Democratization’s Discontents: Policy Feedback in the Credit Welfare State

• In Event: Privatizing Policy Feedback

Abstract

The privatization of social service provision in the U.S. is a defining feature of the modern American welfare state. One of the most significant, though often overlooked, examples of this trend is the increasing reliance on consumer credit as an ersatz form of welfare support. Since the 1960s and 70s, policymakers have actively pursued the so-called democratization of credit, adopting consumer financial regulations designed specifically to extend access to private credit to women, people of color, and lower-income Americans in lieu of expanding public welfare benefits. This contributed to what scholars have dubbed a “credit-welfare state” (e.g. Prasad 2012). What are the political consequences of that policy legacy, especially for those who rely most heavily on the credit-welfare state to protect their economic security? I argue that the financial regulations that undergird the credit-welfare state not only generate negative economic consequences but also reduce borrowers’ political mobilization in support of lending reform. Specifically, I contend that the design and implementation of consumer financial regulations that promote democratized credit produce regulatory feedback effects that diminish the borrower political engagement by privatizing and personalizing credit. Because credit is lent by government-insured private financial institutions and government-mandated protections are implemented in the course of financial transactions, most borrowers never see government’s significant role in the expansion and regulation of consumer credit. Furthermore, the reliance on information disclosures as the primary form of financial regulation teaches borrowers that they are responsible for their own credit transactions (and misfortunes). I argue that these policy-induced lessons encourage borrowers to think of consumer credit not as a political issue but as a market matter between borrowers and lenders. I use original survey data to demonstrate how these attitudes lead borrowers to engage with private financial institutions instead of public officials to address both their individual credit problems and systemic grievances about predatory lending, thus limiting the opportunities for policy reform.

Author

• Mallory E. SoRelle, Lafayette College