Our Addiction to Credit

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%
–Sara V. Buckwitz
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