Revenge Of The Plastic

A bill that will clamp down on some of the most egregious practices of credit card companies is rushing toward final passage in the Senate, and the industry—and its conservative buddies—are gearing up for retaliation.

For example, one conservative group has already said that if this bill is signed into law, more black people will be denied credit cards.

Think I'm exaggerating? Here's part of a commentary published in Politico [1] last week from the Institute for Liberty:

A cap or limit on fees will cause credit card companies to limit their exposure particularly to minority and inner-city areas, since those with low incomes are at higher risk for default. ... Particularly troubling is that even minorities, women and working-class families with good records of paying their debts will see credit access dry up.

The New York Times today front-paged the story [2] of how the credit card industry, if barred from engaging in predatory practices on borrowers who are literally a day late or a dollar short, will extract their pound of flesh from their best, on-time-paying customers. It appears that the industry, as the bill moves from the Senate into a conference with the House, is hoping that some Rick Santelli wannabe will whip the populace into a tea-bag-throwing frenzy about how people who are supposedly "carrying their own water" are having to pay for those who allegedly don't.

But not far under the radar, conservatives are giving the industry cover to engage in redlining, the practice of drawing figurative and sometimes literal lines around entire communities of color.

Not that credit discrimination hasn't been a basic fact of life [3] in the past two decades. A 2008 study [4] issued by the Federal Reserve Bank of Boston found "qualitatively large differences in the amount of credit offered to similarly qualified applicants living in Black versus White areas." The author, Ethan Cohen-Cole, explained the study in an interview for an article that appears on CreditCards.com [5].

"I had data that is in principle the same data that the credit card issuers have. I wanted to evaluate the same data they use to make their credit card decisions," Cohen-Cole says. "When you fill out a credit card application, you do not fill out your race. However, they do know where you live and they do know the racial makeup of where you live. By using that information, you can determine if the racial composition of the neighborhood is one of the criteria they are using."

He adds: "The fact that credit is being differentiated by location is well known now. The question is whether or not they are also differentiating by racial composition of those neighborhoods ... the answer is yes."

Studies have already documented [6] the pattern of African Americans paying higher rates on mortgages and auto loans that whites with the same income and credit standing.

There is a little-discussed provision in the credit card bill in the Senate that calls for a board to study how the credit card market functions in the months following the bill's passage. The scope of the investigation would include "the cost and availability of credit, particularly with respect to non-prime borrowers" and the use of "risk-based pricing" in determining who gets credit and what it costs.

Given the threats that the industry and its allies on the right have been has been making, the commission needs to give special attention to safeguarding consumer rights and equitable treatment. It's pretty clear that the industry does not intend to play fair, even with the wrist-slap it is about to receive from Congress.