Color and credit: Race, regulation, and the quality of financial services

The incidence of misselling, fraud, and poor customer service by retail banks is significantly higher in areas with higher proportions of poor and minority borrowers and in areas where government regulation promotes an increased quantity of lending. Specifically, low-to-moderate-income (LMI) areas t...

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Bibliographic Details
Published in:Journal of financial economics 2021-07, Vol.141 (1), p.48-65
Main Authors: Begley, Taylor A., Purnanandam, Amiyatosh
Format: Article
Language:English
Subjects:
Banking industry
Business schools
Community banks
Consumer protection
Credit
Customer services
Customers
Discrimination
Financial services
Fraud
Laws, regulations and rules
Minority & ethnic groups
Minority groups
Product quality
Quality of service
Race
Regulation
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Summary:The incidence of misselling, fraud, and poor customer service by retail banks is significantly higher in areas with higher proportions of poor and minority borrowers and in areas where government regulation promotes an increased quantity of lending. 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 lower-income and minority customers.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2021.03.001