By David Oppenheim
Chicago, IL, USA
I had become a statistic. After seven years at a white shoe law firm, I was told that the firm’s bottom line was suffering and that I and several other attorneys would be let go. As one might imagine, several thoughts went through my mind when I heard the news, ranging from figuring which senior partner I should have spent more time brown-nosing to lamenting my separation from the office iced tea maker. But my most major concern was how I would be able to feed my family.
Like many Americans, I had made use of the various forms of credit made available to me - hefty student loans to get through two of the most expensive universities in the country, a mortgage on my house, and credit cards. For the last 25 years or so, it has been nearly impossible to go to a concert or sporting event, turn on the radio, or open the mail without being enticed to obtain a credit card. I got my first at a Chicago Bears preseason game in 1996, when I was 19. MBNA America was offering a free towel if you signed up for their Visa card and it was pouring down rain. I still have that card, and have added several others over the last 13 years.
The credit card proliferation was no accident. Nor are the facts that the amount of consumer debt that Americans hold continues to grow; that it is becoming increasingly difficult for many to repay this debt; that Americans are now losing their homes in droves; and, finally, that many of the same megabanks that have enjoyed such handsome profits on the backs of Americans are finding themselves in dire financial straits. The roots of all of these things can be found in three pieces of legislation bought and paid for by the credit card companies.
First, Congress passed the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). This bill abolished state usury laws that put caps on the amount of interest the credit card companies could charge their customers. Passed in response to banker complaints that the high inflation of the late 1970s was making it impossible for them to lend money non-usuriously, the law basically eliminates all curbs on what the credit card companies can charge -even today, when we are experiencing deflation. Thanks to Congress, credit card companies can stand shoulder-to-shoulder with Tony Soprano in the loan sharking business. Predictably, the legislation led to an explosive expansion in the scope of credit card lending, interest rates, and credit card company profits.
Second, Congress passed the Gramm-Leach-Bliley Act in 1999, which eliminated many of the key restrictions on the banking industry in place since the Great Depression. As a result of Gramm-Leach-Bliley, large banks like Citigroup and Bank of America were permitted to speculate in stocks and in far more complex and far riskier financial products. Thus, at the same time that these large lenders were expecting consumers to behave responsibly, they themselves were taking the money their customers were giving them and using it at the high-finance equivalent of a casino roulette table.
Third, and possibly most perversely, the credit card companies induced a compliant Bush Administration and Congress to enact revisions to the bankruptcy laws in 2005 that made it more difficult for consumers to eliminate credit card debt through claiming bankruptcy. By favoring credit cards over other types of consumer debts, like, say, home mortgages, the 2005 bankruptcy bill bears a great deal of responsibility for the mortgage foreclosure crisis we are experiencing. This is due to the simple reason that when people who cannot pay their credit card debt (often at 30% interest) are forced to do so, something has to give, and that something is often a home mortgage.
So, what have the credit card companies gotten for their contributions to our deep recession? A federal bailout. Many of the credit card companies are recipients of taxpayer funds through the TARP program. At the same time, these companies have moved to make things even more difficult for their cardholders, including raising their interest rates and minimum monthly payments, and - often most devastating - slashing cardholders’ available credit lines. Meanwhile, the TARP funds have been used for everything from corporate jets to paying lobbyists to convince Congress not to regulate the banks. The lesson is clear: while the credit card companies may behave with impunity and expect their customers to pay them, consumers cannot rely on their credit being there when they need it.
The credit industry’s practices have led the U.S. Congress in May to pass, and President Obama to sign into law, restrictions on these practices. Inexplicably, however, the new law does not cap interest rates. Nor does it restrict the companies’ ability to take away credit lines for no reason. Perhaps worst of all, most provisions of the law does not go into effect until February 2010 - giving companies an incentive to gouge their customers as much as possible in the meantime.
These companies make it seem like they hold all of the cards. In an economy with millions of people out of work, the need to deal effectively with credit card companies is imperative. Their ability to cause widespread suffering is simply too great. I was one of the fortunate ones; I found a job quickly and can support my family and pay these companies. Many others are not, and this is bad for them, bad for us as a society, and bad for our economy. Whether through putting our own pressure on the government to rein in these companies, or through using the legal process to fight them, we need to make sure they are taken down a peg.
David Oppenheim is a licensed attorney in Illinois. He graduated from Yale University in 1999 and Harvard Law School in 2002. He is married, with two children.