New study from UH Law Center reveals racial and ethnic disparities in loan industry advertising


A new study from the University of Houston Law Center found that the payday loan industry often targets black and Latino communities in advertising their products, while the mainstream banking industry targets white consumers. Photo credit: Karolina Grabowska

Jim Hawkins and Tiffany Penner

In their study published in the Emory Law Journal, Professor Jim Hawkins and 3L student Tiffany Penner call for a change in advertising practices and regulations.

A new study written by Professor Jim Hawkins of the University of Houston Law Center and student Tiffany Penner and published in the Emory Law Journal indicates that the payday loan industry often targets black and Latino communities in advertising their products, while the mainstream 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. “Sociologists have shown that people buy goods and services when they see other people like them buying these products. We wanted to know whether banks and payday lenders represented their clients in a way that represented the general population or only certain races. “

The study found:

  • While African Americans make up only 16% of auto securities lending clients and 23% of payday loan clients, 35% of the photographs on these lenders’ websites represent African Americans.
  • 77% of the advertisements in the physical locations of auto lenders and payday lenders in the study targeted racial minority groups.
  • 30% of traditional bank lender websites did not feature any African American model, and nearly 75% did not feature any Latin model.
  • In contrast, only 3% – a single bank’s website – did not have a white template.

Recent news articles, citing the Hawkins and Penner stock exchange, examine how lenders are maximizing their profits by demanding high interest rates during the COVID-19 pandemic when many people have been vulnerable and in dire financial straits. Data analysis by Bloomberg watch 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 pay off debts.

Hawkins and Penner examined two important negative consequences that emerge from targeting African Americans and Latinos for payday loans and title deeds while pictorially excluding them from mainstream banks. The first consequence 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 about 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 have 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 that companies will voluntarily change their advertising practices to represent people of all races in their advertising,” said the authors. “In addition, we urge Congress to amend the Equal Credit Opportunity Act to explicitly prohibit discriminatory advertising by creditors, and federal regulators to use this law along with the Community Reinvestment Act to make advertising banks and fair payday lenders. “

Hawkins is Professor of Alumni Law at the UH Law Center. He received his JD from the University of Texas Law School, where he was Grand Chancellor and editor of the Texas Law Review. During his career he has published or published articles in publications such as Science, UCLA Law Review and more. His research has been featured in leading media such as the New York Times and the Washington Post.

Penner is a third-year rising student at the UH Law Center, where she is a member of the Houston Law Review and served on the board of directors of the student organization First-Generation Professionals. While in law school, she worked as a summer associate at King & Spalding and court intern for Lee H. Rosenthal, chief justice of the United States District Court for the Southern District of Texas. Prior to law school, she worked at NASA as a contracting specialist for the International Space Station program.

Click here to read “Advertising Injustices: America’s Marketing and Credit Race”.


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