Color and Credit: Race, Regulation, and the Quality of Financial Services
51 Pages Posted: 24 Mar 2017 Last revised: 2 Jul 2020
Date Written: July 1, 2020
The incidence of mis-selling, fraud, and poor customer service by retail banks is significantly higher in areas where government regulation promotes increased quantity of lending.
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 lower-income and minority customers.
Keywords: discrimination, product quality, financial sophistication, consumer protection, regulation
JEL Classification: G21, G28, L13, L14
Suggested Citation: Suggested Citation