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 hundred-fold 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 programshealth coverage, pensions, and unemployment insurance among themhave 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 SiCKO-style film about the 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 profitshidden 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 chargeor changeinterest rates at will. And while 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 safe 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, while 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." And, 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. Senator 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 now taking up the issue of consumer debtrelying, in large part, on Elizabeth Warren's analysis and ideas. In a speech on his campaign theme of "the two Americas" at Cooper Union in New York City last month, Edwards proposed "setting up a new consumer commission to be called the Family Savings and Credit Commission
[to] deal with all financial servicescredit 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.)
Elizabeth 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 explains. "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 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 Democratic Senators Carl Levin of Michigan and Claire McCaskill of Missouri. "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.