Credit Card Debt

New Report: "The Plastic Safety Net: The Reality Behind Debt in America"

An examination of recent economic trends -- including stagnant and declining real wages, job displacement, and rising health care and housing costs -- suggests that many Americans are using credit cards as a way to fill a growing gap between household earnings and the costs of essential goods and services.

Exorbitantly high credit card rates and exploitative fees have taken advantage of the increased need for credit. As a result, more and more American families find themselves perpetually indebted to the credit card industry, which -- despite claims of losses and charge-offs -- remains one of the most profitable sectors of the banking industry.

A burgeoning movement of economic security advocates, consumer groups and financial service providers are beginning to question the high cost of credit in the age of deregulation. Whether this movement can convince lawmakers to re-instate usury laws (limiting the interest charged to consumers) or other reforms will depend on an educated and mobilized community and public. Demos has organized the following resource pages in the hope of jumpstarting this new and important dialogue.

> Publications: Reports, Articles, and Books
         >Industry Practices
         >Usury Laws, Legislation and Regulatory Context
         >Testimony and Court Cases
> Research and Data Sources
> Organizational Links

Publications

The Plastic Safety Net
The Reality Behind Debt in America
October 12, 2005
Findings from a National Household Survey of Credit Card Debt Among Low- and Middle-Income Households.




Costly Credit
African Americans and Latinos in Debt
May 11, 2005
Costly Credit, the fourth in a series of briefing papers documenting the dramatic rise in credit card debt, provides a snapshot of these trends by race between 1992 and 2001.

Generation Broke: The Growth of Debt Among Young Americans
(Tamara Draut and Javier Silva, Demos: 2004)
Second in a series of Borrowing to Make Ends Meet Briefing Papers. Reports a 55% average increase in credit card debt among America's young adults from 1992 to 2001.

Retiring in the Red: The Growth of Debt Among Older Americans
(Tamara Draut and Heather C. McGhee, Demos: 2004)
First in a series of Borrowing to Make Ends Meet Briefing Papers, reports an 89% increase in credit card debt among America's seniors from 1992 to 2001.

Borrowing to Make Ends Meet: The Growth of Credit Card Debt in the 90s
Executive Summary (9 pages) - or - Full Report (60 pages)
(Tamara Draut and Javier Silva, Demos: 2003)
Using new data, this report explores how families are increasingly using credit cards to meet their basic needs. Also examines the factors driving the debt crisis and the impact of deregulation on the cost, availability and marketing of credit cards.

"Accessing Affordable and Appropriate Credit"
(Karen Murrell, Annie E. Casey Foundation: September 2003)
Examines key issues and trends in how low-income consumers access credit. In almost all cases, the prices that low-income families pay to access financial products and services are higher than they would pay if they had access to better information, had better credit ratings, or lived in neighborhoods with more banks and credit unions. Key issues addressed in this report include the U.S. credit system, consumer motivations and methods for accessing credit, and the link between individual and community wealth.>

Credit Card Nation: The Consequences of America's Addiction to Credit 
(Robert D. Manning, Basic Books: 2001)
A seminal book on credit card debt and its economic impact on students, families, and the U.S.  Manning also explains the history of credit since the beginning of the deregulation of financial services in 1980.

The Fragile Middle Class: Americans in Debt 
(Teresa A. Sullivan, Elizabeth Warren, Jay Lawrence Westbrook, Yale University Press: 2000)
Explains the precariousness of middle-class family finances and debunks dominant myths of over-consumption by naming the three top reasons for people filing bankruptcy: job loss, medical problem, and divorce. Based on findings from the authors' Consumer Bankruptcy Project.

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Industry Practices:

 "Annual Credit Card Survey"
(Consumer Action: 2005)
An analysis of 146 different credit cards that attempts to track the problematic trends in industry practices and assist consumers in comparing cards, while keeping them informed about potential credit pitfalls.

"Secret History of the Credit Card"
(PBS/Frontline: 2004)
Interactive web site based on PBS/Frontline/New York Times Television documentary on the credit card industry. Includes interviews, publications, links and a readers forum. Documentary is available for web viewing and DVD purchase.

"Credit Card Industry Practices: In Brief"
(Demos: 2004)
A two-page explanation of the practices (including late fees, easily-triggered penalty rates, universal default policies) used by deregulated credit card issuers to maximize their profits at the expense of increasingly indebted American consumers.

"OCC Advisory Letter: Secured Credit Cards"
(Comptroller of the Currency: April 28, 2004)
Warning letter to national banks against continuing unfair and deceptive practices associated with secured credit cards, which require customers to deposit, or accept a loan of, a certain amount before a limited-credit line card can be issued.  These cards are often marketed to people with damaged, little, or no credit as "credit repair" but have terms (including interest and fee structures) which make it exceedingly difficult for consumers to pay off balances.  These terms and practices are explained in detail in the letter.

"A Primer on Credit Lines"
(Lucy Lazarony, Bankrate.com: 2003)
A discussion of the significant expansion of credit lines to consumers in recent years. Heftier lines of credit -- extended irregardless of income levels -- have played a key role in the debt boom, as they allow consumers to carry larger balances.

"20 Sneaky Credit Card Tricks"
(Amy Fleitas, Bankrate.com: 2003)
A breakdown of the most popular "tricks" employed by credit card companies to get and keep consumers in debt.

"Reading the Credit Card Fine Print"
(Larry Getlen, Bankrate.com: 2003)
Traces the fees and rate increases commonly charged by credit issuers to the "fine print" disclosure on consumers' statements.

"Credit Domino Effect"
(Lucy Lazarony, Bankrate.com: 2003)
Explains the practice known as "bait-and-switch": when a change in credit status brought on by one account translates into higher rates or fees from another.

"Credit Card Penalties Get More Severe"
(Lucy Lazarony, Bankrate.com: 2002)
Reports that in an effort to boost revenue, the nation?s most popular credit card companies increased their fee rates.

"The Credit Card Trap: How to Spot It, How to Avoid It"
(State PIRGs: 2001)
Findings from a survey in the summer of 2000 indicate that credit card terms and conditions are becoming less favorable to consumers and credit card marketing practices are largely misleading and deceptive.

"Credit Card Issuers Aggressively Expand Marketing and Lines of Credit on Eve of New Bankruptcy Restrictions" 
(Consumer Federation of America: 2001)
As a creditor-funded campaign to restrict consumer access to bankruptcy approached passage in Congress, the Consumer Federation of America released data to show that credit card issuers dramatically increased their marketing and credit extension.

US PIRG Testimony on Abusive Credit Card Industry Practices 
(Ed Mierzwinski, US PIRG: November 2001)
Testimony on behalf of the United States Public Interest Research Group, stating that the credit card industry is engaging in a number of unfair, anti-consumer practices to increase profitability.  These claims are supported by detailed references to the increased regulatory, legislative and legal scrutiny that has started to develop around the credit card industry.

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"State Interest Rates and Usury Limits"
(Lectlaw: 2002)
A legal definition and discussion of Usury Laws and Usury Limits accompanied by state-specific interest-rate information for the entire country.

"Credit Card Companies Sidestep Usury Laws"
(Lucy Lazarony, Bankrate.com: 2002)
Explains how major credit card issuers are based in states without usury laws and are therefore not bound to any interest rate controls, regardless of the states in which their borrowers reside.

"Controlling Interest: Are Ceilings on Interest Rates a Good Idea?" 
(Federal Reserve Bank of Chicago)
An essay that examines the potential, unintended consequences of interest rate ceilings by discussing the economic theory behind the arguments for and against these limits.

"Bank Trends -- The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate"
(FDIC: May 1998)
Argues that the 1978 Supreme Court decision, Marquette National Bank of Minneapolis v. First Omaha Service Corp., profoundly changed the credit card market in favor of the creditors, increasing the average risk profile of borrowers and greatly deregulating established usury ceilings in various states.

"Rediscovering Usury: An Argument for Legal Controls on Credit Card Interest Rates"
(University of Colorado Law Review: Winter 1996)
Finds that a lack of interest rate control has resulted in a transfer of wealth from consumers to the major credit card issuers.

"Neither a Borrower Nor a Lender Be: An Economic Analysis of Interest Restrictions and Usury Laws"
(Edward Glaeser and Jose Scheinkman, NBER: December 1994)
A paper contending that interest rate restrictions are essentially a means of ?primitive social insurance.?

U.S. PIRG "OCC Watch"
Includes information on recent actions taken by the Office of the Comptroller of Currency and the Office of Thrift Supervision to oppose the enactment of pro-consumer laws by various cities and states.

Jump$tart Coalition Financial Literacy Legislation Grid
A regularly updated listing of pertinent federal and state statutes that deal directly with issues of consumer finance.

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