JANUARY 2004

Another View

At times those of us involved in consumer credit are tempted to forget that there are a number of people who currently view consumer debt as an unfortunate blight on the economy. One such person is Bob Herbert, an economist and columnist for the New York Times. We provide a summary of his recent article to be sure that we acknowledge the views of those who are critical of consumer credit. [We repeat: the views expressed are those of Bob Herbert, not the authors of Spotlight.] He begins with a complaint from Julie Pickett, a consumer who was using consumer credit. "I’m still paying for groceries I bought for my family years go." Julie and others like her are "trapped in the grasp of credit card debt...She is in the same dismal position as if she had financed her needs with a loan shark who is threatening to damage her knee caps if she does not pay on time...People used to be thrown in jail for the very thing credit card companies can now do legally." While banks pay a pittance on their deposits, they charge rates ranging up to 30 percent to consumers holding their credit cards. When Julie’s husband had to work only part time because of a downturn in his business, their credit cards seemed to offer a lifeline to the family. The Pickett debt on one credit card rose from $8,000 to $18,000 because of interest and late fees. At the same time, the interest rate on their account rose to 28 percent from 18 percent. The credit card companies "are engaged in one of the many big-time legalized rackets that are flourishing in this era of deregulation."

The Picket family’s problems are profiled in a new study, Borrowing to Make Ends Meet. According to Herbert, the report was published by "a nonpartisan public policy group called Demos, "A network for ideas and action." We provide this review of Bob Herbert’s column, not as advocates of his position, but as a lucid statement of a point of view that almost certainly influences readers and legislators. Obviously, this is a "horror case" that is not representative of most consumers’ experience with their financial institutions. But, it was published in the New York Times. We know that there are such cases. What are the causes of such cases? What are the remedies, if any?