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Racial Disparities in the Auto Loan Market

Author

Listed:
  • Alexander W Butler
  • Erik J Mayer
  • James P Weston
  • Itay Goldstein

Abstract

We document racial disparities in auto lending. Combining credit bureau records with borrower characteristics, we find that Black and Hispanic applicants’ approval rates are 1.5 percentage points lower, even after controlling for creditworthiness. In aggregate, this effect crowds out 80,000 minority loans each year. Results are stronger where racial biases are more prevalent and lending 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 antidiscrimination enforcement policy initiated in 2013, but halted in 2018, reduced unexplained racial differences in interest rates by 60.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Alexander W Butler & Erik J Mayer & James P Weston & Itay Goldstein, 2023. "Racial Disparities in the Auto Loan Market," The Review of Financial Studies, Society for Financial Studies, vol. 36(1), pages 1-41.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:1:p:1-41.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac029
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G50 - Financial Economics - - Household Finance - - - General
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

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