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Consumer-lending discrimination in the FinTech Era

Author

Listed:
  • Bartlett, Robert
  • Morse, Adair
  • Stanton, Richard
  • Wallace, Nancy

Abstract

U.S. fair-lending law prohibits lenders from making credit determinations that disparately affect minority borrowers if those determinations are based on characteristics unrelated to creditworthiness. Using an identification under this rule, we show risk-equivalent Latinx/Black borrowers pay significantly higher interest rates on GSE-securitized and FHA-insured loans, particularly in high-minority-share neighborhoods. We estimate these rate differences cost minority borrowers over $450 million yearly. FinTech lenders’ rate disparities were similar to those of non-Fintech lenders for GSE mortgages, but lower for FHA mortgages issued in 2009–2015 and for FHA refi mortgages issued in 2018–2019.

Suggested Citation

  • Bartlett, Robert & Morse, Adair & Stanton, Richard & Wallace, Nancy, 2022. "Consumer-lending discrimination in the FinTech Era," Journal of Financial Economics, Elsevier, vol. 143(1), pages 30-56.
    • Handle: RePEc:eee:jfinec:v:143:y:2022:i:1:p:30-56
    DOI: 10.1016/j.jfineco.2021.05.047
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    References listed on IDEAS

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    More about this item

    Keywords

    Discrimination; FinTech; GSE mortgages; Credit scoring; Algorithmic underwriting; Big-data lending; Platform loans; Statistical discrimination; Legitimate business necessity;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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