Policymakers have for long been concerned about unequal and unfair treatment of minority and poor customers by large financial institutions. The differential treatment manifests itself in several forms: excessive denial of credit, poor customer service, outright fraud, and misselling of financial products to name a few.

A new study conducted at the Ross School of Business at the University of Michigan backs up those concerns finding that black and other minority customers experience inferior and possibly unfair service from retail banks on mortgage products.

In “Color and Credit: Race, Regulation, and the Quality of Financial Services,” researchers analyzed data from the Consumer Financial Protection Bureau, which collects consumer complaints against banks. They found that complaints on mortgage deals were significantly higher in zip codes with lower education rates and incomes. Even after controlling for income and education, complaints were still higher in zip codes with a significant minority population. The effect increased exponentially as the minority population rose.

The data suggests not enough thought goes into understanding customers in low-income and minority markets, the researchers say. As a result, too many customers in those areas wind up with loans that aren’t a good fit.

“We’re not saying banks get together and decide to sell poor people and minorities bad products, but those populations are seeing worse outcomes and we need to find out why,” says Amiyatosh Purnanandam, a professor of finance at the University of Michigan and a co-author of the study. “The policy takeaway from our research is that we need to start thinking about quality based regulations.”

“As a result of concerns of unequal access to credit for low-income and minority areas, regulations such as the Community Reinvestment Act provide strong incentives to lenders to serve areas that are defined as low- to moderate-income relative to the median MSA income,” the study concludes. “While such regulation may, at the margin, provide a higher quantity of credit to such target areas, we show that the average quality of products and services are substantially lower. Further, the dilution in quality is disproportionately larger for high-minority areas. Overall, our results show that consumers in low-income and minority areas experience worse outcomes along the quality dimension, and regulations that are mainly focused on increasing the quantity of lending to these borrowers only make this effect worse.”