Our Addiction to Credit


| August 6, 2001


Our Addiction to Credit

Seattle journalist Silja Talvi scrutinizes corporate lending practices and questions the stability of an economy dependent on debt acquisition in an interview with Robert Manning, the author of 'Credit Card Nation.'

Currently, U.S. consumer debt is at $6.5 trillion, Talvi writes in LiP magazine, which surpasses both the federal debt of $5.8 trillion and the total U.S. corporate debt of $4.3 trillion. These staggering figures point to a dangerous trend of consumer spending which has ties to corporate deregulation and 'predatory lending,' in which lending agencies charge high fees and exorbitant interest rates combined with other questionable lending practices that end up stripping equity from the homes of targeted groups, often the elderly and people of color.

How did this happen? The early '80s bank deregulation left lenders scrambling to balance out their Third-World loans and bad real estate investments. They were desperate for a new market. So they shifted much of their resources to sell credit cards to 'people willing to pay unprecedented high interest rates,' Manning tells Talvi. The people who the banks courted were those least likely to be able to pay, author Manning continues.

In the past, only people with jobs or good credit history could get credit. With deregulation, '[b]anks transformed their underwriting criteria... they now see that their prime market are customers that cannot repay their loans,' Manning says. 'That's this whole, fundamental shift from installment loans to revolving credit, where real money is finding people who will never repay. All of that occurs in that very brief period of time.'

On top of that, Manning argues that the disenfranchised are the ones who end up footing the bill for the 'free credit' of the upper class. The ones who can't afford the credit end up with APRs of 24 % while the wealthy pay off their monthly bills, paying no interest at all.

Manning asks, 'How are you going to bash a single mother who just lost her job and is trying to pay for her kid's medical expenses and pay off her credit card bills and say she deserves to pay 24% interest?'
--Sara V. Buckwitz
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