The home mortgage crisis and Great Recession destroyed a generation of economic progress for African-American families. Now, reports the Washington Post, the discriminatory impact of credit scores and reports could cement the disadvantages into place for decades to come.
To be clear, there’s little evidence that race is an explicit factor used by for-profit companies like Experian, TransUnion and Equifax in calculating credit scores or reporting credit history. But by reporting payment data on loans resulting from predatory lending and other discriminatory factors and making it the basis for future economic decisions – from future lending for home buying or college to insurance rates and job opportunities – credit scores and reports perpetuate and amplify racial disparities, making it harder to ever get ahead.
And what disparities they are: from 2005 to 2009, the median wealth of America’s white households fell 16%, while black households saw an astounding 53% plunge, according to the Pew Research Center. The result is an unprecedented racial wealth gap, with the median wealth of white households totaling 20 times that of black households. Add to that an African American unemployment rate nearly twice that of white workers, and the prospects for recovery look distant even without the added burden of poor credit.
And yet, poor credit is yet another very real obstacle to African American households striving to attain or regain middle-class stability. The Washington Post’s report that black households tend to have worse credit echoes the findings of Demos’ own recent survey of credit card debt among low- and middle-income households, which discovered that while 62 percent of overall indebted households reported that their credit was “excellent” or “good” only 44 percent of African Americans described their credit in such positive terms. As a result of poor credit, African Americans were more likely to report paying a high APR on their credit reports and to be plagued by calls from bill collectors, settlements with credit card companies, evictions, and foreclosures. “In addition,” the Post reports, “foreclosures can dry up the wealth of entire communities by depressing home values.”
But notably absent from the dismal Post article is any hint of a policy remedy: an especially glaring deficiency for the paper serving the nation’s capital. It was a public policy choice to deregulate lending in the first place, permitting lenders to make the predatory loans that stripped black communities of their wealth. So what about policy to reverse the drain?
Congress and state legislatures could begin by banning the use of credit history for employment purposes, so that predatory lending targeting the African American community will – at minimum – not weigh on future employment prospects. Lawmakers could go on to require that certain-to-fail loans made by irresponsible lenders be scrubbed from the credit histories of their victims. Additional bankruptcy and fair lending reforms, detailed in Demos’ recent report The Plastic Safety Net, would enable hard hit African American households to recover more quickly. In terms of the broader economic picture, aggressive job creation measures aimed at the communities most impacted by unemployment would provide a much-needed boost to African American families. Efforts to stem the tide of massive public sector job loss would particular benefit African American workers who are more likely to be public employees.
“I don’t really think there is such a thing as catching up,” the Post quotes Chicagoan Ida Mae Whitley, whose credit was battered by a predatory mortgage loan and foreclosure, observing at the end of the article. Without powerful policy solutions, she may be right.