On a recent Planet Money podcast, attorney Chi Chi Wu of the National Consumers Law Center said that bad credit is often the result of bad luck. Among the incidents of bad luck she catalogs as medical expenses, divorce and job loss. Are all of those really bad luck, though?
The podcast describes how the credit reporting agencies used to include in their reports hearsay about a consumer's mental state. Congress put an end to this practice, but should they have? It seems to me some of this hearsay leads to Wu's bad luck. We're the financial crisis was the result of banks extending to credit to people who proved bad risks. But we're also told that denying people credit or charging for risk is bad. So which is it? As Thomas Sowell once said, there are no solutions in economics, only trade-offs.