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Consumer Credit Card Debt Is the Next Economic Shoe to Drop in Financial Crisis
Predatory lending practices force consumers to
rob Peter to pay Paul
By Bradley A. Blakeman
Posted March 10, 2009
Bradley A. Blakeman was deputy assistant to
President George W. Bush from 2001 to 2004.
The average American family owes $8,000 in credit
card debt, according to the American Bankers Association. According to the U.S.
Census Bureau, the real median gross household income in 2007 was $50,233. It
should be noted that today there is not always one single breadwinner, so that
figure takes into account, in most cases, two incomes within the same household.
With unemployment on the rise, financial
instability, consumer confidence tanking, inflation worries, and a national
housing and foreclosure crisis, just to name a few of our troubles, it is only a
matter of time before the next financial shoe drops-consumer credit card debt.
A contributing factor to the financial woes that
have caused the recession has been and continues to be the uncontrolled
"usurious" interest rates charged on consumer credit cards by our major national
banks, resulting in the inability of consumers to pay the debt down or off.
Banks and other financial institutions have unconscionably and persistently
preyed on and bombarded consumers with easy, "cheap" credit. They sucker
customers in with an interest rate as low as 2 percent for the first six months
or year. Thereafter, the institutions totally conceal the fact that they have
the right in most instances to raise that rate with an uncontrolled variable
interest rate, which I have seen as high as 32 percent per annum.
How is it possible that companies can charge consumers such unconscionable
interest?
Follow the paper trail. Many banks offering consumer credit have situated their
consumer credit operations in states like South Dakota. The reason is that these
states allow banks to charge interest rates that would clearly be usurious in
many other states. For example, New York State limits interest rates on credit
liability to 16 percent per annum; if the rate charged exceeds 25 percent per
annum, it is a felony criminal offense. Most states have similar caps and
penalties.
In addition, many of the banks inducing Americans to "purchase" homes the banks
knew they could not afford induced these same people to take on additional debt
through credit cards. The dilemma for an American family is not even the choice
of which to pay, the mortgage or the credit card. It is clear they cannot pay
either.
The resulting spiral of consumer debt default, both mortgage and credit card, is
a major factor that caused the recession we are facing today. Add the financial
collapse of the very institutions that created this huge Ponzi scheme and let us
not forget rising unemployment and we are on the brink of depression.
The "Recovery Act," or whatever it is being called
this week, has not even addressed the root causes of the recession, i.e., greed
and predatory consumer lending practices.
We need to eliminate these root causes. We need to learn from our mistakes. We
need tough laws to cap consumer interest rates and stop, once and for all,
predatory lending. We also need to make it harder to extend consumer credit to
those who can least afford it. People should be able to borrow commensurate to
their verified income, assets, and their ability to repay pursuant to terms and
conditions that are understandable to the borrower.
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