Seminar | October 16 | 12:30-1:30 p.m. | Haas School of Business, N440-444
The Center for Equity, Gender, and Leadership is pleased to announce a new research seminar promoting the work of Haas professor Adair Morse on Wednesday, October 16 from 12:30-1:30pm in N440/N444. Lunch will be provided for the first 20 attendees.
Ethnic discrimination in lending can materialize in face-to-face decisions or in algorithmic scoring. The GSEs model for pricing credit risk provides us with an identified setting to estimate the incidence of discrimination for FinTech and face-to-face lenders, as well as to offer a workable enforcement interpretation of U.S. fair lending laws using the courts justification of legitimate business necessity. We find that face-to-face and FinTech lenders charge Latinx/African-American borrowers 6-9 basis points higher interest rates, consistent with the extraction of monopoly rents in weaker competitive environments and from profiling borrowers on shopping behavior. In aggregate, Latinx/African-American pay $250-$500M per year in extra mortgage interest. FinTech algorithms have not removed discrimination, but may have shifted the mode. However, two silver linings emerge. Algorithmic lending seems to have increased competition or encouraged more shopping with the ease of applications. Also, whereas face-to-face lenders act in negative welfare manner toward minorities in application accepts/rejects, FinTechs do not discriminate in application rejections.
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