Worried about the use of big data for corporate gain? Look not further than the credit scoring system in the US, which has profound impact on our daily lives and is a source and perpetuator of systemic racial injustice.
In response to aggressive marketing by the “big three” multinational credit bureaus – Equifax, Experian and TransUnion – employers, landlords and insurance companies now use credit reports and scores to make decisions that have major bearing on our social and economic opportunities. These days, your credit history can make or break whether you get a job or apartment, or access to decent, affordable insurance and loans.
Credit reports and scores are not race neutral. Rather, they embed existing racial inequities in our credit system and economy – to the point that a person’s credit information serves as a proxy for race.
For decades, banks have systematically redlined black and Latino neighborhoods, refusing to make conventional loans or locate branches in non-white and lower-income areas, notwithstanding laws that obligate banks to meet the credit needs of all communities they serve, consistent with safe and sound banking operations. Thanks to financial services deregulation and the advent of asset-backed securitization, a multi-billion dollar “fringe” financial system has filled the void, characterized by high-cost, destabilizing products and services, frompayday loans to check-cashers – which banks typically also own or finance.
People and communities of color have been disproportionately targeted for high-cost, predatory loans, intrinsically risky financial products that predictably lead to higher delinquency and default rates than non-predatory loans. As a consequence, black people and Latinos are more likely than their white counterparts to have damaged credit.
Although Wall Street is no longer pumping toxic mortgages into black and Latino neighborhoods, people and neighborhoods of color continue to reel from the foreclosure crisis, which many predict is far from over. Meanwhile, racially discriminatory and subprime auto lending are on the rise, payday lenders continue to extract billions of dollars from low-wage workers, and student loan debt has surpassed the trillion dollar mark. One in five Americans has unpaid medical debt, with more than half of all African-Americans and Latinos carrying medical debt on their credit cards. By definition, people who take payday loans and have uninsured medical debt are struggling, and are likely to miss payments. Missed payments translate into decreased credit scores.
This information – unpaid medical and credit card debt, student loans, and mortgages, as well as foreclosures, bankruptcies, debt collection judgments, wage garnishments – appears on people’s credit reports and lowers their credit scores. And the credit bureaus make humongous profits by selling this information about all of us.
Credit reports and scores are mirrors of our manifestly two-tiered financial system, and more broadly our system of racial wealth inequality and unequal opportunity. In our culture, indebtedness – and certainly failure to pay one’s debts – is deeply entwined with concepts of morality. The insidious notion that our credit history speaks to our reliability as human beings is largely taken for granted.
The credit bureaus and the information they sell have out-sized influence over our lives. It’s time to stop these pernicious practices and the systemic injustices that underlie them.
About Sarah Ludwig
Sarah Ludwig is founder and co-director of New Economy Project, based in New York City. New Economy Project works with community groups to fight for economic justice and build a just economy that works for all.