Discrimination in the Auto Loan Market

42 Pages Posted: 2 Jan 2019 Last revised: 10 Feb 2019

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 - Cox School of Business

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Date Written: February 6, 2019

Abstract

We provide direct evidence of lending discrimination in the U.S. auto loan market. Using a novel dataset that combines credit bureau records with borrower characteristics, we find that Black and Hispanic applicants’ loan approval rates are 1.5 percentage points lower than White applicants’, even after controlling for creditworthiness. Our results are larger in states where racial biases are more prevalent and competition is lower. Minority borrowers who receive an auto loan pay a 56 basis point higher rate than comparable White borrowers. Controlling for a broad set of loan and borrower characteristics, minority borrowers have lower ex post default rates, consistent with racial discrimination.

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

JEL Classification: D12, D14, D18, D60, G21, G28, J15

Suggested Citation

Butler, Alexander W. and Mayer, Erik J. and Weston, James Peter, Discrimination in the Auto Loan Market (February 6, 2019). 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 - Cox School of Business ( email )

P.O. Box 750333
Dallas, TX 75275-0333
United States

HOME PAGE: http://sites.google.com/site/erikjmayer/

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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