An item on the news yesterday about the progress, or lack of it, of the “Credit Cardholders’ Bill of Rights Act of 2009” (to try to keep credit card companies, i.e. banks, from arbitrarily increasing interest rates on existing credit card balances) got me thinking about debt, credit, bankruptcy and how the laws all favor the banks until it comes time for the suckers (us) to bail them out. Especially in recent years, we suckers have all been taken for a real ride. In 2005, for example, the Bush Administration passed a law—“The Bankruptcy Abuse Prevention and Consumer Protection Act”—signed with great fanfare by President Decider, that “reformed” the bankruptcy laws, particularly governing credit card debt. The reform was promoted as a benefit to consumers (suckers) by making it harder for the average person with consumer debt to file for Chapter 7 bankruptcy (the law now forced such persons to file a “means test,” as well as undertake “credit counseling” and education in personal financial management), thus reducing losses to lenders. Presumably, we’d all benefit because lenders wouldn’t tighten up on the credit cards all the rest of us depend on. Though the new hurdles definitely caused a sharp decline in personal bankruptcy filings—thus benefiting the banks—they also failed to stop the rise of interest rates and fees these same banks charged suckers. A Harvard Law School fellow, Mike Simkovic, did a study and put it this way:
“The fact that after bankruptcy reform, interest rates and fees continued to rise, and grace periods continued to fall, even though credit card companies reaped tremendous gains from declining bankruptcy losses demonstrates that the credit card market is not price-competitive. This lack of price competition explains why the benefits of bankruptcy reform accrued exclusively to credit card lenders and…why bankruptcy reform was a failure.” (from “New Bankruptcy Laws Hurt Consumers,” at http://www.consumeraffairs.com/news04/2008/07/bankruptcy_changes.html
The same article cites another effect of the 2005 “reforms”: the increase in home foreclosures and defaults—something clearly related to our current crisis. According to a study by David Bernstein, “The more stringent bankruptcy code” that limited financial relief and made it more difficult and expensive to file for bankruptcy, “appears to have increased the number of individuals walking away from their homes, their mortgages, and the other financial obligations without seeking the protection of the bankruptcy court.”
To grant the devils their due, such restrictive measures are not, historically, as bad as the practice in ancient Greece, where bankruptcy didn’t even exist. The families of adult fathers who couldn’t pay their debts were legally liable for those debts, and so entire families could be forced into “debt slavery” until their labor discharged the debt. Many if not most of the first immigrants to the United States were debtors as well, coming to the New World as indentured servants committed to working off their debts in a few years. Thomas Jefferson, among other notables, ended his life so deeply in debt that his entire property (including about 200 slaves) went on the auction block to pay his creditors, leaving his white family penniless (his “black” family by his enslaved concubine Sally Hemings, of course, would have inherited nothing in any case). Still, according to an article in the current New Yorker Magazine, the debtor policy in the United States improved on the bankruptcy situation that had prevailed in Europe, where only traders and merchants were allowed to claim bankruptcy—European logic being that such “risk-takers” had to be protected in order for their crucial trade to continue. All others went to debtors’ prisons—for sums as small as a few shillings. In the United States, by contrast, democracy in essence demanded that all were entitled to the same protection, and so the protection of bankruptcy, usually Chapter 7, became available to anyone unable to pay his bills. This meant that though major property items could be seized, at least some “exempt” property—clothing, household goods, an older car—could be retained as the rest of the debt was discharged (except for spousal and child support, student loans and most taxes). This was the situation that prevailed until the 2005 “reform” made bankruptcy for suckers less available.
Since then, however, a few things have changed. Most notably, the current financial crisis has meant that now it is not those irresponsible consumers (suckers) who are going bankrupt, but the banks (mortgage brokers, investment bankers, insurance companies etc.) themselves. And, reverting to the traditional attitude that wealthy traders and merchants deserve more consideration than the workers who actually make products, our financial wizards have decreed that we taxpayers (suckers) should all agree to bail out the financiers because, after all, what they do is crucial for the rest of us. And so, in the biggest bailout in U.S. history, we’ve propped them up with trillions ($12 trillion so far?) in taxpayer dollars.
Now that wouldn’t be quite so bad if the bastards displayed a little contrition, a little consideration for the little guy. But do they? Not on your life. First of all, these hucksters continued to pay themselves—the guys at the top—obscene bonuses. And more recently, an AFL-CIO sponsored study found that more CEOs of American companies got pay hikes than pay cuts in the year 2008. That’s right. Of 946 companies surveyed, 480 had CEOS who got pay raises, while 463 cut their CEOs pay. Moreover, median CEO salary rose 7% in 2008 (the year the economy collapsed), with their perks going up 13% to an average value of $336,246., and their average yearly compensation reaching $5.4 million.
Secondly, and this is the real outrage, the banks we’ve bailed out with trillions that our children will be paying for god knows how long, have chosen to stick it to us suckers in yet another way—by gouging us with credit card interest. That’s right, the same swine who have begged for billions to keep their companies “solvent” (after they drove them and us into the ditch with their complex securitized mortgage packaging and credit default swaps all designed to make billions while the getting was good), these same hot shots have now come up with yet another swindle—sticking it to credit card debtors. It’s a foolproof game, especially now that getting bankruptcy relief for credit card debt has been made much harder (thanks to the 2005 reform cited above): just raise the rates on credit card debt arbitrarily, take it or leave it. Listen to the experience of some recent complainants to CNN.money.com. A small business owner from Southhaven, Miss wrote:
“I have a very small business and most of our debt is on credit cards. We had a 0% annual percentage rate until January 2009 that would go up to 7.99% thereafter. A few months ago my check got there a day late. The credit card company, Advanta, increased my APR to 7.99%. I just received my current statement and the APR jumped to 25.39%. When I called, a supervisor said it was done for economic reasons. How can they do that? Is it illegal? Can I report them?”
The answer came from Kathleen Ryan O’Connor:
“Faced with the same economic pressures as other companies affected by the ongoing recession and credit crunch, credit card companies are racing to protect themselves from the costs of more defaults by hiking interest rates and slashing credit limits, even for cardholders with excellent credit histories.”
Another small business owner had the same experience, noting that her expanding company was not only issued a lower credit card limit, but also an interest rate hike that went from 3% to 27%! The credit card company, Advanta, referred her to the terms and conditions it issues, including this one: “We may change any of your account terms, including rates and fees, at any time, for any reason.” No questions asked. Take it or leave it.
So that’s the money game. First make a pile of money on fraudulent practices in mortgage lending and bundling the bad loans in impenetrable securitized mortgage packages to be sold to suckers the world over. Then get government bailouts (i.e. taxpayer money) to get rid of the “toxic assets” that are holding back credit and threatening to bring down the whole system. Then stick it to the taxpayers who bailed you out by raising their credit card interest so as to maintain your “profitability”—which is precisely what my credit card company, Chase, used as justification for bumping my APR over 4 percentage points. No reason needed. Take it or leave it, suckers.
So don’t be shy about calling your Congressional reps and senators. Tell them you back the idea proposed by Vermont’s Senator Bernie Sanders: calling the practice of credit card companies “nothing less than loan sharking,” Sanders has proposed a 15% limit on all credit card interest. Period. Now that’s a proposal. So is Senator Christopher Dodd’s idea to “bar credit card companies from raising interest rates at any time for any reason.” I wouldn’t hold my breath that either proposal will pass, but some outraged calls and letters threatening a debtors’ revolt might help.