Borrowing While Black

Must have been a slow news day.   The media has a stock of standard stories they periodically dust-off and then foist-off as if they were new.   The nice thing about blogging about them, is that no new creative effort is required to refute them.

Will Lester pens a 512 word article infering intentional racial bias in auto loans: 

Blacks have been charged higher auto loan rates than other auto buyers, federal research says. But the gap in loan rates could narrow, and possibly disappear, as the result of recently concluded lawsuits 

There is a simple method to determine racial bias in lending, compare default rates.   If lenders discriminated on the basis of race, say against blacks, then blacks would have a lower default rate.   Blacks would have a lower default rate because lenders would be requiring them to be more credit worthy.

Yet of all the words Lester uses, default is not one of them.   Lower default rate for blacks would have established Lester’s arguement.  Its ommission is telling.

Such discrimination makes no economic sense.  Lenders are in the business of making good loans, so as recieve interest on them.   Lenders want to make money,  Turning away good business does not make money.

Lester cites no evidence of race being a factor in loan approval:

Lenders’ suggested quote rates are based largely on the buyer’s credit history, but auto dealers often raise the rate higher than that risk-related rate without discussing the rate with the customer, consumer advocates said. And they question the causes of those rate differences.

”It’s hard to believe that any differences in creditworthiness explain all of these rate gaps,” said Stephen Brobeck, executive director of the Consumer Federation of America. “They size you up, the car salesmen and finance and interest guys. They must think African-Americans are more vulnerable to a markup.”

Lester seems unmoved by lenders’ assertion.  Yet disbelief on the part of the either economically illiterate or politically motivated is hardly credible evidence.    If as Lester asserted, lenders charged arbitarily higher rates to blacks, there would be evidence in the default rates, of which Lester does not write.