At the same time that credit scores and reports are becoming increasingly important gatekeepers to economic resources, the use of credit—and thus the accumulation of debt—has seen a significant increase among low-income parents. This increase is due both to deregulation of the lending industry that allowed lenders to engage in higher-risk consumer lending157
and to the necessity of a private safety net for low-income families post-welfare reform. Several studies have found that, post-welfare reform, low-income parents increasingly rely on credit to weather emergencies.158 The reasons are multidimensional.
For one, credit cards provide “a fast, easy, stigma-free” way of coping with most financial emergencies.159 Credit cards are particularly useful
153. Id.
154. Geico’s Credit Use–Frequently Asked Questions, GEICO, https://www.geico.com/ information/credit-use-faq [https://perma.cc/G2DE-SX6R].
155. FED. TRADE COMM’N, UTILITY SERVICES (2012), https://www.consumer.ftc.gov/ articles/0220-utility-services [https://perma.cc/MG79-FGND].
156. For a detailed account of a family struggling because of the need to provide a down payment or guarantor for an electricity hook-up, see infra note 183 and accompanying text. 157. See supra note 19 and accompanying text.
158. See Greene, supra note 15, at 549; Littwin, supra note 16, at 457–58; Mann, supra note 20, at 257–58.
159. Littwin, supra note 16, at 458; see also RONALD J.MANN,CHARGING AHEAD:THE
GROWTH AND REGULATION OF PAYMENT CARD MARKETS 63 (2006) (“[D]ata suggest that many families use credit cards to meet crisis-level medical expenses, and the special features of credit card borrowing might have eased the difficulty. . . . [T]he credit card can be the lifeline by which the families pull themselves out of distress.” (citations omitted) (citing Adam J. Levitin,
America’s Payment Systems, No-Surcharge Rules, and the Hidden Costs of Credit, 3 BERKELEY
BUS.L.J. 69 (2006); then citing Alan S. Frankel, Monopoly and Competition in the Supply and Exchange of Money, 66 ANTITRUST L.J. 313 (1998)));Kevin T. Leicht, Borrowing to the Brink: Consumer Debt in America, in BROKE:HOW DEBT BANKRUPTS THE MIDDLE CLASS, supra note 17, at 195, 205 (“Credit card debt is a particularly useful substitute for wages because it can be used to meet everyday or large-ticket expenses.”); Mann, supra note 20, at 257–58 (“The credit card also provides a remarkably flexible safety net that can be deployed in response to unexpected
for emergencies that require immediate action. Further, family and friend networks are generally less reliable than credit cards because networks of low-income workers tend to be low-income themselves, and thus are often resource deprived.160
Studies also indicate that people sometimes hesitate to ask family and friends for help during an emergency because it means admitting to the family member or friend that one is in need and cannot provide for oneself, resulting in feelings of shame and embarrassment.161
Relatedly, people sometimes feel guilty asking to borrow money because they know that borrowing the money would cause a financial strain on their network member.162
Credit cards, on the other hand, do not come with these problems. But when families are struggling financially and are in need of a safety net, how do they make decisions about whether to try to access public benefits, to utilize credit, and to enlist tools to relieve debt? How might these decisions be related to the culture of welfare reform, and how might these decisions affect the long-term trajectory of a family’s financial stability, and poverty and inequality more generally? The next Part turns to these questions.
III. PERVERSE DISINCENTIVES AND DOWNWARD MOBILITY:THE ACCIDENTAL INTERACTION OF CREDIT HISTORIES AND SELF-
SUFFICIENCY
This Part uses real-world illustrations from qualitative data to explain how the current safety net for financially struggling families is flawed. From a public policy standpoint, the safety net is ineffective because it does not adequately enable low-income families to become self-sufficient. From an equity standpoint, it is likewise ineffective because it does not provide enough tools to reduce inequality and poverty.
The first Section of this Part briefly describes the data I collected through interviews with families who have struggled financially. The second Section utilizes the sociological concept of narratives to show how the current safety net punishes families who have embraced the self-sufficiency narrative by using credit, rather than public assistance, as a safety net. The third Section describes how, ironically, those who attempt to repair their debt and credit history through privately
financial crises.”).
160. Littwin, supra note 16, at 460. 161. See Greene, supra note 15, at 549. 162. See id.
advertised forms of repair ultimately may experience more downward mobility than those who seek out public forms of support such as bankruptcy. This is just one example of the perverse incentives inherent in the current safety net: those who have internalized the self- sufficiency narrative may end up worse off than those who are inclined to seek help from public programs.
The fourth Section shows how families who have resisted a self- sufficiency narrative—and have instead embraced what this Article calls “deserving recipient” narratives—are often rewarded by the current safety net system. Though these narratives are counter to the self-sufficiency narrative welfare reformers might hope for, they sometimes protect these respondents from the pitfalls of the punishing credit system. The illustrations in this Section ultimately lead to an imagining of a new program for the safety net that could better serve the needs of vulnerable families, which is highlighted in Part V.