Racial Disparities in Debt Collection

Abstract

This paper shows that black and Hispanic borrowers are 39% more likely to experience a debt collection judgment than white borrowers, even after controlling for credit scores and other relevant credit attributes. The racial gap in judgments is more pronounced in areas with a high density of payday lenders, a high share of income-less households, and low levels of tertiary education. State-level measures of racial discrimination cannot explain the judgment gap, nor can neighborhood-level differences in the previous share of contested judgments or cases with attorney representation. A back-of-the-envelope calculation suggests that closing the racial wealth gap could significantly reduce the racial disparity in debt collection judgments.