Credit Marketing Sleaze

by Molly Ivins

"One of the first duties of government is protect the weak against the strong, to prevent men from injuring one another. "We know that many, but not all, of our most powerful and influential citizens are very greedy. That fact has many times been demonstrated. It is perfectly natural that they seek more power, influence and greater wealth. It is also true that where there is greed, there is no vision, and the Good Book says that where there is no vision, the people perish."

-- Wright Patman, 1936

Federal and state consumer protections have been badly eroded in recent years, and our ever-alert entrepreneurs have jumped right in to take advantage of the poor. "Throughout the country, these unsuspecting consumers are losing homes, money and property to aggressive home-mortgage lenders, car financiers, rent-to-own companies and others -- a whole system of 'fringe banking,'" says Consumer Reports in its current issue.

The finance companies and rental-purchase centers that specialize in ripping off poor people are flying high, wide and handsome -- and their stocks are owned by mutual companies, including Fidelity, Janus and Oppenheimer. Banks and insurance companies invest in them. However, according to the "Credit Risk Management Report" from Phillips Business Information Inc., the huge roll-over of credit card debt into home-equity loans is not having a happy result.

"Of the 4.2 million U.S. households that used home-equity loans to pay down their credit card debt in the past two years, only 1.5 million remain credit-card debt free. (From a report by Brittain Associates.) 'These loans have been so aggressively marketed, even more than credit cards. Eventually, some consumers will get into trouble,' said Bruce Brittain of the Atlanta-based research firm."

Some? The Consumer Federation of America released a report last week showing that big banks have dramatically expanded their credit card marketing and credit extension -- to precisely those marginal customers who are likely to get into serious debt -- while financing a campaign to restrict consumer access to bankruptcy.

According to the CFA report:

• "From Jan. 1, 1997, through March 1998, all revolving credit (from banks, non-banks and retailers) increased only 7.6 percent while bank card debt rose 23.5 percent and unused bank card lines of credit grew by 50.38 percent."

• "Bank card mailings increased from 2.4 billion in 1996 to 3 billion in 1997, then to an annual rate of 3.2 billion in the first quarter of 1998 -- a total increase of 33 percent."

• "This aggressive marketing and credit extension, especially to low- and moderate-income households, is the principal reason for rising bank card debt losses, which increased steadily from 3 percent of outstanding debt in 1994 to an annual rate of 5.6 percent in the first quarter of '98, an increase of 87 percent."

• As reported here earlier, in an effort to reduce their losses, big credit card banks made political contributions in the 1997-98 cycle of $3.6 million; they want Congress to give them relief from the bankruptcies brought about by their own practices.

At least the credit card companies still come under the usury laws; in many states, home loans, car loans and rental-purchase agreements carry annual interest rates of more than 250 percent. According to Consumer Reports, "Usury laws and disclosure laws don't kick in because lawmakers have defined costs as fees, not interest." Like it?

Consumer Reports says that sub-prime lending -- to those with spotty record histories -- is growing wildly and in 1997 accounted for 15 percent of home-equity loans. "Abuses are also increasing, especially against the poor, the elderly and minorities, say public officials and consumer advocates." One federal law even pre-empts states from capping interest and fees for first home mortgages.

This stinketh. But it wouldn't have surprised ol' Wright Patman any.