How Our Gutless Media Helped Trigger the Credit Crisis

Last year, New York's state legislature, which has historically led the nation in passing pro-consumer credit legislation, approved a pair of bills aimed at protecting residents from questionable lending practices, the kind that have come back to haunt the economy. One of them would have put the brakes on the "universal default" provision, which lenders use to jack up the rates on credit cards if a cardholder misses a payment on a card issued by another lender. This practice has caused credit-card rates for some people to soar into the 20 or even the 30 percent range, far surpassing what once was considered criminal usury and helping to pile on debt that has contributed to mortgage foreclosures. But then-Governor Eliot Spitzer vetoed the bill, arguing that it would force lenders to increase interest rates or fees for all credit-card holders, even those with good credit records. Spitzer also claimed that the law wouldn't do any good anyway because federal law would preempt state law, and federal law allows banks to bypass state usury laws by setting up shop in states with lax regulation.

Whatever the merits of Spitzer's argument, it was an important discussion for New York and the rest of the country. But his veto was like the proverbial tree falling in the empty forest. The AP's Albany bureau sent out no story, and the news editor does not recall why. A Nexis search found only one brief mention of the veto, in the Albany Times Union. Spitzer sided with the banks and the media were silent.

This would not always have been the case. What happened in Albany is just one piece of evidence of the decline of the consumer movement, the rise of consumerism to replace it, and the media's role in both trends. The consumer movement that rose in the 1960s pushed for laws and regulations to protect buyers from the excesses of the marketplace. The press aided both its creation and its demise, then helped to replace it with consumerism, which serves the individual shopper but not systemic reform that might benefit everyone.

Nowhere is that clearer than with the issue of credit, where the consumer movement scored its first victories -- and where the erosion of hard-won protections has contributed to the nation's current economic turmoil. Back in 1967, Sidney Margolius, a syndicated consumer-affairs writer and author, testified before a subcommittee of the House Banking and Currency Committee about unscrupulous debt collection tactics, deceptive selling practices to goad people into buying on credit, and misleading credit terms that resulted in exorbitant interest rates. "The damage to consumers themselves is greater than many of us may realize," Margolius told members of Congress. "To a large extent -- and this may seem a little strong to swallow at first -- consumer exploitation has replaced labor exploitation as the real problem of our times." Forty-plus years later, some of the same issues bedevil consumers. Only now they are often viewed as simply aggressive business practices for lenders, not consumer exploitation. Gretchen Morgenson, in her July 20 New York Times piece, "Given a Shovel, Americans Dig Deeper into Debt", pointed out that lenders "have found new ways to squeeze more profit from borrowers" using sophisticated marketing tactics and personal financial data to tailor their pitches, making debt sound desirable and risk-free. Finally the fallout came. As Dean Starkman, who runs The Audit on cjr.org, pointed out in this magazine in March ("Red Ink Rising"), American credit-card debt now stands at more than $900 billion, up 9,000 percent from 1968, having risen by a third between 2001 and 2006. Worse, he noted that more than three quarters of the credit industry's profits now come from people who make minimum monthly payments. As he further reported, these industry-wide changes followed a regulatory rollback and were by and large missed by the nation's press.

Call it a special time in American history -- the nation's third consumer movement, following the one sparked by writers like Ida Tarbell and Upton Sinclair around the turn of the previous century, and a second movement born from hardship during the Great Depression. This one began with the publication of Ralph Nader's Unsafe at Any Speed in 1965, in which he questioned the safety of GM's Corvair. General Motors retaliated by hiring a detective to spy on Nader, hoping to unearth enough dirt to bury him. Instead, GM's tactics turned Nader into a folk hero, and GM president James Roche apologized to a congressional committee. Nader had been called as a witness at a hearing on auto safety, and it's a federal crime to harass or intimidate a congressional witness. After that, Nader and his Raiders, a band of bright young activists and lawyers, went about the business of building support for laws that would make cars and medicines safer, shopping for credit easier, and the air cleaner. They brought to stodgy Washington a new public-interest perspective and began to disrupt the cozy relationships that businesses had developed with the agencies that regulated them.