Consumer-Lending Discrimination in the FinTech Era

Published: 2019 | Robert Bartlett, Adair Morse, Richard Stanton, Nancy Wallace

Abstract

Under U.S. fair-lending law, lenders can discriminate against minorities only for creditworthiness. Using an identification under this rule, afforded by the GSEs’ pricing of mortgage credit risk, we estimate discrimination in the largest consumer-lending market for traditional and FinTech lenders. We find that lenders charge otherwise-equivalent Latinx/African-American borrowers 7.9 (3.6) bps higher rates for purchase (refinance) mortgages, costing $765M yearly. FinTechs fail to eliminate impermissible discrimination, possibly because algorithms extract rents in weaker competitive environments and/or profile borrowers on low-shopping behavior. Yet algorithmic lenders do reduce rate disparities by more than a third and show no discrimination in rejection rates.