As a longtime champion of minority rights, I have grave concerns about a new piece of legislation that will deepen the rift of one of the most significant issues impacting racial disparities today — the accessibility of capital and credit.
If passed, the bill in question, the Credit Card Competition Act, will expand a counterproductive 2010 congressional measure that imposed price caps on debit swipe fees to the credit card industry. That is troubling considering how destructive the first iteration was to the African American community.
Congress passed the debit measure, which the National Black Chamber of Commerce vocally opposed and is still “committed to fighting,” with the intention of lowering prices for Main Street. They believed that by decreasing the amount banks could charge businesses for debit swipes, they would effectively reduce the price of goods and services for consumers because companies, they reasoned, would pass the cost savings onto them. That never happened. In a whopping $90 billion wealth transfer from Main Street, major corporations like Amazon and Wal-Mart made windfall profits and expressed no interest in sharing their gains.
Consumers received harms, not benefits. To make up for the funding shortfalls this policy created, banks had no choice but to cut free checking accounts and limit rewards programs. A George Mason University study found that this corporate giveaway increased the number of unbanked populations by one million Americans, with minority and low-income communities unsurprisingly facing the brunt of the impacts.
No one suffered more than the African American community. Nearly half of Black households are unbanked or underbanked, and Black adults experience the nation’s highest unbanked and underbanked rates. This policy only made things worse. In fact, since 2010 — the year the debit price cap passed — the number of banks in majority-Black areas has decreased by nearly 15%.
Access to credit is directly correlated with racial disparities in business funding, development, and growth, as well as familial cycles of poverty that impede educational, professional, and personal opportunities for generations of Americans that live in underserved communities.
Throughout their financial lifetimes, unbanked and underbanked Americans can amass nearly $40,000 in fees. That startling number in and of itself is enough to prevent hardworking families from ever having the opportunity to obtain economic peace and security. That is precisely why International Monetary Fund Deputy Managing Director Mitsuhiro Furusawa says, “Financial inclusion is the bridge between economic opportunity and outcomes.”
Misguided government policies of years’ past have created and widened this egregious racial credit access disparity. It would be a shame if Congress passed yet another bill to exacerbate the problem instead of solving it.
And that is exactly what the misnamed Credit Card Competition Act will do. It will double down on a past congressional measure that has been statistically and empirically proven to make the issue worse.
Congress would be wise to shelve The Credit Card Competition Act and instead redouble its efforts to provide more credit opportunities to minority communities because the reality is that the credit access crisis is not going anywhere any time soon. In their recent paper, economists Ellora Derenoncourt, Chi Hyun Kim, Moritz Kuhn, and Moritz Schularick made this clear. They wrote, “In the absence of policy interventions or other forces leading to improvements in the relative wealth-accumulating conditions of Black Americans, wealth convergence is not only a distant scenario, but an impossible one.”
Let’s address this problem head-on. The nation will be better off as a result.
Corey Arnez Griffin is President and CEO of Global Government and Industry Partners, LLC and serves on the boards of several organizations committed to advancing equity and the social and economic progress in the Black community. Coreyg@2gip.com