The Two-Income Trap (39 page)

58
For a discussion of consumer credit during the 1920s and 1930s, see Lendol Calder,
Financing the American Dream
(Princeton, NJ: Princeton University Press,
1999): 156-208, 262-290. Calder reports, “The 1930s were prosperous years for consumer credit agencies. They prospered not by lending to the unemployed and destitute, but by expanding services to people who were fortunate enough to hold on to their jobs” (p. 292).

59
Between 1996 and 2001, total late fee revenues generated to bank credit card issuers increased from $1.7 billion to $7.3 billion. “Late Fee Bug,” in
Cardweb.com
,
May 17, 2002. Available at
http://www.cardweb.com/cardtrak/news/2002/may/17a.html
[1/28/2003]. The average credit card late fee increased from $11.60 in February 1994 to $30.04 in November 2002. “Late Fees Slow,” in
Cardweb.com
,
December 11, 2002. Available at
http://www.cardweb.com/cardtrak/news/2002/december/11a.html
[1/28/2003].

60
Revenues of the top 100 contingent collections agencies grew from $1.7 billion in 1995 to $4.2 billion in 2000. Mike Ginsberg, “State of the Collection Industry,” Powerpoint presentation of the Kaulkin Ginsberg Company, March 19, 2001. Available at
http://www.kaulkin.com/pptfiles/l-the_state_of_the_collection_industry.ppt
[1/28/2003]. For additional industry statistics, see Association of Credit and Collection Professionals, “Collection Facts,” in
AcaInternational.org
, November 15, 2002. Available at
http://www.acainternational.org/intcontent.aspx?via=pn&cid=1362&sid=1
[1/28/2003].

61
In re Francis Michael Latanowich
, 207 B.R. 326 (Bankr. D. Mass. 1997).

62
Professor Jay Westbrook remarked, “Sears looked the bankruptcy laws straight in the eye and defied them”—to the tune of $160 million. Barnaby J. Feder, “Bankrupt See Sears’ Strong-Arm Side: Heavy-Handed Debt Collection,”
Austin American-Statesman,
July 22, 1997. Sears conceded as much, agreeing to pay a $60 million criminal fine and additional restitution pegged at $600 million.

63
United States Trustee’s Response Regarding Reaffirmation Agreements Between Debtors and Sears, Roebuck & Company,
In re Francis Michael Latanowich
, 207 B.R. 326 (Bankr. D. Mass. 1997) (No. 95-18280-CJK).

64
We spoke with Millard Land, president and CEO of Adjuster’s Inc., a Texas-based repossession, collateral collection, and investigations agency, and a member of the Board of Directors and Grievance Chairman for Time Finance Adjusters. He told us that his firm typically charges $350-$400 to repossess a small item such as a television set, and $400-$500 to repossess something larger, such as furniture. He also said that in his experience, it is virtually unheard of to repossess personal goods, such as clothing and car batteries. These costs would far exceed the amount Sears could recoup in selling many of these goods. For example, Sears sells brand-new Walkmans for $29.99-$49.99 and new car batteries for $39.99-$99.99. Sears, “Automotive: Batteries” and “Electronics: Personal Radios and Cassettes” at
Sears.com
(2003).

65
Quoted by Susan Chandler, “Stuck in the Middle,”
Chicago Tribune,
August 20, 2000, C1.

66
Kate Griffin, “How Hard Is Too Hard?”
Credit Card Management
(December 1997), pp. 26-30 (discussing AT&T practices); “GE to Pay $100 Million Settlement,”
AP Online,
January 22, 1999; “Stores Chain Settles Cases on Bankruptcy Violations,”
Fulton County Daily Report,
February 25, 1998 (reporting Federated Department Stores’ $11.3 million settlement covering twenty states); “May Stores Settles Suit over Collection Tactics, Will Pay $22 Million,”
Wall Street Journal,
November 3, 1998; “Card Notes: Another Retailer Settles Reaffirmation Suit,”
Credit Card News,
December 1, 1998 (detailing a Circuit City subsidiary’s agreement to pay $6 million to an estimated 11,000 customers); Lynn Arditi, “Bankrupt Credit-Card Holders to Be Reimbursed by JCPenney,”
Providence Journal-Bulletin,
December 10, 1998 (discussing the company’s $11.7 million settlement spanning forty-two states and covering 11,000 consumers). After this rapid-fire round of settlements, a few court opinions put an end to the reaffirmation suit frenzy, declaring that there was no private right of action available to debtors in these situations. See William L. Stern, “The End of ‘Re-Aff’ Class Actions,”
Consumer Bankruptcy News,
March 6, 2001. Not all of these companies threatened to seize families’ goods. Some sent bills, made collection calls, or threatened to take people to court—all in violation of federal law. See, e.g., Bruce Mohl, “Federated, 20 States in $10m Settlement,”
Boston Globe,
February 18, 1998.

67
According to the Federal Trade Commission, in most states, used mattresses can be resold as long as they meet certain labeling and processing requirements. U.S. Federal Trade Commission, “Consumers Can ‘Rest Easy’ Following FTC Settlements with Two Used Mattress Resellers,” news release, June 14, 2000. Available at
http://www.ftc.gov/opa/2000/06/mattress2.htm
[3/6/2003]. However, we have no evidence that Sears is in the used mattress processing business. So, even though the woman was incorrect about the law of mattress sales, it was certainly reasonable to be skeptical of Sears’s intent to repossess.

68
United States Trustee’s Response Regarding Reaffirmation Agreements Between Debtors and Sears, Roebuck & Company,
In re Francis Michael Latanowich,
207 B.R. 326 (Bankr. D. Mass. 1997) (No. 95-18280-CJK).

69
Barnaby J. Feder, “Spending It: The Harder Side of Sears,”
New York Times,
July 20, 1997.

70
David Snyder, “Is Sears a Bank Or a Retailer? It Must Come Clean on Credit,”
Crain’s Chicago Business,
November 3, 1997. Since that time, Sears has substantially expanded its credit card operations, launching a MasterCard that can be used outside the store. Today it is the third largest MasterCard issuer in the world. Joe Hallinan and Amy Merrick, “Credit Cards Swipe Sears Profits,”
Wall Street Journal,
February 11, 2003.

71
Today many states have technical usury laws on the books, but in many cases the caps are so high that they provide little protection. Because out-of-state lenders can evade those laws, local lenders have pressed state legislatures to raise usury caps
so that they are not put at a competitive disadvantage. Moreover, even if a state keeps its rates low, that provides little protection for its residents, since out-of-state lenders simply override local laws by incorporating in other states and marketing higher-rate loans across state borders.

72
Jerry W. Markham,
A Financial History of the United States,
volume 3,
From the Age of Derivatives into the New Millennium (1970-2001)
(Armonk, NY: M. E. Sharpe, 2002), pp. 73-74.

73
Jones and Zywicki, “It’s Time for Means-Testing.”

74
Federal Deposit Insurance Corporation (FDIC), Historical Statistics on Banking, Commercial Bank Reports, Table CB04, Net Income, FDIC-Insured Commercial Banks (Washington, DC: 2002). Available at
http://www2.fdic.gov/hsob/
[3/20/2003].

75
The nine interest rate cuts by the Federal Reserve in 2001 did not affect most fixed-rate cards and had only modest effects on variable-rate cards. Cecily Fraser, “A $10 Billion Windfall: Credit Card Lenders Don’t Pass on Full Interest-Rate Cuts,”
CBS
MarketWatch.com
,
October 3, 2001. Available at
http://www.cbs
.
marketwatch.com
[2/2/2003].

76
Interest on so-called payday loans can be in the 300-1,000 percent range. FDIC,
Payday Lending FYI: An Update on Emerging Issues in Bankruptcy
(January 29, 2003).

77
Mansfield, “The Road to Subprime ‘HEL’,” pp. 492-495. The initial Depository Institutions and Monetary Control Act (DIDMCA), which allowed banks to pay higher interest to depositors and preempted state usury laws, passed the House on September 11, 1979, by a vote of 367 to 39, and passed the Senate on November 1, 1979, by a vote of 76 to 9. U.S. Library of Congress,
Bill Summary and Status for the 96th Congress: H.R. 4986,
Thomas Legislative Information on the Internet (1995). Available at
http://thomas.loc.gov
[3/3/2003].

78
Progressive reformers actually made the first major campaign to “democratize credit” in the early twentieth century. Calder,
Financing the American Dream,
pp. 124-155.

79
Even the most aggressive advocates of expanding home-ownership rates in America are beginning to call for reregulation of the mortgage market, recognizing that the impact on the number of families buying homes is likely to be small. National Training and Information Center,
The Devil’s in the Details: An Analysis of Federal Housing Administration Default Concentration and Lender Performance in 20 U.S. Cities
(Chicago: NTIC, October 1997). See also National Training and Information Center,
Preying on Neighborhoods: Subprime Mortgage Lending and Chicagoland Foreclosures
(Chicago: NTIC, September 21, 1999).

80
HUD, Office of Policy Development and Research,
U.S. Housing Market Conditions,
Historical Data, 3rd Quarter, 2002 (November 2002), Table 27, Homeownership Rates by Age of Householder, 1982-Present. Available at
http://www.huduser.org/periodicals/ushmc/fall02/histdat27.htm
[2/18/2003].

81
National Community Reinvestment Corporation, “About Us,” in
NCRC.org
(2002). Available at
http://www.ncrc.org/about/aboutindex.html
[2/2/2003]. (The organization’s primary mission is “to increase the flow of private capital into traditionally underserved communities.”)

82
“Federal Regulators Drop Subprime Proposal,”
CardLine
3, no. 2 (January 10, 2003): 1.

83
Economist
, “Hunting the Loan Sharks,” August 31, 2002.

84
Jeanette Bradley and Peter Skillern, “Predatory Lending: Subprime Lenders Trick Homeowners into Expensive Loans,” in the National Housing Institute’s
Shelter Force Online,
no. 109, January/February 2000.

85
To be fair, efforts to regulate predation are better than nothing. After North Carolina enacted some limits on predatory lending, at least one subprime lender left the state’s markets entirely and headed for easier pickings in other states. See Noel C. Paul, “Homeownership Can Be Short-lived in Inner Cities,”
Christian Science Monitor,
May 1, 2001.

86
Hevesi, “A Wider Loan Pool.”

87
There have been numerous private efforts to bring lower-cost capital to underserved communities. See, for example, Woodstock Institute,
Doing Well While Doing Good,
Reinvestment Alert Number 18 (Chicago: Woodstock Institute, September 2002). Available at
http://www.woodstockinst.org/alert18.pdf
[3/22/03].

88
Democratic National Committee,
The 2000 Democratic Party Platform: Prosperity, Progress, and Peace
(Washington, DC: DNC, 2000). Available at
http://www.democrats.org/about/2000platform.html
[2/2/2003]. Republican National Committee,
Republican Platform 2000: Renewing America’s Purpose, Together
(Washington, DC: RNC, 2000). Available at
http://www.rnc.org/gopinfo.platform
[2/2/2003].

89
Ellis, “The Effect of Consumer Interest Rate Deregulation.”

90
National Bankruptcy Review Commission,
Bankruptcy: The Next Twenty Years. Final Report
(Washington, DC, 1997): 77-95 (NBRC Report). For the reasons families file for bankruptcy, see p. ii. The Commission recommended, for example, that the practice of permitting credit card companies to pressure families to agree to repay debts discharged in bankruptcy should be outlawed. Recommendation 1.2.1. It also recommended that unlimited homestead exemptions should be capped at $100,000, which would prevent wealthier families from shielding their assets in an expensive home. Recommendation 1.2.2.

91
For additional background on this organization, see, e.g., Steve Cocheo, “In Debt and Loving It,”
ABA Banking Journal
89, no. 8 (August 1, 1997); “The Curtain Rises on the Latest Bankruptcy Drama,”
Credit Card News
(December 15, 1996).

92
Industry analysts estimate that about 31 percent of credit card chargeoffs are listed in bankruptcy, while the remaining 69 percent are simply written off as uncollectable even if the family never files for bankruptcy. “Bankruptcy Losses on Cards,”
Nilson Report
779 (January 2003): 6.

93
The bankruptcy lobby group and the supporters of the current bankruptcy bill readily acknowledge that their goal is to reduce the number of families eligible to file for bankruptcy. See, for example, testimony of longtime credit industry lobbyist George J. Wallace, Subcommittee on Administrative and Commercial Law of the Committee on the Judiciary, House of Representatives (March 4, 2003). They do not, however, point out that this means that more families would end up mired in debt for the rest of their lives.

94
“Bankruptcy Efforts ‘Worsen’ Chargeoffs,”
Card News
12, no. 21 (October 27, 1997).

95
The bill morphed through multiple versions. To read it, it was necessary to hold a copy of the already lengthy bankruptcy code beside it and try to parse through the proposed changes. The final Engrossed Senate Amendment version was 222 pages long.
Bankruptcy Reform Act of 2001
, 107th Cong., 1st session, H.R. 333 (Engrossed Senate Amendment version, last updated on 7/18/2001).

96
Common Cause, “Controversial Bankruptcy Bill Moves Forward: Creditor Interests Gave $63 Million,” in
CommonCause.org
(September 19, 2002). Available at
http://www.commoncause.org/moneyinpolitics/img/091902bankruptcy_study.pdf
[2/12/2003].