Politicizing Consumer Credit

61 Pages Posted: 27 Sep 2017 Last revised: 15 May 2018

Pat Akey

University of Toronto - Rotman School of Management

Rawley Heimer

Boston College - Department of Finance

Stefan Lewellen

Pennsylvania State University; London Business School

Date Written: May 15, 2018

Abstract

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

Akey, Pat and Heimer, Rawley and Lewellen, Stefan, Politicizing Consumer Credit (May 15, 2018). Available at SSRN: https://ssrn.com/abstract=3042896 or http://dx.doi.org/10.2139/ssrn.3042896

Pat Akey

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Rawley Heimer (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Stefan Lewellen

Pennsylvania State University ( email )

360 Business Building
University Park, PA 16802
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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