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Stefan Lewellen – LBS
8 December 2017 @ 10:00 am - 11:30 am
Politicizing Consumer Credit
Using proprietary credit bureau data, we find that consumers’ access to credit decreases by 4.5% – 8% when the borrower’s home-state U.S. Senator becomes the chair of a powerful Senate committee. The reduction in credit access mostly affects historically credit-constrained consumers (low income, non-white, and borrowers with poor credit scores), and is stronger in areas with less politically-engaged constituents and more politically-connected lenders. Our evidence is consistent with a “political protection” hypothesis in which politically-connected banks reduce their compliance with regulatory fair-lending guidelines after their political connections become more powerful. Our results highlight the distinction between political power and legislative outcomes and contrast with recent findings that governments expand credit access to firms and consumers.