Discrimination in the Auto Loan Market

56 Pages Posted: 2 Jan 2019 Last revised: 26 Jun 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: June 25, 2019

Abstract

We provide evidence of discrimination in the auto loan market. Combining 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 controlling for creditworthiness. In aggregate, this discrimination leads to over 80,000 minorities failing to secure loans each year. Results are stronger in more racially biased states and where banking competition is lower. Minorities who receive loans pay interest rates 70 basis points higher than comparable White borrowers. Ceteris paribus, minority borrowers have lower ex post default rates, consistent with preference-based racial discrimination. An anti-discrimination enforcement policy initiated in 2013, but halted in 2018, was effective in reducing unexplained racial disparities in interest rates by nearly 60%.

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 (June 25, 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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