New Analysis
On Tuesday, May 19, the U.S. Senate voted, 90-5, in favor of a bill that would apply new restrictions to the credit card industry, making the terms of their contracts more comprehensible to customers, and limiting predatory lending practices. For example, the measure would prohibit interest-rate hikes on existing balances, unless the card holder was 60 days overdue on payment. If the holder resumed on-time payments for six months, the rate would return to its previous level. The measure would also require 45 days advanced notice of rate increases. Companies could not charge late fees if they were late in processing payment. Card companies would be restricted in issuing cards to people under 21, which has been common practice on college campuses, i.e., by extending credit to students without parental oversight and thus building debt among younger customers. Credit card penalties alone generate $15 billion, or about 10 percent of annual revenue for the industry. According to the New York Times, about a fifth of those carrying credit-card debt pay more than 20 percent in interest.
In response credit-card companies have been threatening to cut rewards programs, even for on-time customers, to make up the loss in revenue due to the new restrictions. In addition, the American Bankers Association – members of which include American Express, Citigroup, and Bank of America – has been considering reviving annual fees for all cardholders and charging interest immediately on all purchases.
The parasitic skimming of working people’s wages is hardly new. For decades, the credit industry has extended purchasing power to the American working and middle classes as real wages have concurrently frozen or even shrunk, relative to inflation. In the 1980s, when usury laws were repealed in several states, companies began issuing credit to riskier customers at absurdly high interest rates. In fact, these credit-risks became the most profitable customers for the industry, since they typically were willing to make small monthly payments at extremely high interest, almost indefinitely.
The present legislation will curb many of these predatory practices, but one should be aware that the explosion of credit in the past few decades not only generated revenues for the banks. It also enabled an increasingly large percentage of working Americans to afford, temporarily, basic expenses, such as housing, utilities, and food – even while their real wages increasingly failed to cover a basic standard of living. In fact, the present credit crisis reveals a decades-old wage crisis in all its urgency. Americans are increasingly unable to provide for their families on a single wage. Multi-income households are more common and, indeed, necessary to sustain a basic standard of living.
The curbing of predatory lending is not the end of the matter. Americans are experiencing the unalloyed results of Capital’s long, steady work to reduce wages, benefits, and the power of the unions, hardly the affluent society once promised. Here, at the center and concentration of the world’s wealth, working people find themselves more and more impoverished. With the partial retreat of finance Capital, now the struggle for a decent living wage advances.
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