An Evaluation of Lender Redlining in the Allocation of Unsecured Consumer Credit in the US

Credit discrimination in the US has been a topic of considerable interest over the past few decades. This paper examines the lending behaviour of a commercial depository institution with respect to unsecured consumer loans in minority versus non-minority US census tracts. In contrast to previous studies, the data include information about applicants' credit scores and marginal exceptions to loan policy. In a logit model of the probability of denial, no evidence of discrimination is found for overall loans or when an application is turned down even when a minimum credit score is reached. The evidence of non-discrimination is not as clear for applications that were approved despite falling short of minimum credit scores or applications that barely met the minimum score but were turned down. The results suggest that future research on lending discrimination should focus on these marginal exceptions to loan policy.