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Politicizing consumer credit

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  • Akey, Pat
  • Heimer, Rawley Z.
  • Lewellen, Stefan

Abstract

Powerful politicians can interfere with the enforcement of regulations. As such, expected political interference can affect constituents’ behavior. Using rotations of Senate committee chairs to identify variation in political power and expected regulatory relief, we study powerful politicians’ effect on consumer lending to communities protected by fair-lending regulations. We find a 7.5% reduction in credit access to minority neighborhoods in states with new committee chairs. Larger reductions occur in Community Reinvestment Act-eligible neighborhoods and when Senators serve on committees that oversee the enforcement of fair-lending laws. Banks headquartered in powerful Senators’ states are responsible for the reduction in credit access.

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  • Akey, Pat & Heimer, Rawley Z. & Lewellen, Stefan, 2021. "Politicizing consumer credit," Journal of Financial Economics, Elsevier, vol. 139(2), pages 627-655.
    • Handle: RePEc:eee:jfinec:v:139:y:2021:i:2:p:627-655
    DOI: 10.1016/j.jfineco.2020.07.017
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    2. Ghosh, Saibal, 2022. "Elections and provisioning behavior: Assessing the Indian evidence," Economic Systems, Elsevier, vol. 46(1).
    3. Nguyen, Hieu Quang, 2023. "Corruption, political connection, and firm investments," International Review of Financial Analysis, Elsevier, vol. 90(C).
    4. Zhou, Yifan, 2023. "Politically influenced bank lending," Journal of Banking & Finance, Elsevier, vol. 157(C).
    5. Allen N. Berger & Onesime Epouhe & Raluca Roman, 2021. "A Tale of Two Bailouts: Effects of TARP and PPP on Subprime Consumer Debt," Working Papers 21-32, Federal Reserve Bank of Philadelphia.
    6. Hülsewig, Oliver & Steinbach, Armin, 2024. "Banking Regulation and Sovereign Default Risk: How Regulation Undermines Rules," HEC Research Papers Series 1526, HEC Paris.
    7. Allen N. Berger & Christa H. S. Bouwman & Lars Norden & Raluca A. Roman & Gregory F. Udell & Teng Wang, 2024. "Piercing through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses during Normal Times and the COVID-19 Crisis," Journal of Political Economy, University of Chicago Press, vol. 132(2), pages 484-551.
    8. Lewellen, Stefan & Williams, Emily, 2021. "Did technology contribute to the housing boom? Evidence from MERS," Journal of Financial Economics, Elsevier, vol. 141(3), pages 1244-1261.

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    More about this item

    Keywords

    Political connections; Consumer credit; Political economy; Household finance; Regulatory enforcement;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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