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The Bootstrap Trap

posted by Adam Levitin

I just had the pleasure of reading Duke Law Professor Sara Sternberg Greene's paper The Bootstrap Trap.  I highly recommend it for anyone who is interested in the intersection of consumer credit and poverty law.  The paper is chok full of good insights about the problems that arise when low-income households strive for the goal of self-sufficiency, which results in the replacement of a public welfare safety net with what Professor Sternberg Green describes as a private one of credit reporting and scoring systems.  The paper shows off Professor Sternberg Greene's training in sociology with some amazing interviews, particularly about the perceived importance of credit scores in low-income consumers' lives.  

Other respondents referred to their credit reports or scores as “the most important thing in my life, right now, well besides my babies,” as “that darned thing that is destroying my life,” and as “my ticket to good neighborhoods and good schools for my kids.” Many respondents believed that a “good” credit score was the key to financial stability.

One respondent, Maria, told a story about a friend who was able to improve his score. She said, “He figured out some way to get it up. Way up. I wish I knew what he did there, because I would do it. Because after that, everything was easy as pie for him. Got himself a better job, a better place to live, everything better.” Maria went to great lengths to try to improve her score so that she, too, could live a life where everything was “easy as pie.”

Credit scores have become a metric of self worth and the perceived key to success.  

The short-sightedness of this is painful.  With a better credit score comes easier credit...but that credit still has to be paid off.  Credit ain't free.  Such is the misperception in the private safety net world, alas! 

For this alone, I'd recommend the paper, but there's also a very intriguing policy proposal for a "Financial Services for Family Stability" program, modeled in part off of Ireland's Money Advice and Budgeting Service.  The idea is that a FSFS program, funded by TANF block grants could help low-income families with financial advice and planning, debt management services, crisis counseling, and potentially interest-free small loans (with eligibility gates and counseling requirements).  The paper recognizes the potential drawbacks to the proposal, but it is an attempt to address the problem that there is currently no unconflicted, honest broker to help low-income Americans navigate their financial problems.  "I'm from the government, and I'm here to help," isn't a line that some folks want to hear, but when the alternative is "I'm from credit card bank X, and I'm here to help," or "I'm from a debt settlement firm, and I'm here to help" or "You're on your own kid," then it sounds relatively more appealing.  This is something folks on the Hill should start noodling about.  

All in all, this is one of the papers I've read recently that I like most.  There's a lot of stuff for thought in it.  Read it!

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