"We find that the same minority applicants who faced lower approval rates on auto loans do not face lower approval rates on credit cards, even during the same year. This finding suggests that the human element of auto lending, rather than differences in hard information, leads to the lower approval rates for minorities."
I am truly curious of what the business model of denying minorities a car loan is?
I mean, long ago, I guess I can at least process the ugly mindset of "we don't want 'them' as our neighbor", but I can not come up with any logical or illogical reasonable reason why a business person would intentionally lower their income just to be racist.
Literally no one would know that you made a loan to a minority, so that can't be it.
Is the insinuation that the loan officer might "get a feeling" that a person might not repay a loan based on the race?
If that were the case, at least in the financial sector, it would seem that another financing institution would have noticed this inefficiency long before 2019 and gobbled up all of that free money on the table.
I also wonder if the higher interest rates of credit cards accounts for higher approval rates.
Why does it have to be a business model? Humans are not rational actors. The segregation era almost certainly lost tremendous amounts of money for retail businesses as a whole, but their management still went along with it. The remaining implicit bias in many businesses still loses tremendous amounts of money for retail businesses as a whole (see the various "wealthy black celebrity treated like a shoplifter" news stories, for example), but people still do it.
True! I guess my real point was why no arbitrageurs eating the free money up?
> The segregation era almost certainly lost tremendous amounts of money for retail businesses as a whole, but their management still went along with it.
I don't think I agree with that. If the larger society was racist and would not go to a business that was segregated, then the business owner made a "rational" business decision to keep the wealthier customers ... at least that could be true.
> The remaining implicit bias in many businesses still loses tremendous amounts of money for retail businesses as a whole (see the various "wealthy black celebrity treated like a shoplifter" news stories, for example), but people still do it.
I have seen some of those anecdotal stories, but it remains that there certainly are (and have been) other businesses very happy to take money from "wealthy black celebrity" customers.
I get your angle, but it still seems like something is missing, especially now in non-segregated times.
What I’m saying is that the missing ingredient is context. The market is a competition in many ways, and black people only got the chance to compete on a nominally fair playing field over the last few decades. Remember the Tuskeegee syphilis experiment only ended in 1972. Rodney king was nearly beaten to death in 1991. Families that were impoverished, segregated, and denied an education and voting rights take time to recover. A history of aggressive policing of the “war on drugs” hasn’t helped either.
So at what point does it occur to you that the missing ingredient is history that only people like you and me get to forget?
How do the terrible atrocities of the past cause auto lenders of today to deny minorities loans based on racism alone and not business sense?
That is my question and that is what this post is about.
TFA has evidence that people are going out of their way now to deny car loans to people that would otherwise be eligible for those loans except for their race.
I am not doubting that this is happening, I am trying to determine why it would be and how no start-up has recognized the "market inefficiency" and opened a "we specialize in loans to black and hispanic people" and made billions and billions of free dollars currently being neglected.
How do the terrible atrocities of the past cause auto lenders of today to deny minorities loans based on racism alone and not business sense?
Because attitudes take time to change, and if we didn’t know that before the resurgence of facism in places like Brazil, Italy, Austria, Hungary and other countries should reach us that. The same people who thought it was acceptable to redline, or even kill people over their race still do, they’ve just changed their language. Some of their children doubtless feel differently, others almost certainly inherent their attitudes from their parents and communities. The older generation with its concentration of wealth and influence also haven’t changed.
As another person said, people are not rational.
But car loans? In 2019?
It is just so baffling to me. Both why they would do it, and also why no one else at all is stepping up to get that money.
There are probably other factors which weigh in more heavily than the loan processor’s person biases, e.g. the credit score system, minorities may be less willing to challenge the initial rate offered, people perhaps negotiating from a weaker position if they don’t have multiple credit options available (bank, credit union, heloc), etc.
And the market doesn’t have to be efficient.
Efficient markets aren’t inherent.
Because money service licenses are expensive and require capital from the same group that would balk at this business plan
Secondly auto loan commissions are GREAT, the pie from people who arent getting denied is still large enough to make enough free dollars
Third, minorities that are denied still have a variety of institution to go to that will more likely lend, such as credit unions who will lend on more favorable terms anyway (so your startup MAY exist?). We dont have data on the whole lifecycle of peoples user experience.
Sorry that people were so distracted by your question that you couldnt get an answer.
I think the third one seems most likely to answer my question ... minorities are actually getting the loans that they are qualified for, but have to apply more times than an equally qualified white person due to racism.
It is still baffling to me that a bank officer, or car dealership salesperson would purposely decrease their own income, forgo their own bonuses, and risk the ire of their supervisors and investors to purposely not give a loan to a black or hispanic person ... all with no "rational" reason, even a warped rational reason, they just would do it because ... well no reason! This would have to show up to the management during analytics.
I know plenty of racist people in the south, but none of them would risk their livelihoods or income just to be racist, they would just shut the hell up, "take it", then bitch about it back at home or around their friends while getting drunk.
And then I think of large corporations that are literally willing to fuck over babies, children, women, hell the whole planet, for money, and to think that they would be willing to lose money to be racist is hard to square.
I guess I have an impression that greed is a bigger driver in people's lives than racism ... but perhaps not, we do have this data (which I haven't seen the raw data, but don't doubt it) that seems to indicate otherwise.
The irony of it all is that if these people really do hate minorities, there is no legal way to have more power over them, or to fuck them over, I guess, then to keep them in debt!
We dont actually know that either. We know of some institutions that create this user experience, and we know that this is therefore a possible ux that minorities should be aware of
https://www.nydailynews.com/news/politics/nixon-aide-war-dru...
And nominally fair is correct. It's not fair now, but people say that it is.
Sure there is stuff left over from past racist policies that impact people. For example Black families on average have 1/10th the wealth of a white family, in large part because of redline mortage practices and other policies that undermined home ownership for black people.
But it's also wrong to suggest that everything is fair now, and black people just haven't caught up because of historical injustices.
There's still strong evidence of systemic racial bias against Blacks (and Latinx people) in traffic stops, criminal sentencing, resume responses (including controlled experiments with identical resumes save for different names), hiring rates etc. And this is not just statistics in RL, but studies show that people are biased, even if they don't think they are.
It's sadly quite easy, if you are white, to not see the issue, and if you don't see it it's easy to think it's not a problem anymore. It's still a huge problem.
Of course. They'll just only hire people who aren't subconsciously biased. No problem. They'll just put "No racists please," in their job advertisements. Simple as that. LOL!
There's plenty of data out there proving that, for whatever reason, African American loan applicants with identical credit scores and income are routinely charged higher interest rates for auto and home loans than their white counterparts. The next question to ask is "why?" but we can't pretend the effect doesn't exist.
You might reasonably apply by mail for a credit card from an out-of-state bank, but a lot of auto lending revolves around a purchase made in a nearby dealer.
If the dealers in minority-dominant communities tend to be more aggressive about lending qualifications, that could explain it all neatly.
Though, my blind guess would be that you'd see more "buy-here/pay-here" and "no-credit-required-but-the-loan-is-at-34-percent-interest" dealers in minority neighbourhoods (skewing poorer), so approval rates would likely be at par or higher. Or are they qualifying "approval rates" with "at sane market prices?"
The most accessible example is anything to do with fine grained location, such as zip+4. Because people tend to cluster, zip+4 has been identified as a close proxy for race and other protected classes.
When we are talking ML-derived decisions and the nuanced approach, we have to be cognizant of the fact that certain repayment patterns and behaviors could also be strongly correlated to a protected class.
The question is then what is it that you are after with this prediction? Max profit or max social good with enough profit.
Maybe the sums involved are different, so giving loans is more risky than approving credit cards?
Also, incentives might be different. Maybe credit card companies want "bad" borrowers, because they make the most money if people go into high debts on credit cards? On the other hand for normal loans there is no such incentive, because the interest rates are fixed and much lower.