Politicizing Consumer Credit
61 Pages Posted: 27 Sep 2017 Last revised: 15 May 2018
Date Written: May 15, 2018
Consumer credit access decreases by 4.5% to 8% when a borrower's home-state U.S. Senator chairs a powerful Senate committee. Credit access declines because lenders connected to powerful politicians feel protected and hence view fair-lending regulations as being less binding. We find that credit access declines in neighborhoods subject to Community Reinvestment Act (CRA) lending requirements, and lenders' CRA exam ratings also decline. Finally, lender profitability increases after credit is reallocated away from high-risk borrowers and minorities. Our findings suggest that powerful politicians can protect constituents from costly regulations and contrast with recent findings that government interventions expand credit supply.
Keywords: Access to Credit, Household Finance, Political Connections, Community Reinvestment Act
JEL Classification: G21, D72
Suggested Citation: Suggested Citation