The Color of Credit Turns Grey

A curious piece ran today on the Washington Post‘s opinion page.

President of the Southern Christian Leadership Conference Charles Steele Jr. wrote an article called the “The Color of Credit” which noted the racial disaprity of wealth in America. Good, that’s a fact that needs some more attention. It highlights the history of housing discrimination, policy efforts to address it, and the rise in minority homeownership rates since the mid-90s. Fine, that’s a story worth knowing. It then discusses how recent declines in the housing and mortgages market will erode these gains. Great, that’s an essential perspective to have right now, especially as we think about crafting future policy interventions. It takes issue with proposed restrictions on credit providers that would cap their fees. Wait a minute, what’s going on here?

Steele calls out a specific piece of legislation, something called the Credit Cardholders’ Bill of Rights Act and even gives the bill number (HR 5244). It is being sponsored by Representative Carol Maloney (D-NY) who claims it will stop abusive practives by the credit card lending industry. He claims that passing this will force some subprime credit providers out of the market. For him, that’s a bad thing. For me, I’m not is sure.

According to the good folks at Credit Slips, a blog run by respectable academic types interested in credit and bankruptcy issues, this bill takes aim at some of the most troubling and odious practices of the card industry. They provide a pretty good summary of the bill and its constructive provisions. Seems like the providers it will force out are ones we want out. Could it be that Steel has been unduly influenced by his partnership with credit card issuer CompuCredit? They announced a “partnership for economic security” last summer.

But this summer, just two weeks ago in fact, CompuCredit was accused by the feds (FDIC and Federal Trade Commission) of deceptive practices that trapped their customers into debt. It is one of the largest actions of its kind apparently and they are asking for $217 million in restitution and fines.

So, yes, I agree with Steele that access to credit is an important element of wealth creation and disparities should be considered as civil rights issues. But no, economic justice is not served by letting this industry police itself. Federal regulatory efforts can be troubling but it seems like Representative Maloney and her co-sponsors are heading in the right direction.