The average American family owes $8,000 in credit card debt, according to the American Bankers Association. According to the U.S. Census Bureau, the real median gross household income in 2007 was $50,233. It should be noted that today there is not always one single breadwinner, so that figure takes into account, in most cases, two incomes within the same household.
With unemployment on the rise, financial instability, consumer confidence tanking, inflation worries, and a national housing and foreclosure crisis, just to name a few of our troubles, it is only a matter of time before the next financial shoe drops -- consumer credit card debt.
A contributing factor to the financial woes that have caused the recession has been and continues to be the uncontrolled "usurious" interest rates charged on consumer credit cards by our major national banks, resulting in the inability of consumers to pay the debt down or off.
Banks and other financial institutions have unconscionably and persistently preyed on and bombarded consumers with easy, "cheap" credit. They sucker customers in with an interest rate as low as 2 percent for the first six months or year. Thereafter, the institutions totally conceal the fact that they have the right in most instances to raise that rate with an uncontrolled variable interest rate, which I have seen as high as 32 percent per annum.
How is it possible that companies can charge consumers such unconscionable interest?
Follow the paper trail. Many banks offering consumer credit have situated their consumer credit operations in states like South Dakota. The reason is that these states allow banks to charge interest rates that would clearly be usurious in many other states. For example, New York State limits interest rates on credit liability to 16 percent per annum; if the rate charged exceeds 25 percent per annum, it is a felony criminal offense. Most states have similar caps and penalties.
In addition, many of the banks inducing Americans to "purchase" homes the banks knew they could not afford induced these same people to take on additional debt through credit cards. The dilemma for an American family is not even the choice of which to pay -- the mortgage or the credit card. It is clear they cannot pay either.
The resulting spiral of consumer debt default, both mortgage and credit card, is a major factor that caused the recession we are facing today. Add the financial collapse of the very institutions that created this huge Ponzi scheme -- and let us not forget rising unemployment -- and we are on the brink of depression.
The "Recovery Act," or whatever it is being called this week, has not even addressed the root causes of the recession, i.e., greed and predatory consumer lending practices.
We need to eliminate these root causes. We need to learn from our mistakes.
We need tough laws to cap consumer interest rates and stop, once and for all, predatory lending. We also need to make it harder to extend consumer credit to those who can least afford it. People should be able to borrow commensurate to their verified income, assets, and their ability to repay pursuant to terms and conditions that are understandable to the borrower.
Bradley A. Blakeman was deputy assistant to President George W. Bush from 2001 to 2004.
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