Spectre of the Subprime Borrower—beyond a credit score perspective

Journal of Social Philosophy, 2012

Review of Social Economy, 2011

In this timely and engaging book, Christopher Brown makes a contribution to Post Keynesian and Institutional economics while also discussing the place of consumer credit in a macroeconomic context-in particular, its role in the business cycle and distribution. The book explains the pressing issues of a credit-financed surge in consumer spending and declining household savings rates, and whether this is sustainable. Relying on both Post Keynesian and Institutionalist thought, it is an example of a growing trend in heterodox economic analysis of combining elements from various traditions. While emphasizing the place of borrowing in expanding economic activity, and the role of liquidity preference, Brown notes the outdated view of lending institutions as financial intermediaries. Within this framework he discusses the importance of effective demand and the residual nature of savings. Furthermore, he presents an interpretation of the institutional process of habit formation, and uses it to analyze changing saving and spending tendencies in the US. Brown argues that cultural change is a prerequisite for the growth in US household debt, and that understanding this phenomenon requires studying habit formation and institutional change. After summarizing the main points of Post Keynesian theory in Chapter 1, Brown discusses the social embeddedness of consumption, the emergence and macroeconomic importance of consumerism, the habitual use of credit, and the recent rise of household debt. He argues that, starting in the 1980s, growing inequality changed what had been deemed culturally sufficient for consumption, and greater credit availability allowed the maintenance of acquired habitual consumption status. Chapter 2 gives numerous examples of this, and some may find parts suitable for assigning to students. One point that could have been discussed further is the lack of growth in wages in recent decades. Chapter 3 provides a historical discussion of financial, technical, and organizational innovations in the consumer industry, which adds another piece to the declining saving puzzle and the change in consumer culture. Along with securitization, which has only recently received the attention of economists and public commentators, Brown identifies credit scoring, the lengthening of consumer loan maturities, and the forward integration of activities of financial institutions as major changes contributing to increased household indebtedness. From the emergence of installment retail credit to the role of financial engineering and risk-based pricing in subprime lending, Brown traces the vast growth of business units that target low-income groups. Alas, he does not tie this point to Kalecki's work on the effect of the degree of monopoly on the wage share in national income, which was discussed in Chapter 1. In Chapter 4, Brown makes a distinction between saving from current income and unrealized capital gains. He argues that the decline of traditional pension plans, and the spread of 401(k) plans, has tied household wealth to stock and bond markets.

HAL (Le Centre pour la Communication Scientifique Directe), 2018

This article aims to describe the sociological studies of credit developed in France over the past dozen years. These studies propose a specific method and approach to address credit, primarily understanding it as a result of social interactions embedded in organizational and legal structures, with consequences on inequalities, social stratification, and individuals' life experiences. The article is divided into four parts: after an introduction presenting what can be called the French school of the sociology of credit, we present the 'different voice' of the French school of the sociology of credit, which analyses the credit market according to a relational approach. The third section examines the construction of social domination at the moment of credit assessment. We then focus on the demand side: borrowers are not atomized individuals but part of households and other local communities. Finally, the conclusion discusses how this French approach to credit may be useful outside of France.

The Development of Consumer Credit in Global Perspective, 2012

Oeconomia Copernicana

Research background: According to the World Bank (2020), about 60% of adults in developing countries do not use formal financial services. Furthermore, according to the Polish Association of Loan Institutions (2022), about 3 million Poles use loans, most of them obtained online. Among the reasons for more than a decade of growth of interest in the non-bank consumer lending market there are the development of modern technology applications in finance and the establishment of the Lendtech sector. Purpose of the article: The main goal of the paper is to verify the role played by the Lendtech (LT) sector in the consumer credit market in the context of household financial exclusion. The following research questions were asked: Do credit-excluded households take advantage of LT services and, if so, to what extent? What are the behaviours and preferences of those who use consumer credit offered by LT? Do socio-demographic characteristics determine consumer use of loans offered by LT and, i...

The system of credit scoring has been built up in recent times on the basis of a compromise struck between individuality and surveillance in ways that boosted consumption through consumer debt. This paper considers the role of credit scoring in the recent financial crisis, concluding that even if credit scoring had worked as intended under its own terms, the practice would not have been enough to limit the defaulting of mortgage borrowers under conditions of falling house prices. The broader economic problem is the crippling amount of consumer debt involved; hence the paper places credit scoring in the larger explanatory framework of consumer debt and, more generally, consumerism in its more problematic form. The sorting accomplished by credit scoring is open to abuses in the marketplace, unless it is tempered by the application of guardrails by a regulatory authority. As cultures beyond the Anglo-American sphere adopt this practice, guardrails like those applied to credit scoring in America are needed; as even the current U.S. Administration has acknowledged, the existing guardrails will have to be complemented by stricter social standards. The paper provides a derivation of the theoretical background on credit scoring as surveillance, and includes a literature survey.

The economic crisis highlights the problem of access to credit also from the point of view of families. The Italian banking industry has launched projects aimed at offering financial support to disadvantaged people, implementing new products for certain categories of customers normally excluded from credit due to the high risks involved. The information collected about each customer is an input in the decision-making process. Hence, it is crucial to investigate how it is selected, how it is (re)assembled, and how it is evaluated. Understanding how information about a customer is selected and processed helps us to identify what resources owned by households are translated into a positive score to access credit and into opportunities to enjoy additional goods and services, thus reconfiguring the trends of inclusion and exclusion within the financial system.

2019

To advance our understanding of debt and credit, my dissertation provides a comprehensive sociological examination of household level credit consumption-both within the US and in the European Union. I attempt to account for how both supply and demand side social forcescultural and structural-simultaneously drive indebtedness. I address three questions. First, how does class position mediate the influence of structural and cultural forces on U.S. households' levels of indebtedness? Second, has acceptance of debt in U.S. households changed with intensified financialization? Third, how do welfare-state provisions influence households' indebtedness across countries over time? In Chapter 2, I show that credit consumption is classcontingent. Specifically, using Survey of Consumer Finances (SCF) data for 2010, I find that upper class households use their credit to make financial investments, ostensibly in the service of wealth creation. The middle classes are interested in using their homes as investment in long term security, and the upper middle class (along with the upper class) does use some of its credit

Social Policy & Administration, 2010

The rise in access to complex consumer credit arrangements has taken place against a backdrop of a call for increased individual responsibility. Consumers are required to behave in a way which recognizes both their rights and responsibilities. But how much responsibility should they be expected to shoulder in critical areas of complex choice? Students represent a particular group of novice, sometimes vulnerable and often targeted consumers, who may display limited financial capability and responsibility. In addition to arguments for a more nuanced understanding of individual responsibility in different environments, the role of commercial agents and their marketing practices, which can have major implications for social policy, should also be considered. From the perspective of both students and relevant agencies and organizations, this article examines the nature, role and limitations of individual responsibility in managing credit and debt. While the social and economic system confers rights on lenders, their responsibility in marketing remains limited. It is argued that a framework for more responsible marketing of credit is a critical element of social policy acting as a bridge between individual responsibility and regulation. Qualitative research is used to illustrate the argument for marketing's social responsibility from the point of view of students entering credit arrangements to meet short-term needs but with long-term implications.

History: Reviews of New Books, 2017