Study: Color and Credit: Race, Regulation, and the Quality of Financial Services

Taylor A. Begley of Olin Business School, Washington University in St. Louis and Amiyatosh Purnanandam of Ross School of Business, University of Michigan have written Color and Credit: Race, Regulation, and the Quality of Financial Services. Here is the abstract:

The incidence of mis-selling, fraud, and poor customer service by retail banks is significantly higher in markets with lower income and educational attainment. Further, areas with a higher share of minority population experience significantly worse outcomes even after controlling for factors such as income, education, and house price changes. Regulations aimed at improving access to credit to such areas are partly responsible for these findings. Specifically, low-to-moderate-income (LMI) areas targeted by the Community Reinvestment Act have significantly worse outcomes, and this effect is larger for LMI areas with a high-minority population share. The results highlight an unintended adverse consequence of such quantity-focused regulations on the quality of credit to poor and minority customers.

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