How Our Gutless Media Helped Trigger the Credit Crisis

By Trudy Lieberman, Columbia Journalism Review. Posted November 20, 2008.

Media advice on credit issues certainly did not clean up the lending industry. In fact, says Warren, "the financial press worked in concert with the purveyors of dangerous credit instruments to make those instruments look reasonable. It was seen as savvy to use them." In 1991, a headline in USA Today beckoned, "Home Is Where the Money Is; Equity Loans Essential Finance Tool." The story began: "When Neal Pauline buys supplies for his home improvements, he uses his home to pay for them." It continued: "Consumers like Pauline have transformed home-equity loans into one of the fastest growing types of loans in the USA. The home-equity line has become a personal-finance tool as essential as the checking account, the credit card or the money-market mutual fund." The story did note a warning from financial advisers that if you don't repay these loans, you could lose your home, but then added that Neal Pauline "is probably smarter than most personal-finance advisers ... Almost no one loses his home because of home-equity loans." The last two years have shown otherwise, as housing values sank and many people found that they owed more than their home was worth. Even as foreclosures piled up, some media continued to promote the virtues of equity loans. Just a year ago, USA Today published a piece about the market for equity loans drying up. The lead featured one James Chou, who found a home-equity loan to be a "wise choice."

Some media outlets did and do provide meatier stories that give useful advice, such as telling consumers how to raise a defense to non-payment for shoddy merchandise bought with a credit card. And a few sounded alarms about an impending credit crisis. Stories in 2000 by Don Barlett and Jim Steele, then at Time, and The New York Times working with PBS's Frontline in 2004, outlined exactly what was happening. "Lenders are doubling or tripling interest rates with little warning or explanation," the Times reported. But Travis Plunkett, legislative director for the Consumer Federation of America, says most coverage of consumer credit is "pretty superficial." The prototypical story, he explains, "is really a personal-finance story that focuses on helping the consumer as opposed to looking at root causes, policies, and business practices."

In a sample of magazine, newspaper, and broadcast stories over the last twenty years, we found several noting recent congressional hearings about unfair and deceptive credit practices. But we didn't find stories that described the behind-the-scenes lobbying by banks and other creditors to try to make sure these hearings don't produce laws they don't want. In July, the House Financial Services Committee did pass a cardholders' bill of rights that would end unfair late fees and stop the practice of universal default. Many stories await the enterprising reporter who will follow the maneuvering by lenders to stop the bill from becoming law or water it down to the point of uselessness. These days, there's not much appetite for staying with the nitty-gritty of any legislation. Reporters are inclined to cover a proposal for new rules by the Federal Reserve Board to curb the worst of the banks' lending practices, and at the end, when the rules are adopted, but ignore the crucial in-between stage when the special interests work their magic.

Some reporters still do aggressive consumer reporting. Last year, Christopher Neiger, a freelancer writing for aol Autos, showed how lenders got away with charging exorbitant rates for car-title loans, which provide borrowers with a little quick cash secured by the title of a car that's already paid for. Neiger noted that such lenders must disclose the interest rates in terms of the annual percentage rate, but they often just disclose a monthly rate. He warned borrowers that if they see a monthly rate of 25 percent, it is equivalent to a whopping 300 percent APR. How could lenders get away with this? We need more stories like Neiger's that delve into the reasons why the truth-in-lending law has been weakened so much that APRs don't mean much any more.

Truly educating the public seems a pretty remote goal for journalism when consumerism reigns. There's no consumer movement to make news; there are no leaders to be newsmakers, and few local government agencies left dedicated solely to the consumer cause. Heads of regulatory agencies rarely are invited to appear on the Sunday morning news shows, as they once were. There are only advocacy groups, including what remains of the old Nader organization, that get quoted here and there but have little clout.

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