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W hen it comes to domestic issues that pit the
interests of large corporations against those of ordinary Americans, few
equal the exploding crisis in consumer debt — yet with the exception
of former U.S. Sen. John Edwards none of the leading presidential
contenders in either party has made this a serious campaign issue. Perhaps
this shouldn’t come as a surprise, because the same financial
institutions that engage in predatory lending practices constitute their
largest contributors, as well as what is perhaps the most powerful lobby in
all of Washington, D.C.
As it stands, approximately 40 percent of American
households spend more than they make each year, and the average household
debt to credit cards is about $10,000. According to the Federal Reserve,
consumer credit-card debt in the United States totals $880 billion; this
figure, adjusted to current dollars, has increased a hundredfold in the
last 40 years. These numbers, huge by any standard, represent a growing
factor in the nation’s questionable economic future. Those carrying credit-card debt are not limited to
self-indulgent spenders: “The Plastic Safety Net,” a 2005
survey of low- and middle-income households conducted by Demos and the
Center for Responsible Lending, found that declines in public and private
benefit programs — health coverage, pensions, and unemployment
insurance among them — have contributed to the growth in credit-card
debt. For example, 29 percent of households surveyed reported that medical
expenses made up a portion of their current balances. Meanwhile, lenders continue to aggressively troll for
new borrowers, including many with low incomes and existing debt. According
to Maxed Out,
last year’s documentary about the nation’s credit-card crisis,
lenders send 4 billion credit-card offers through the mail every year. And
a 2006 report from the Government Accountability Office documented the
growth in sneaky practices the companies use to increase profits —
hidden fees, “trailing” interest, and so-called disclosures
that “have serious weaknesses that likely reduced consumers’
ability to understand the costs of using credit cards.”
Even so, today the credit-card business remains
virtually unregulated at the national level. Companies can charge —
or change — interest rates at will. And although the companies may be
regulated at the state level, two states, South Dakota and Delaware, have
consumer-protection laws so weak that credit-card companies simply set up
shop there and run their operations from these havens. To make the situation worse, the new bankruptcy law
that went into effect in 2005 makes it much harder to declare bankruptcy
and requires filers, including those with very modest incomes, to pay off
much of their credit-card debt regardless. Initiated in 2001, the law was
vigorously opposed by consumer groups and unions but championed by the
president, whose largest campaign contributor had been the credit-card
giant MBNA (which subsequently merged with Bank of America). On an initial
vote in 2001, it also won the support of 36 Senate Democrats, including
current presidential candidates Joe Biden, Hillary Clinton, and John
Edwards; only Chris Dodd voted against it (as did Dennis Kucinich in the
House). “I’ve never seen a bill that was so
one-sided,” said Consumer Federation of America chair (and former
Ohio senator) Howard Metzenbaum, at the time. “The cries, claims, and
concerns of vulnerable Americans who have suffered a financial emergency
have been drowned out by the political might of the credit-card
industry.” When it came up for a second vote, in 2005, Barack Obama,
Kucinich, and Dodd voted against it; Biden (who represents credit-card
central, the state of Delaware) voted for it. Hillary Clinton was the only
member of the Senate who didn’t vote on the measure.
Now, most of the presidential candidates simply are
not confronting the credit-card issue. For Republicans, this is a
predictable state of affairs. But the top three Democrats’
relationship to powerful lenders is more complicated. Obama, who made a strong floor speech in opposition
to the 2005 bankruptcy bill, nonetheless voted against a key amendment that
would have put a cap of 30 percent on interest rates. Financial firms,
according to Ken Silverstein’s much-discussed Harper’s article
“Barack Obama Inc.,” “constitute Obama’s second
biggest single bloc of donors.” You’ll find nary a word about
the debt crisis on his campaign Web site. Hillary Clinton, who receives large sums of money
from banks and investment companies, has waffled on the issue. In the The Two Income Trap: Why Middle-Class Mothers and Fathers
Are Going Broke, Harvard law professor
Elizabeth Warren recounts a 1998 meeting with Clinton, who was then first
lady. Clinton wanted to know more about credit cards and how they affected
women, and Warren, a leading critic of credit-card-company practices, gave
her a short lecture over lunch, focusing on the drawbacks in an earlier
version of the new bankruptcy legislation (which Bill Clinton and the White
House staff were quietly supporting in hopes of wooing the banking
industry). Warren writes that after their talk, Hillary promised to do what
she could to stop the “awful bill.” By the time the legislation
passed Congress, in 2000, Bill Clinton had changed his position and vetoed
it. An aide later told Warren, “A couple of days after Mrs. Clinton
met with you, we changed sides [on the bankruptcy bill] so fast that you
could see skid marks in the hallways of the White House.”
But a year later, Clinton, then a freshman senator,
voted for virtually the same bill when it was refloated by Bush.
“Campaigns cost money,” Warren writes, “and that money
wasn’t coming from families in financial trouble. Sen. Clinton
received $140,000 in campaign contributions from banking industry
executives in a single year, making her one of the top two recipients in
the Senate.”
Despite his 2001 yes vote on the bankruptcy
legislation, John Edwards is now one of the only candidates taking up the
issue of consumer debt — relying, in large part, on Elizabeth
Warren’s analysis and ideas. In a recent speech on his campaign theme
of “the two Americas” at Cooper Union in New York City, Edwards
proposed “setting up a new consumer commission to be called the
Family Savings and Credit Commission . . . [to] deal with all financial
services — credit cards, mortgages, car loans, check-cashers, payday
loans, investment accounts, and more. It will ban the most abusive terms
and make sure consumers understand the others.” Edwards has also more
directly pledged to “pass strong national laws protecting us against
the worst abuses in credit markets.” (On that front, of course,
Congress would have to cooperate.)
E lizabeth Warren agrees that the credit-card crisis
needs to be addressed through legislation. “The current problem is
that the Federal Reserve, the Office of the Controller of the Currency, and
other financial regulatory institutions are not currently charged to
protect consumer safety,” she says. “The primary responsibility
of the regulatory agencies is to assure the profitability of the banks and
other lending institutions, not to protect consumers from deceptive and
unsafe products.”
But she is less than sanguine about the chances of
such legislation’s getting through. “The U.S. lived with usury
laws from colonial days through the early 1980s, when a loophole in a
federal banking law effectively abolished them. The problem is not whether
a practical federal usury limit could be established, particularly if the
rate were pegged to inflation. The problem with instituting a new usury law
is politics. The credit industry hires a lot more lobbyists than the
consumer-advocacy groups, and the creditors have been almost uniformly
opposed to any usury laws.”
Clinton, Obama, and the rest of the Democratic
Congress may yet get another chance to go on the record on this issue: On
May 15, the “Stop Unfair Practices in Credit Cards Act” was
introduced by U.S. Sens. Carl Levin, D-Mich., and Claire McCaskill, D-Mo.
“We have to fight for those who have not hired dozens of lobbyists to
make sure that American consumers are not getting ripped off and are fully
informed of how these companies are manipulating their financial
security,” McCaskill said of the bill. And Chris Dodd, long known as a friend to Wall
Street, has held hearings on credit-card practices in his new position as
chair of the Senate Banking Committee. None of this means that Americans who’ve been
planning to cut up their cards should put away the scissors and go
shopping. If the bill ever makes it to a vote, it will face a nearly
insurmountable obstacle: All told, in 2006, financial and credit-card
companies gave $7 million in campaign contributions, and banks $25 million,
to candidates of both parties, according to the Center for Responsive
Politics. Leading the pack, with $378,000, was Hillary Clinton.
James Ridgeway is
Washington correspondent for Mother Jones magazine.
This article appears in Aug 16-22, 2007.
