Consumer-lending discrimination in the FinTech Era

Robert Bartlett, Adair Morse, Richard Stanton and Nancy Wallace

Journal of Financial Economics, 2022, vol. 143, issue 1, 30-56

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.

Keywords: Discrimination; FinTech; GSE mortgages; Credit scoring; Algorithmic underwriting; Big-data lending; Platform loans; Statistical discrimination; Legitimate business necessity (search for similar items in EconPapers)
JEL-codes: G21 G23 G28 J14 K22 K23 R30 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (82)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:143:y:2022:i:1:p:30-56

DOI: 10.1016/j.jfineco.2021.05.047

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