Prefatory note: The subject of this subpage is addressed more fully in Section A of the Appendix to the March 4, 2013 letter to the Federal Reserve Board. That letter and the response to it are discussed on the Federal Reserve Letter sub-page.
But some lending disparity studies by the Federal Reserve System measure disparities in terms of absolute differences between rates. See Marvin M. Smith and Christy Chung Hevener, “Subprime Lending Over Time: The Role of Race” (Federal Reserve Bank of Philadelphia, October 2010) and Robert B. Avery, Kenneth P. Brevoort, Glenn B. Canner, “The 2006 HMDA Data” (Federal Reserve Bulletin, December 2007) .
There are a number of implications of measuring lending disparities in terms of absolute differences. First, most adverse lending outcomes are in rate ranges where reducing the frequency of adverse outcomes will tend to reduce absolute differences between rates. See introductory material to the Scanlan’s Rule and pages 18-21 of the Harvard University Measurement Letter. Thus, reliance on absolute differences will not yield the anomaly whereby lenders who reduce their adverse outcome rates will be perceived as the most discriminatory lenders.
Second, the Disparities – High Income of the Lending Disparities page discusses the points observers make on the basis of the fact that relative differences in adverse lending outcomes tend to be larger among higher-income groups than lower-income groups. As shown in the tables on that subpage, measured in terms of absolute differences between rates, disparities will tend to be larger among lower-income groups than higher-income groups.