Divorce and Credit

Abstract

Does failure in a marriage foretell failure to repay credit? Analyzing the loan portfolio of a representative bank, we find no significant differences in the probability of default between divorcees and others, but we do find evidence for taste-based discrimination against divorcees. Compared to their peers, divorcees pay 8.7 basis points more in interest. This discrimination against divorcees is mainly effectuated in localities where traditional culture is more dominant and banking competition is limited, and by loan officers who are male, are older, and have been longer on the job. These findings provide valuable insights for policymakers to reduce discrimination.