The Columbia Journalism Review, a respected publication, certainly thinks the press failed you. It reports that the business press missed a body of work, compiled by nonprofit groups, academics, documentarians, and others, that marshaled data to make visible a dramatic qualitative and quantitative shift in the relationship between the credit-card industry and its customers that does not benefit the consumer. That is that the credit-card exchange has shifted from a lending and underwriting paradigm to a sales paradigm involving penalties, fees, and default interest. Rates that were illegal a generation ago are no longer regrettable outcomes to be avoided but central to the business model. A business model that centers on a besieged American middle class caught in an iron vice of stagnating incomes; shrinking disposable income; rising costs for health care, housing, and education; usurious and rapacious practices of the credit-card industry; a growing, consolidating, and increasingly sophisticated debt-collection industry; and, to add insult to injury, a new bankruptcy law that closes the courthouse door to formerly eligible debtors. And, this view is supported by credible, anecdotal and aggregate data and happens also to be true.
Do you not think it would have been helpful if the press had been doing their job and informing people of this before the credit card charges were made? I do.
The review does not argue that the business press completely ignored the trend, but those stories simply did not come close to reflecting the dramatic reordering of a marketplace. Also, the business press centered its attention on reporting on the financial performance, strategies, and intramural competition of corporate actors and of profiling their leaders instead of the consumer. Although this type of coverage is also necessary it made the business press in hindsight look out of touch.
Maybe it was a matter of emphasis, but the credit-card and general consumer-credit industry radical shift in a few year period left news organizations unprepared when the reckoning came.
Part of this included bankruptcy reform, which was intended to restrict many of those who did not know of the change in practices to escape what was not adequately disclosed to them.
The credit card industry encouraged American’s to sue their cards as a type of “plastic safety net”, and they did so with no reasonable regulatory oversight, or the oversight of the press.
This has resulted in the following:
• Americans’ credit-card debt now stands at $900 billion, up 9,000 percent from $10 billion in 1968, adjusted for inflation.
• It rose by a third in the five years ended in 2006, even during a housing and stock market boom, and as consumers shifted card debt to home-equity lines.
• Low and middle-income Americans average $8,650 in credit-card debt.
• The percentage of families that pay more than 10 percent of their income on credit-card payments rose to 23 percent in 2004, from 13.5 percent in 1989.
The repercussions of the plastic safety-net are evident in the bankruptcy data:
• Bankruptcies tripled between 1989 and 2004, to 1.8 million.
• For the first time in 2004, more people went bankrupt than were divorced or were diagnosed with cancer or graduated from college.
• For every household that files for bankruptcy, another ten would have benefited economically from doing so.