Laurent Weill (University of Strasbourg): Do Algorithms Discriminate Minorities in Lending?

Laurent Weill (University of Strasbourg): Do Algorithms Discriminate Minorities in Lending?

Co-author: Jérémie Bertrand  (ISA Lille)

Abstract

We investigate whether discrimination takes place into peer-to-peer lending. We consider data from a large peer-to-peer lender which uses algorithms and no face to face interview to decide loan approval and conditions. Using data on 3.6 million loan applications and 817,000 granted loans for 2016 and 2017, we perform regressions of loan acceptance and loan conditions on the percentages of minorities by 3-digit zip area. We find evidence of discrimination in peer-to-peer lending. Minorities and Afro-Americans in particular have greater chances to have rejections of their loan applications, pay higher loan rates, and obtain loans with shorter maturity. Discrimination is more pronounced after Trump election.

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