Racial Discrimination in the Auto Loan Market

76 Pages Posted: 2 Jan 2019 Last revised: 1 Apr 2021

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 31, 2021

Abstract

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

Suggested Citation

Butler, Alexander W. and Mayer, Erik J. and Weston, James Peter, Racial Discrimination in the Auto Loan Market (March 31, 2021). 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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