Joe Biden’s policy roadmap aims to create a new, federally-backed credit bureau to close the racial wealth gap
Published Thu, Jul 9 2020
Americans may see the formation of a new federally-backed credit bureau if former vice president and presumptive Democratic presidential nominee Joe Biden is elected in November, thanks to the efforts of a task force appointed by Biden and Vermont Senator Bernie Sanders in May.
This week, the task force of Democrats presented Biden with a 110-page document of policy recommendations. NBC News first reported on the policy wish list on Wednesday. Although the document contains a wide range of initiatives from health care to immigration, the policy recommendations also focused on ways the U.S. can work to close the racial wealth gap, including creating a more level playing field when it comes to credit reporting.“We’ve seen with horrifying clarity the cost of systemic racism,” Biden said in a speech given Thursday in Pennsylvania. “We need a dedicated agenda to close the wealth gap.”
During the last economic downturn, Black families experienced a 44.3% decline in median net worth, almost double that of White households, which only experienced a 26.1% drop, according to the Brookings Institution.
To help narrow the gap, the policy roadmap proposes creating a public credit reporting agency housed within the Consumer Financial Protection Bureau. This federally-backed credit bureau would “provide consumers with a government option that seeks to minimize racial disparities,” according to the document.
The federally-backed credit bureau would be required to ensure that credit scoring was not discriminatory and that algorithms used for credit scoring would include non-traditional sources of credit data such as rental history and utility bills.
Once established, all federal lenders would be required to use and accept the federal credit agency’s scoring, including for programs such as federal home lending, PLUS loans and other loans that are guaranteed by the U.S. government.
“There is a persistent, pernicious racial wealth gap that holds millions of Americans back, with the typical White household holds 10 times more wealth than the typical Black family,” the document says.
Credit reporting plays a major role in the racial wealth gap, experts say. While the major credit bureaus, Equifax, Experian and TransUnion, say their scoring does not take into account age, race, gender, income or geography, multiple studies have shown that Black Americans routinely have lower credit scores than White consumers. Earlier this year, the Urban Institute found that while more than 50% of White households maintained a FICO credit score above 700, only 21% of Black households were able to achieve the same.
In other words, that the commercial credit bureaus don’t discriminate by race is The Problem.
Not only were scores lower, but 1 in 3 Black households did not have enough credit information to generate a credit score (known as having a ‘thin’ credit file), while only 18% of White households had a thin file.
Obviously, America is completely lacking in entrepreneurial moneylenders who would like to find unfairly discriminated groups and lend them more money. As you’ll vividly recall, there was redlining from 1938-1968, but since then, history is just a blur.
… The reason these racial disparities exist in credit scores is because of historical and current discrimination, says Chi Chi Wu, a staff attorney at the National Consumer Law Center focusing on consumer credit issues.
Up until about 50 years ago, many U.S. banks participated in a practice known as redlining, denying Black Americans access to credit and financial services. That pushed many Black households to be unbanked or to turn to alternative lending options, such as payday loans, car title loans and pawn shops.
The fallout from those policies continues into today.
… “The common mantra is credit scores are objective,” Wu says. “Yeah, they’re an objective measurement. But when you go ahead and use them, you’re perpetuating the racial biases that they measure.”
Some have asked: “What could possibly go wrong with a revival, in effect, of George W. Bush’s Increasing Minority Homeownership push of 2002-2004 that helped lead to the mortgage meltdown of 2007-2008 by demanding his federal regulators, in the name of adding 5.5 million Homeowners of color, stop worrying so much about trivia like down payments and documentation of income?”
But as experts have devastatingly answered: “Huh? What are you talking about? I’ve never heard of such a thing. What does this have to do with redlining? How can something that, you claim, happened in 2002 be relevant to the 21st Century, when we all know blacks are eternal victims of Franklin Delano Roosevelt?
“Also, remember Emmett Till.”