Racial Disparities in the Auto Loan Market.

This article investigates racial disparities in the U.S. auto loan market by combining credit bureau records with borrower demographic data from the Home Mortgage Disclosure Act (HMDA). It finds that Black and Hispanic applicants have auto loan approval rates 1.5 percentage points lower than comparable white applicants and pay interest rates about 70 basis points higher, despite lower default rates, suggesting discrimination rather than statistical discrimination or omitted variable bias. The disparities are more pronounced in states with higher racial bias and lower lending competition, and a major Consumer Financial Protection Bureau (CFPB) enforcement effort starting in 2013 reduced unexplained racial differences in interest rates by 60% without reducing minority credit access. The study's comprehensive approach, including falsification tests using credit card lending and outcome tests based on default rates, supports the conclusion that biased preferences or stereotypes contribute significantly to racial disparities in auto lending.