Blacks and other minorities are subjected to inferior and possibly unfair service from retail banks regarding mortgage products, according to a new study conducted at the Ross School of Business at the University of Michigan.
The study — “Color and Credit: Race, Regulation, and the Quality of Financial Services” — shows that when 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.
“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,” said 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 study shows that after controlling for income and education, complaints were still higher in zip codes with a significant minority population, with the effect increasing exponentially as the minority population rose.
The data also suggests that not enough thought goes into understanding customers in low-income and minority markets, and too many customers in those areas wind up with loans that aren’t a good fit.