Lender Automation and Racial Disparities in Credit Access

93 Pages Posted: 11 Oct 2021 Last revised: 23 Nov 2022

See all articles by Sabrina T. Howell

Sabrina T. Howell

New York University (NYU) - New York University

Theresa Kuchler

New York University (NYU)

David Snitkof

Ocrolus

Johannes Stroebel

New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jun Wong

University of Chicago

Date Written: October 2021

Abstract

Process automation reduces racial disparities in credit access through enabling smaller loans, broadening banks’ geographic reach, and removing human biases from decision-making. We document these findings in the context of the Paycheck Protection Program (PPP), a setting where private lenders faced no credit risk but decided which firms to serve. Black-owned firms primarily obtained PPP loans from automated fintech lenders, especially in areas with high racial animus. After traditional banks automated their loan processing procedures, their PPP lending to Black-owned firms increased. Our findings cannot be fully explained by racial differences in loan application behaviors, pre-existing banking relationships, firm performance, or fraud rates.

Suggested Citation

T. Howell, Sabrina and Kuchler, Theresa and Snitkof, David and Stroebel, Johannes and Wong, Jun, Lender Automation and Racial Disparities in Credit Access (October 2021). NBER Working Paper No. w29364, Available at SSRN: https://ssrn.com/abstract=3940052

Sabrina T. Howell (Contact Author)

New York University (NYU) - New York University

Theresa Kuchler

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

David Snitkof

Ocrolus ( email )

101 Greenwich St
New York, NY 10006
United States

Johannes Stroebel

New York University (NYU) - Leonard N. Stern School of Business ( email )

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Suite 9-160
New York, NY NY 10012
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jun Wong

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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