Racial Discrimination in the Auto Loan Market
76 Pages Posted: 2 Jan 2019 Last revised: 1 Apr 2021
Date Written: March 31, 2021
We provide evidence of discrimination in auto lending. Combining credit bureau records with borrower characteristics, we find that Black and Hispanic applicants’ loan approval rates are 1.5 percentage points lower, even controlling for creditworthiness. In aggregate, discrimination crowds out 80,000 minority loans each year. Results are stronger where racial biases are more prevalent and banking competition is lower. Minority borrowers pay 70 basis point higher interest rates, but default less ceteris paribus, consistent with racial bias rather than statistical discrimination. A major anti-discrimination enforcement policy initiated in 2013, but halted in 2018, reduced discrimination in interest rates by nearly 60%.
Keywords: Discrimination, Race, Auto Lending, Credit Access, Household Finance, Household Debt
JEL Classification: D14, D18, G20, G28, G50, J15
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