Give me some credit

Jamelle is the second person to say this to me, in re my credit check at the AT&T store:

Congratulations Megan McArdle, you just had your first taste of what being a black person is like.

In all seriousness though, African-Americans are far more likely to be subject to those kind of credit investigations than a white person of equal means, since on average, African-Americans are more likely to have some sort of serious credit liability.

As far as I know, they run credit checks for any monthly cell-phone contract; that's why people with bad credit have to get pre-paid phones. Certainly, they checked my credit when I bought a broadband modem, which starts at $40 a month.

Credit is one of those weird areas where there is a lot of belief in discrimination, but as far as I can tell, not all that much evidence. Most credit checks are part of an automated procedure that either happens or it doesn't, and most loan issuance is done virtually automatically by a computer that either says yes or no based on your credit history. Now, there are border cases that require human review, and it's possible that had my name been "Malika" instead of Megan, they would have turned me down.

But if that were happening on a widespread basis, loans to minorities would be insanely profitable. They're not; rather, they seem to be about as profitable as other types of loans. Yes, I've seen the research arguing that people in black communities get worse loan terms than their credit score suggests. As far as I can tell, this research failed to control for some pretty major factors, like assets.

I don't want to go to far down the Gary Becker line--it's possible that companies could all be behaving irrationally. But the evidence that they are seems pretty thin--in fact, just barely solid enough for plaintiff's lawyers and journalists to revive it every few years. If the companies were statistically discriminating against African Americans, giving them worse loan terms than they really qualify for, they should be paying off those loans at higher rates than whites.

They're not. Most of the aggregate research I've seen fails to reject the null hypothesis that there is no discrimination in loan markets, which means that if there is discrimination, it is not catching huge numbers of people who are more likely than their loan terms would suggest to pay their bills on time. Just to be clear, we're not talking about research that says that blacks who get a higher interest rate don't pay off at the same rate as whites who get a lower one--you can't blame the default rate on the higher interest rate. We're talking about the fact that minorities do not outperform their own loan class. If loan companies really were discriminating, issuing subprime mortgages and car loans to credit-worthy minorities should be a license to print money.

The evidence for discrimination in the labor market seems strong--nay, nearly incontrovertible--to me, at least at lower skill levels. And it's clear to me that African Americans have a lot of structural barriers to wealth accumulation, But I remain unconvinced that credit rationing is one of those barriers.