Fall 2025
By Scott Pett

For millions of Americans, cars aren’t a luxury — they’re essential. They connect people to jobs, schools and daily life. But for many Black and Hispanic borrowers, approval for an auto loan comes with hidden hurdles.

Research from Rice Business professors of finance Alex Butler and James Weston, published in The Review of Financial Studies, estimates that 80,000 auto loan applications are denied each year due to racial bias. The study, which draws from a decade’s worth of data, shows that even when credit profiles are comparable, Black and Hispanic borrowers are more likely to be rejected — and to pay more if approved.

Unlike credit cards or mortgages, most auto loans are brokered through personal interactions, not automated systems. That lack of regulation opens the door to bias, the researchers argue. And the numbers back it up: Minority borrowers are 1.5% more likely to be denied a loan than white borrowers with similar financials. For subprime applicants, that gap grows to 2.4%.

And minority borrowers who do get loans face steeper costs — about 0.7% more in interest rates, or an extra $410 on average over the life of a loan. In some states, the gap climbs as high as 1.25%. For borrowers living paycheck to paycheck, even a small rate hike can mean the difference between stability and crisis.

“This isn’t just about a few thousand dollars,” Weston says. “It’s about access — to credit, to opportunity, to the ability to move forward.”

To build their dataset, Butler and Weston teamed up with Rice Business Ph.D. alum Erik J. Mayer, now a professor at the University of Wisconsin. By linking credit bureau data with demographic information from the Home Mortgage Disclosure Act, they were able to compare race and lending outcomes across millions of cases, ruling out other explanations like income or credit score. Racial bias, they found, was the driving factor — even though minority borrowers defaulted less often than white borrowers with similar profiles.

The researchers also found federal oversight can help. When the Consumer Financial Protection Bureau cracked down on discriminatory lending in 2013, targeting dealer markups and encouraging more transparent pricing structures, rate disparities dropped by 60%. But those policies were rolled back in 2018, raising concerns about the return of unchecked racial discrimination.

“The problem isn’t inevitable,” says Butler. “It’s a question of whether we choose to fix it.”