Why Do You Have So Much Credit Card Debt?
As part of the research for this article, I watched a documentary called "Maxed Out" which explores this nation's incredible and slightly disturbing relationship with bad credit debt.
The main focus is how banks and investors prey on those who are likely to remain in debt in order to maximize their profits.
The social problem it presents is predatory lending and the role of the corporation as a social structure.
On one side you have the extremely profitable businesses of consumer lending.
On the other side are the debtors who are likely to remain in poverty with ever increasing credit card fees.
Diffusion of responsibility in the corporate environment can make abuses appear acceptable and even desirable in our Capitalist economy.
The very nature of business and corporations in this economy is all about profitability over all else.
Their goal is profit and the "bottom line", and managers do whatever is necessary to maximize those profits.
This has led to adverse consequences for large numbers of people.
Predatory lending is perfect example of one of these types of adverse consequences brought about by the corporate structure.
The film suggests that those who have filed bankruptcy are desirable targets for predatory lending for two reasons.
The first is that they cannot file again immediately.
The second is that they have a "taste" for credit" and are willing to make monthly minimum payments forever.
That is, they will most likely maintain a profitable balance indefinitely.
Obviously, bad credit debt is good for corporate America.
Does this not seem like a disassociated insensitivity that is harmful to society in general and the economy as well? Another question to consider in this light is how much of a role consumer confidence plays on the economy.
Will consumer trust in the established environment enough to take on new debt? Trust in being treated fairly would certainly have an impact on how much debt is assumed and for how long.
The film gives this example to illustrate the profitability of these businesses- The average American household carries over $9,000 in credit card debt alone and spends more than $1,300 a year in interest payments.
That is without other fees that are charged, such as late and over the limit fees.
Even if the one with the bad credit debt stops making payments, the credit issuer will still make a profit.
The credit issuer is mandated by Federal law to "charge off" unpaid debt on their profit and loss statement after 180 days.
In this way, even regulatory efforts play a significant role in the overall health of Americans.
The amount owed is then inflated with fees, and inflated debt is sold as a bad debt.
In one year investors bought $75 million in bad debt alone.
Buying these debt and "junk bonds" has become one of the fastest growing industries on Wall Street.
Credit reporting agencies play a large role in this issue also.
The "data" they collect is valuable information for sale.
It does not matter if the data is accurate.
It is valuable regardless of its accuracy.
It was interesting to note, the film claims that FICO scores have a 90% inaccuracy rate.
Inaccuracies like this can be difficult, or even impossible to repair.
Isn't it frightening then, that your ability to get credit at a reasonable rate depends on it? Your bad credit debt could simply be a result of these inaccuracies.
The movie tackled some of these issues with real stories of people who have definitely felt the blows of the consumer lending industry when things didn't work as expected.
It was actually fairly entertaining and did not seem to have a commercial edge I originally expected.
It appeared to be mostly public service oriented.
Given the broad scope of topics, it is not surprising the film does not offer any one solution to the problem.
Avoiding debt entirely seems rather futile, though I have another article in mind about someone who has done just exactly that, but I digress.
The epilogue did have a few suggestions.
· Get the facts · Contact your legislators · Question your lender · Share your credit stories · And Find Help Basically the idea is to stay informed.
Check out the internet for "consumer movement" regarding credit.
This approach in reaction to corporate motives does seem to be a logical way to progress in this situation.
Feel free to visit my blog and share your bad credit debt stories there.
There is also a wealth of information on how to choose the right debt relief program for your own personal situation.
The main focus is how banks and investors prey on those who are likely to remain in debt in order to maximize their profits.
The social problem it presents is predatory lending and the role of the corporation as a social structure.
On one side you have the extremely profitable businesses of consumer lending.
On the other side are the debtors who are likely to remain in poverty with ever increasing credit card fees.
Diffusion of responsibility in the corporate environment can make abuses appear acceptable and even desirable in our Capitalist economy.
The very nature of business and corporations in this economy is all about profitability over all else.
Their goal is profit and the "bottom line", and managers do whatever is necessary to maximize those profits.
This has led to adverse consequences for large numbers of people.
Predatory lending is perfect example of one of these types of adverse consequences brought about by the corporate structure.
The film suggests that those who have filed bankruptcy are desirable targets for predatory lending for two reasons.
The first is that they cannot file again immediately.
The second is that they have a "taste" for credit" and are willing to make monthly minimum payments forever.
That is, they will most likely maintain a profitable balance indefinitely.
Obviously, bad credit debt is good for corporate America.
Does this not seem like a disassociated insensitivity that is harmful to society in general and the economy as well? Another question to consider in this light is how much of a role consumer confidence plays on the economy.
Will consumer trust in the established environment enough to take on new debt? Trust in being treated fairly would certainly have an impact on how much debt is assumed and for how long.
The film gives this example to illustrate the profitability of these businesses- The average American household carries over $9,000 in credit card debt alone and spends more than $1,300 a year in interest payments.
That is without other fees that are charged, such as late and over the limit fees.
Even if the one with the bad credit debt stops making payments, the credit issuer will still make a profit.
The credit issuer is mandated by Federal law to "charge off" unpaid debt on their profit and loss statement after 180 days.
In this way, even regulatory efforts play a significant role in the overall health of Americans.
The amount owed is then inflated with fees, and inflated debt is sold as a bad debt.
In one year investors bought $75 million in bad debt alone.
Buying these debt and "junk bonds" has become one of the fastest growing industries on Wall Street.
Credit reporting agencies play a large role in this issue also.
The "data" they collect is valuable information for sale.
It does not matter if the data is accurate.
It is valuable regardless of its accuracy.
It was interesting to note, the film claims that FICO scores have a 90% inaccuracy rate.
Inaccuracies like this can be difficult, or even impossible to repair.
Isn't it frightening then, that your ability to get credit at a reasonable rate depends on it? Your bad credit debt could simply be a result of these inaccuracies.
The movie tackled some of these issues with real stories of people who have definitely felt the blows of the consumer lending industry when things didn't work as expected.
It was actually fairly entertaining and did not seem to have a commercial edge I originally expected.
It appeared to be mostly public service oriented.
Given the broad scope of topics, it is not surprising the film does not offer any one solution to the problem.
Avoiding debt entirely seems rather futile, though I have another article in mind about someone who has done just exactly that, but I digress.
The epilogue did have a few suggestions.
· Get the facts · Contact your legislators · Question your lender · Share your credit stories · And Find Help Basically the idea is to stay informed.
Check out the internet for "consumer movement" regarding credit.
This approach in reaction to corporate motives does seem to be a logical way to progress in this situation.
Feel free to visit my blog and share your bad credit debt stories there.
There is also a wealth of information on how to choose the right debt relief program for your own personal situation.