords: discrimination, product quality, financial sophistication, consumer protection, regulation

JEL Classification: G21, G28, L13, L14

Suggested Citation

Begley, Taylor A. and Purnanandam, Amiyatosh K., Color and Credit: Race, Regulation, and the Quality of Financial Services (June 4, 2018). Available at SSRN: https://ssrn.com/abstract=2939923 or http://dx.doi.org/10.2139/ssrn.2939923

Taylor A. Begley (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

HOME PAGE: http://www.taylorbegley.com

Amiyatosh K. Purnanandam

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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