New study finds racial and ethnic disparities in lending industry advertising

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A new study authored by University of Houston Law Center Professor Jim Hawkins and student Tiffany Penner and published in the Emory Law Review indicates that the payday loan industry often targets black and Latino communities in advertising their products, while the traditional banking industry targets white consumers.

In “Advertising Injustices: Marketing Race and Credit in America,” Hawkins and Penner present two empirical studies they conducted of lenders in Houston that verified these disparities in online advertising.

“Everyone knows that advertising affects behavior, so we looked at how banks and payday lenders advertise,” the authors said. “Social scientists have shown that people buy goods and services when they see other people who look like them buying those products. We wanted to know if banks and payday lenders described their customers in a way which represented the general population or only certain races.”

The study found:

  • While African Americans make up only 16% of auto title lender customers and 23% of payday lender customers, 35% of the photographs on these lenders’ websites depict African Americans.
  • 77% of ads in physical locations of auto title and payday lenders in the study targeted racial minority groups.
  • 30% of traditional bank lender websites featured no African American models and nearly 75% featured no Latino models.
  • In contrast, only 3% (one bank’s website) did not feature a white template.

Recent news articles quoting Hawkins and Penner’s stock market examine how lenders maximize their profits by charging high interest rates during the COVID-19 pandemic, when many people were vulnerable and in dire financial straits. Analysis of the data by Bloomberg shows that black and Latino communities have become prime targets, and the article reports that many people have had to set aside government pandemic relief funds to help repay their debts.

Hawkins and Penner examined two significant negative consequences that emerge from targeting African Americans and Latinos for payday loans and securities while figuratively excluding them from traditional banks. The first implication is that advertising works, and African Americans and Latinos are more likely than white customers to use high-cost credit. They also found that advertising shapes societal norms and expectations of where people “fit in”. This in turn, according to the study, creates a “self-sorting” effect and contributes to racial disparity in access to credit.

Hawkins and Penner’s goal for the study is to achieve a positive impact that will change the way lenders advertise. Specifically, they encourage financial institutions to eliminate discriminatory marketing that omits certain racial groups, as some banks currently only feature white models in advertisements.

“We hope companies will voluntarily change their advertising practices to portray people of all races in their ads,” the authors said. “Further, we urge Congress to amend the Equal Credit Opportunity Act to explicitly prohibit discriminatory advertising by creditors, and federal regulators to use this law as well as the Community Reinvestment Act. to make the advertising of banks and payday lenders fair.”

Google to ban payday loan ads, calling industry ‘harmful’

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Provided by the University of Houston

Quote: New Study Reveals Racial and Ethnic Disparities in Loan Industry Advertising (2021, December 21) Retrieved January 28, 2022 from -industry-advertising.html

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