Legalized Loan Sharking: The Sleeper Issue of 2008

By Marney White, Commondreams. Posted August 20, 2007.

There’s a sure way that a presidential candidate could get the attention of even the most politically apathetic citizen this year: vow to outlaw outrageous interest rates legally being charged to American consumers by credit card and student loan corporations. These rates are causing real and enduring pain to hard-working Americans and their families who find themselves behind the eight-ball.

Like me.

I’m not much different from a lot of people. Not long ago, I had a credit rating of 755, all my bills were paid on time, and I had no credit card balances outstanding. Then suddenly, I found myself out of work for over 6 months at the age of 39, with two kids in tow (ages 9 and 11). While interviewing for “career positions”, I even tried a stint at Starbucks to tide us over. In my interview, they assured me I’d be able to get forty hours per week as a “barista” (woo-hoo!). But, during my illustrious five-week career, they never gave me more than 10 hours a week (at $7.25 an hour). I was told by fellow employees that my experience was par for the course. As my childcare bill was always bigger than my paycheck, I had to quit. (But I can still make a killer venti decaf cinnamon soy latte.)

The only full-time job offer I received after a diligent search was for a commission-only career position that at least showed promise. I had no option but to take it. While trying to build my business, put food on the table and keep a roof over our heads, I soon had to start using my credit cards, and rapidly maxed-out my $5,500 in available credit.

Before long, having no base salary as a safety net, my bills got paid later and later. Surreal as it seemed, I found myself negotiating payment arrangements with my utility and phone companies, as the disconnect notices arrived in the mail. My stress level went through the roof, and my hair quite literally began falling out.

Fast-forward three years, and that $5,500 turned into $14,000+ in debt. My student loans, which were approximately $42,000 when all of this started, ballooned to $69,000 from late fees and penalties, after I ran out of hardship deferments (and interest kept accruing, even in deferment).

Trying to figure out how I could have gotten into this situation, I examined my credit card statements more closely. Taking for granted the low interest rates I qualified for before all of this happened, I had never expected what I now saw.

To my utter astonishment, I discovered that I was being charged between 22% and 29.5% on all of my balances. This included one card, Care Credit (owned by G.E. Money Bank - hey, why stop at war profiteering?), which is intended to help people stretch out payments for dental and other medical care. The Old Navy card I opened to buy school clothes for the kids was (quelle surprise!) also parented by G.E. Money Bank. Both cards (and others) were charging me nearly 30% interest. For children’s school clothes and family dental care!

Isn’t there a term for near-30% interest on loans? Something like, “loan sharking”? “Usury”??? Does the mafia even charge this much?

It got worse for me from there. When I was able to make the minimum payments, I noticed that my balances kept hitting the ceiling of my credit limit, as soon as I’d get them a little bit below it, costing me a $35 “over limit fee”, in addition to any $35 “late fees” I might incur. That’s every month I was late, and/or over the limit. Which was a lot of months. And interest was compounding on those junk fees, as well as on my balance. I started to wonder, how was I supposed to pay this off?

Conservatives want to deny or ignore the fact that the working poor are using credit cards to provide for necessities - not merely niceties - for their families. A 2005 survey targeting low- to middle-income wage earners entitled “The Plastic Safety Net” (http://www.demos.org/pub654.cfm) found that these families resort to credit cards to cover their lack of health insurance, retirement funds, and unemployment coverage, not their Aspen ski trips.

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Marney White is an ordinary American living on Long Island with her family, assorted cats, and a tank full of tetras.