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Ralph Nader > In the Public Interest > Deeper and Deeper in Debt

Rising consumer debt- much of it fueled by deceptive credit card operations, predatory lending and other “easy credit” schemes-is casting a dark cloud across the national economy. The numbers paint a sad picture of low, moderate and middle income citizens caught in impossible burdens of debt plus mounting fees and late charges. In the Public Interest

Deeper and Deeper in Debt
January 9, 2004

Consumer debt has more than doubled in the past ten years to a record level of $1.98 trillion according to data compiled by the Federal Reserve. This staggering amount-averaging $18, 700 per household–represents primarily credit card debt and car loans and does not include home mortgages. By itself, credit card debt-nearly all of accruing interest at double digit rates–stands at $735 billion despite the fact that many families have refinanced their homes in recent years in an attempt to deal with mounting credit card debts and fees.

With payments on debt taking such huge chunks of family income, it is not surprising that savings rates are dropping. Savings were at just at two percent of after tax income during the first six months of last year. This means there is very little cushion for consumers to fall back on to meet the rising demands of the credit card merchants.

While most bankruptcies are the result of sickness, loss of jobs and divorce, the rapid rise in costly forms of fee-laden high interest consumer debt, particularly skyrocketing credit card balances, is a significant factor in the increasing number of bankruptcies. Consumer bankruptcies have exceeded one million a year since 1996, reaching 1.54 million in 2002 and topping 1.25 million in the first nine months of 2003.

The financial industry, led by an assortment of credit card operators,automobile dealers and big banks, instead of reforming unfair, deceptive and often predatory credit practices, are demanding that the Congress shut the door on bankruptcy protections for families facing ruin in impossible debt servitude situations.

Under legislation pushed by the merchants of debt, hard-pressed consumers in bankruptcy will face a draconian means test that will leave them in virtual debtors prisons for years. Gone will be the concept-long central to our bankruptcy system-of a second chance for Americans, an opportunity to pick up their lives again as productive citizens. The legislation would take away the discretion of the experts-bankruptcy judges-to make reasoned judgments on the ability of consumers to pay. Left would be a rigid system which would crush debt-ridden families and leave them with no hope for recovery.

The legislation, which has been before the last three Congresses in various forms, passed the House of Representatives in the first session of the 108th Congress and is pending in the Judiciary Committee in the Senate.

Efforts by consumer groups, women’s and civil rights organizations and advocates for low and moderate income families to preserve the bankruptcy code are up against a heavily financed lobbying coalition of the most powerful in the financial industry-lobbyists tightly connected with the Bush Administration and the Republican leadership of the House and Senate as well as to important members of the Democratic Party. It is a classic case of money and more money outweighing the interests of consumers.

Finance and credit card companies contributed $6.1 million in individual, PAC soft money donations to candidates during the 2002 election cycle, 63 percent of it going to Republicans, according to the Center for Responsive Politics. But even greater muscle is being funneled into Congress by a 30-member lobbying coalition which includes MasterCard, MBNA Corporation,Daimler-Chrysler and the American Bankers Association.

The coalition donated nearly $20 million to candidates in the last election, 64 percent it to the Republican Party which controls both Houses of Congress and the chairmanships of the House and Senate Judiciary Committees where the legislation to wipe out consumer bankruptcy protections originates.

And members of the financial industry are not neglecting President Bush as it hands out “forget-me- nots” this presidential campaign year. A study by the Center for Public Integrity this week revealed that six of President Bush’s top ten career contributors were employees and political action committees from the financial sector including banks and credit companies.

Employees and political committees of MBNA Corporation, the biggest credit card issuer, alone, has contributed $493,291 to the President, according to the study.

“This money is not coming from backyard bake sales and barbecues,” Charles Lewis, the Center’s executive director, said. “It’s coming from powerful special interests who want something.” (This is what is meant by cash-register politics).

And among the financial community’s desired something clearly is a punitive rewrite of the bankruptcy laws for the credit merchants and a wipe out of rights of consumers who face impossible debt situations, by the way, their cruel legislation exempts corporations that are in deep debt.