Beyond Rationality: Relational Trust and Inclusion in Subprime Auto Lending

• In Event: Personal Finance and Inequality

Abstract

America is awash in subprime consumer credit. While most borrowers who take on these high-priced loans do so because they are excluded from more traditional credit markets, a significant number of subprime borrowers actually qualify for traditional loans. Economists studying consumer borrowing generally attribute this apparent failure of rationality to information asymmetries or hyperbolic discounting. However, there has been little qualitative research identifying the processes that drive individual credit decisions. This article presents ethnographic research of buy here, pay here (BHPH) car dealerships in Buffalo, New York to identify how inclusion structures borrowing and lending relationships in this deeply subprime sector of the used car market. I find that consumers’ exclusionary experiences with mainstream financial institutions drive them away from prime credit markets and toward local BHPH dealerships, which they perceive as friendlier and more welcoming. Although these dealerships provide precarious auto credit, they prioritize relational work and the production of trust, allowing them to outcompete more traditional third-party subprime auto lenders and even “capture” consumers who qualify for prime credit. The findings presented here demonstrate how predatory inclusion operates on the ground and shapes lending and collections decisions in ways not comprehended by traditional rational actor models, providing a novel understanding of why consumers opt for precarious subprime loans despite qualifying for prime credit.

Author

• Tucker Reyes, University at Buffalo