We Need to Tackle Credit Card Debts to Help Households Suffering from the Economic Crisis
Less than two weeks ago, President Obama signed the American Recovery and Reinvestment Act of 2009, a $787 billion package aimed at jump starting the economy and laying the foundation for future economic growth. The money dedicated to infrastructure work, a green economy and job creation should go far in addressing the long term needs of American families. However, the tax relief set aside to stimulate the economy now will not provide the injection needed to stabilize the household economy through increased spending power, so that families can close the gap between income and expenses. Rather like the $150 billion stimulus package provided to taxpayers by former President Bush, this program--while differentiated in that it realized in pretty small payroll tax reductions--really won't provide relief for cash-strapped Americans who already rely on debt to get by.
A survey conducted by Demos of low and middle income Americans found that most planned to use tax refunds to pay off credit card debt which has increased over 30 percent since 2004. The latest data from the Federal Reserve based on the 2007 Survey of Consumer Finance--shows that 46 percent of families with credit card debt carry, on average, $7,300 in outstanding balances. Overall, revolving debt is estimated at $976.3 billion. With so many families struggling to pay off credit card debt, a trend that started in the bubble economies of late 90s and early 2000s-- before the recession--and is now accelerated, the a long-term recovery effort won't really create the good jobs rather than debt-driven economy we need. That is, unless a stimulus and recovery plan is matched with policies that offer direct solutions to address debt, our economic future is still in peril .
Credit card debt takes a toll on a families' economic stability; news reports, studies and surveys find again and again. During these tough economic times, a credit card may be the means for keeping food on the table. However, as families know all too well in the US, it will come at a high price--outrageous interest rates, fees and penalties can turn a $100 grocery bill into $300 of debt. The problems are only compounded when borrowers default, affecting credit ratings which, in turn, create an often insurmountable obstacle to long term financial security by hampering a family's ability to build assets or secure loans of all kinds (home, car, college) at reasonable rates. It is an oft-repeated story, one that's we're hearing with greater frequency as the economic downturn worsens.
The credit card debt trap was created by financial giants like Capital One and Citigroup, and the former Providian/WaMu and MBNA and others, whose "gotcha" lending practices like double cycle billing and universal default have put at risk the future of American families and the economy as a whole. Despite that, they will benefit yet again from the tax relief provided by the stimulus package which can be seen as an additional bailout for the very financial firms that helped create this mess in the first place.
Congress needs to enact the 2009 Credit Cardholders' Bill of Rights Act to level the playing field between borrowers and lenders, by putting an end to some of the most arbitrary, abusive, and unfair credit card lending practices that trap consumers--particularly disadvantaged and minority borrowers--into an unending cycle of costly debt. While tax relief will provide minimal help in keeping collectors at bay, to stimulate the economy, we need jobs, infrastructure and education investment to go hand-in-hand with bold new policies that restore meaningful regulation and fairness in the lending arena. The recovery needs not just be cash, but a rule change that is immediate. Otherwise, America's families clearly lose.