Abstract: Most of the literature exploring racial disparities in consumer credit markets
focuses on the issue of access to loans. But the disparate terms on which loans are issued
are equally revealing. In this paper, I examine disparities in a variety of consumer loan
interest rates using a reduced-form framework. I find that interest rates on loans issued
before the 1995 show a statistically significant degree of unexplained racial heterogeneity
even after controlling for the financial costs of issuing debt. However, racial dispersion
in rates falls off for loans originated after 1995.
The unexplainable racial disparity in consumer loan rates issued before 1995
implies that in this earlier period minorities faced unaccountably higher interest-rate
premiums on the order of--in two examples--20 basis points for first mortgages and 80
basis points for automobile loans. Overall, evidence of unexplainable racial dispersion in
interest rates is more robust among homeowners than renters.
Keywords: Consumer debt, Consumer loan terms, racial discrimination
Full paper (142 KB PDF)
| Full Paper (Screen Reader Version)
Home | FEDS | List of 2007 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: June 20, 2007