Credit Claims For Boston Legal And Criminal Justice Professionals: Legal Considerations For Career Advancement – I didn’t count, but I should have. Bonnie, who moved to the United States from Mexico in his late 20s, needed to buy or rent equipment for his growing independent construction business. It was 2016 and he was making decent money and paying for housing and other living expenses. But with no credit history, his options for expanding his job opportunities were limited and involved high interest rates that seemed both expensive and risky.
With no credit score, Bonnie was stuck. Everything he did with his money would be fine if the credit reporting companies knew about it. They do not.
Credit Claims For Boston Legal And Criminal Justice Professionals: Legal Considerations For Career Advancement
Congressman Keith Ellison, Democrat of Minnesota, and Republican Michael Fitzpatrick of Pennsylvania joined forces in September 2013 to tell the story of people like Bonney and tens of millions of others who, as Fitzpatrick pointed out, “paid their bills on time. They pay their mobile phone bills, their utilities and pay a private landlord. These positive credit activities are not reported anywhere, but God forbid you miss a payment.
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There was nothing intrinsically wrong with what Bonnie did, or what many black and Latino people do. It just wasn’t the type of customer credit score companies had in mind when they developed and promoted consumer credit scores. The result is that millions of Americans who should have access to credit do not.
A 1970 federal law required cold, hard facts to guide credit decisions, rather than the preconceived notions that were the norm at the time. This led to an increase in the credit rating.
One of the inventors of the credit score, William Fair, testified before Congress in 1979 that there is an inherent fairness in using information agnostically to figure out who is creditworthy and who poses a high risk of default.
Fair opposed Congress banning the use of race, sex, or other social categories in evaluating creditworthiness. He felt that these factors might be significant in some way and therefore should be used. If the public concern is how credit opportunities are distributed, he said, it’s not a fault of the data.
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“More than half of black adults today have no credit or a credit score below 640, which is considered ‘poor’ or ‘fair’ credit risk.”
Rather, he declared that determining justice was the responsibility of legislators. He told senators at the hearing that determining justice is “your prerogative, duty and responsibility, not mine. I will follow the law and advise our customers to do just that.
The credit scoring system that Fair helped invent, known today as the FICO score, starts at 300 and goes up to 850. More than half of black adults today have no credit or a credit score below 640, considered “poor” or “fair” credit risks, the lowest two categories out of five. Of consumers with a score below 620, 41% have late payments that are at least 30 days past due. And 28 percent of people in that category are “likely to become serious criminals,” according to credit rating agency Experian. A Brookings Institution report found that counties whose residents have an average credit score below 620 but above 560 have a high concentration of blacks and Hispanics, representing 28% and 19% of the county’s population, respectively.
People with lower credit scores are more likely to be turned down for mortgages, loans and credit cards – or be charged higher interest rates than people with higher scores. Consumers with higher credit scores above 760 would save just under $33,000 in interest payments on a 30-year mortgage, enough to buy a car or pay for two years of attending a public university, according to a 2016 report.
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As a result, black and Latino borrowers pay more to get the same goods and services as their white counterparts, or are denied the opportunity to buy them altogether because of their low scores.
As Fair told Congress, complete information about a potential customer is better than partial information. Selecting—or withholding—only some of this information can effectively favor members of one group over another. But as Sen. Carl Levin, D-Michigan, reminded Fair during that hearing, the government has decided that credit decisions should not “disadvantage people because of their race, religion, ethnic origin, sex, marital status, age or infirmity’.
Congress had decided to impose some restrictions on the market, Levin continued, telling Fair, “Society has decided that we are not going to stereotype people based on their race, religion, or ethnicity for social purposes, even though there is statistical value , although the computer can tell us that people who come from Yugoslavia pay faster or slower than people who come from Austria. We won’t let you do that.
Senator Paul Tsongas, D-Mass., declared that some characteristics of a person are not fair game: “There are certain variables that a person can influence through their behavior — whether you pay your bills, what kind of car, etc. – while there is no way to escape being white, black, Greek, Hungarian or whatever. Race, gender and other immutable attributes, Levin said, have “nothing to do with personal motivation or capacity, if you will, to successfully participate in the system.”
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Fair had a dark opinion of government-created justice. He believed that it should depend on the analysis of the data to determine if and when race or gender correlate strongly with repayment behavior. If it just so happens, it happens. If it exacerbated racial inequalities, at least the cause would be objective risk, he argued, rather than subjective prejudice. Fair’s point of view, however wrong, shaped America’s credit terrain.
Credit ratings today rely on selective history. Its inventors claim that the score is based on a person’s history, but so much relevant information is left out. For example, employment gaps are greater for blacks and Hispanics, who are concentrated in occupations that are more vulnerable to financial downturns or are too often the last to be hired but the first to be fired. Employment interruptions appear to be a race-neutral indicator of a person’s ability to obtain credit, unless you ask what drives the interruptions in the first place.
Similarly, the assumption that the same behavior will be equally rewarded also ignores evidence to the contrary. Home ownership leads to lower returns on investment for roughly equivalent properties in majority-black versus majority-white neighborhoods. During periods of financial crisis, such as the coronavirus pandemic, existing financial gaps have widened as families with less intergenerational wealth find it harder to cope.
The effects of bad credit go far beyond a person’s ability to borrow money — and even affect their ability to earn. At least a quarter of firms report requesting job applicants’ credit reports — even though they’re not allowed to see the credit scores — when deciding who to hire.
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There is no evidence that credit reports predict job performance. But some employers say they review credit files out of fear that a person in financial trouble might be more tempted to steal, or that someone with a lot of missed payments might be disorganized or lack follow-up.
In a randomized experiment with over 1,000 hiring managers, researchers found that women with bad credit were less likely to be invited to a job interview than men with the same report. The findings improve across race, at least among men, where black people are equally likely to be called in for a job interview, but hiring managers are more likely to recommend a lower starting salary for them than their white counterparts. As explained in the Book of Matthew, from those who have little, even more is taken away.
It doesn’t have to be that way. Congress can only make credit scoring fairer by doing two things.
First, the US Congress can limit the uses for which credit reports are used, prohibiting them for hiring, promotion, and other non-credit purposes. Work histories and performance evaluations, not credit reports, will then determine who gets hired and promoted.
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Second, Congress could provide a public option for consumer credit ratings, competing with private companies’ secret formulas. That way, all Americans could have a transparent set of criteria used to assess their ability to repay a loan.
This public option can use cell phone bills, rent payments, bank transactions and cash flow data, as well as other financial information related to taking out loans. It can highlight the resulting differences in its performance from those of private companies by introducing more accountability and competition into the system.
With a public option focused on racial justice, the United States could take a step toward acknowledging that the nation’s history shapes the disadvantage some of its people face. William Fair did not want to talk about the legacy of present and past racial discrimination, although he wanted to use race to make decisions. It would be unfair to stop talking about this story, because in creating credit ratings, America’s racial stories will not stop talking about us.
Frederick F. Wherry is Professor of Sociology at Princeton University and Director of the Dignity + Debt Network, a partnership between
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