42 Pages Posted: 24 Mar 2017 Last revised: 30 Jun 2017
Date Written: May 19, 2017
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 magnified further for LMI areas with high-minority population. 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: Suggested Citation
Begley, Taylor A. and Purnanandam, Amiyatosh K., Color and Credit: Race, Regulation, and the Quality of Financial Services (May 19, 2017). Available at SSRN: https://ssrn.com/abstract=2939923 or http://dx.doi.org/10.2139/ssrn.2939923