Lender Automation and Racial Disparities in Credit Access

ABSTRACT Process automation reduces racial disparities in credit access by enabling smaller loans, broadening banks' geographic reach, and removing human biases from decision making. We document these findings in the context of the Paycheck Protection Program (PPP), where private lenders faced...

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Bibliographic Details
Published in:The Journal of finance (New York) 2024-04, Vol.79 (2), p.1457-1512
Main Authors: HOWELL, SABRINA T., KUCHLER, THERESA, SNITKOF, DAVID, STROEBEL, JOHANNES, WONG, JUN
Format: Article
Language:English
Subjects:
Access
Automation
Bank loans
Bank technology
Black owned businesses
Companies
Credit risk
Decision making
Loan approval procedures
Loans
Organizational performance
Racial differences
Racial inequality
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Summary:ABSTRACT Process automation reduces racial disparities in credit access by enabling smaller loans, broadening banks' geographic reach, and removing human biases from decision making. We document these findings in the context of the Paycheck Protection Program (PPP), where private lenders faced no credit risk but decided which firms to serve. Black‐owned firms obtained PPP loans primarily from automated fintech lenders, especially in areas with high racial animus. After traditional banks automated their loan processing procedures, their PPP lending to Black‐owned firms increased. Our findings cannot be fully explained by racial differences in loan application behaviors, preexisting banking relationships, firm performance, or fraud rates.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.13303