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An Investigation of Sex Discrimination in Commercial Banks' Direct Consumer Lending

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  • Richard L. Peterson

Abstract

This article develops a model of prejudicial discrimination in the credit markets. Data on 30,000 commercial bank consumer loans were used to test the model. No. systematic pattern of prejudicial sex discrimination was found -- even before the Equal Credit Opportunity Act (ECOA) was passed. Instead, banks as a whole behaved as profit maximizers, and made loans on equivalent terms to equally risky customers, regardless of sex. These findings suggest that future regulatory initiatives, such as proposed extensions of ECOA, should be thoroughly scrutinized whenever they impose substantial costs under the assumption that firms are not profit maximizers.

Suggested Citation

  • Richard L. Peterson, 1981. "An Investigation of Sex Discrimination in Commercial Banks' Direct Consumer Lending," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 547-561, Autumn.
    • Handle: RePEc:rje:bellje:v:12:y:1981:i:autumn:p:547-561
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    Cited by:

    1. Louis-Gaëtan Giraudet & Anna Petronevich & Laurent Faucheux, 2018. "How do lenders price energy efficiency? Evidence from posted interest rates for unsecured credit in France [Comment les créditeurs valorisent-ils l'efficacité énergétique? Une analyse des taux d'in," Working Papers hal-01890636, HAL.
    2. Geoffrey M. B. Tootell, 1996. "Can studies of application denials and mortgage defaults uncover taste-based discrimination?," Working Papers 96-10, Federal Reserve Bank of Boston.
    3. Lawrence, Edward C., 1997. "The viability of minority-owned banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(1), pages 1-21.
    4. Will Dobbie & Andres Liberman & Daniel Paravisini & Vikram Pathania, 2021. "Measuring Bias in Consumer Lending [Loan Prospecting and the Loss of Soft Information]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(6), pages 2799-2832.
    5. Louis-Gaétan Giraudet & Anna Petronevich & Laurent Faucheux, 2019. "How do lenders price energy efficiency? Evidence from personal consumption loans," Working papers 716, Banque de France.
    6. Daniele Coin, 2013. "Are female entrepreneurs better payers than men?," Questioni di Economia e Finanza (Occasional Papers) 186, Bank of Italy, Economic Research and International Relations Area.
    7. Song Han, 2001. "On the Economics of Discrimination in Credit Markets," Finance and Economics Discussion Series 2002-02, Board of Governors of the Federal Reserve System (U.S.).
    8. Song Han, 2004. "Discrimination in Lending: Theory and Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 29(1), pages 5-46, July.
    9. Agarwal, Sumit & Green, Richard & Rosenblatt, Eric & Yao, Vincent W. & Zhang, Jian, 2018. "Gender difference and intra-household economic power in mortgage signing order," Journal of Financial Intermediation, Elsevier, vol. 36(C), pages 86-100.
    10. Raphael Bostic, 2003. "A Test of Cultural Affinity in Home Mortgage Lending," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(2), pages 89-112, April.
    11. Demyanyk, Yuliya, 2008. "U.S. banking deregulation and self-employment: A differential impact on those in need," Journal of Economics and Business, Elsevier, vol. 60(1-2), pages 165-178.
    12. Song Han, 2011. "Creditor Learning and Discrimination in Lending," Journal of Financial Services Research, Springer;Western Finance Association, vol. 40(1), pages 1-27, October.
    13. Dodson, Charles B., 2013. "Racial/Ethnic Discrimination in USDA’s Direct Farm Lending Programs," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150492, Agricultural and Applied Economics Association.
    14. Demirguc-Kunt Asli & Klapper Leora & Randall Douglas, 2014. "Islamic Finance and Financial Inclusion: Measuring Use of and Demand for Formal Financial Services among Muslim Adults," Review of Middle East Economics and Finance, De Gruyter, vol. 10(2), pages 177-218, August.
    15. Ken Cavalluzzo & Linda Cavalluzzo & John D. Wolken, 1999. "Competition, small business financing, and discrimination: evidence from a new survey," Finance and Economics Discussion Series 1999-25, Board of Governors of the Federal Reserve System (U.S.).
    16. Stephen L. Ross, 2003. "What Is Known about Testing for Discrimination: Lessons Learned by Comparing across Different Markets," Working papers 2003-21, University of Connecticut, Department of Economics, revised Nov 2003.
    17. Peggy D. Dwyer & James H. Gilkeson & Drew B. Winters, 2003. "How banks can self-monitor their lending to comply with the equal credit opportunity act," Review, Federal Reserve Bank of St. Louis, vol. 85(Sep), pages 7-22.
    18. Richard Anderson & James VanderHoff, 1999. "Mortgage Default Rates and Borrower Race," Journal of Real Estate Research, American Real Estate Society, vol. 18(2), pages 279-290.
    19. Clifford B. Hawley & Edwin T. Fujii, 1991. "Discrimination in Consumer Credit Markets," Eastern Economic Journal, Eastern Economic Association, vol. 17(1), pages 21-30, Jan-Mar.
    20. Zhenyu Wu & Jess H. Chua, 2012. "Second–Order Gender Effects: The Case of U.S. Small Business Borrowing Cost," Entrepreneurship Theory and Practice, , vol. 36(3), pages 443-463, May.

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