Racial Disparities in the Auto Loan Market

76 Pages Posted: 2 Jan 2019 Last revised: 10 May 2022

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Erik J. Mayer

Southern Methodist University (SMU) - Finance Department

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Date Written: March 23, 2022

Abstract

We document racial disparities in auto lending. Combining credit bureau records with borrower characteristics, we find that Black and Hispanic applicants’ approval rates are 1.5 percentage points lower, even after controlling for creditworthiness. In aggregate, this effect crowds out 80,000 minority loans each year. Results are stronger where racial biases are more prevalent and lending 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 antidiscrimination enforcement policy initiated in 2013, but halted in 2018, reduced unexplained racial differences in interest rates by 60%.

Keywords: Discrimination, Race, Auto Lending, Credit Access, Household Finance, Household Debt

JEL Classification: D14, D18, G20, G28, G50, J15

Suggested Citation

Butler, Alexander W. and Mayer, Erik J. and Weston, James Peter, Racial Disparities in the Auto Loan Market (March 23, 2022). Available at SSRN: https://ssrn.com/abstract=3301009 or http://dx.doi.org/10.2139/ssrn.3301009

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Erik J. Mayer (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

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

James Peter Weston

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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