Reducing Racial Disparities in Consumer Credit: Evidence from Anonymous Loan Applications

Abstract

We examine a unique experiment of anonymizing online loan applications to test whether race-blind screening procedures reduce racial disparities in consumer credit. With names on applications, minority applicants are 10% less likely to receive online loan offers and receive worse offer terms than otherwise identical majority applicants. Anonymizing applications reduces such disparities substantially. High-income minority applicants benefit more than low-income minorities. We show that the racial disparities are not driven by differences in credit demand. Overall, anonymous loan applications reduce racial disparities in access to credit by increasing lender reliance on objective credit risk measures.

Keywords: JEL Classification: D63, G21, J15, J71, O16 consumer credit, fair lending, racial discrimination, anonymity, privacy

JEL Classification: D63, G21, J15, J71, O16