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Do Algorithms Discriminate Against African Americans in Lending?

Author

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  • Jérémie BERTRAND

    (IESEG)

  • Laurent WEILL

    (LaRGE Research Center, Université de Strasbourg)

Abstract

We investigate whether discrimination against African Americans occurs in peer-to-peer lending. We consider data from a large peer-to-peer lender that uses algorithms and no face-to face interview to decide loan approval and conditions. Using data from 3.6 million loan applications and 817,000 granted loans for 2016 and 2017, we perform regressions of loan acceptance and loan conditions on the percentage of African Americans by 3-digit zip area. We observe evidence of discrimination in peer-to-peer lending. African Americans have a greater chance to have their loan applications rejected, pay higher loan rates, and obtain loans with shorter maturity. Discrimination is more pronounced after the election of Trump.

Suggested Citation

  • Jérémie BERTRAND & Laurent WEILL, 2019. "Do Algorithms Discriminate Against African Americans in Lending?," Working Papers of LaRGE Research Center 2019-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2019-04
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    Cited by:

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    2. Choudhary, Priya & Thenmozhi, M., 2024. "Fintech and financial sector: ADO analysis and future research agenda," International Review of Financial Analysis, Elsevier, vol. 93(C).

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    More about this item

    Keywords

    discrimination; Fintech; peer-to-peer lending; loans.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

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