A new study conducted at the Ross School of Business at the University of Michigan finds that Black and other minority customers experience inferior and possibly unfair service from retail banks on mortgage products.
Researchers analyzed data from the Consumer Financial Protection Bureau, which collects consumer complaints against banks. They found that complaints on mortgage deals were significantly higher in zip codes with lower education rates and incomes. Even after controlling for income and education, complaints were still higher in zip codes with a significant minority population. The effect increased exponentially as the minority population rose.
The data suggests not enough thought goes into understanding customers in low-income and minority markets, the researchers say. As a result too many customers in those areas wind up with loans that aren’t a good fit.
“We’re not saying banks get together and decide to sell poor people and minorities bad products, but those populations are seeing worse outcomes and we need to find out why,” says Amiyatosh Purnanandam, a professor of finance at the University of Michigan and a co-author of the study. “The policy takeaway from our research is that we need to start thinking about quality based regulations.”
The paper, “Color and Credit: Race, Regulation, and the Quality of Financial Services,” may be accessed here.