Racial Disparities in Consumption and Predatory Consumer Lending

• In Event: 118 - Section on Economic Sociology Refereed Roundtable Session and Business Meeting
  In Refereed Roundtable 60min: Table 14. North Atlantic Household Credit Markets

Abstract

This paper examines the role of access to credit in explaining racial disparities in access to goods and services. Drawing on recent research, I argue that access plays a key role in households’ ability to manage risk and pursue upward mobility. Access to credit, however, is unequal across social groups. Black households in particular experience various degrees of formal and informal exclusion from traditional credit markets. This exclusion, I argue, leads to lower consumption levels and greater reliance on predatory forms of consumer credit for blacks relative to whites. To demonstrate this, I use nationally representative household spending data from the Consumer Expenditure Survey. Using state-level variation in the legal status of predatory consumer lending (payday and car-title loans), I show that black households with access to predatory forms of consumer credit have higher spending levels than other black households, primarily for daily essential and small consumer durables. These findings suggest that blacks’ day-to-day credit needs are not adequately met, which leads black households to lower their consumption levels relative to socioeconomically similar white households.

Author

• Raphaël Charron-Chénier, Duke University