The Wild and Cruel Gap Between Debtors and Creditors by Ralph Nader


Image by Dean.Chahim via Flickr

Dandelion Salad

by Ralph Nader
The Nader Page
December 13, 2013

The word “inequality” is much in vogue these days. We hear almost daily about the inequality of wealth, income and wages between the richest top 2 or 3 percent of people and the majority of the country’s wage earners. But not much attention is given and not many marches and other protests are addressing the huge inequalities between creditors and debtors.

Of course the aforementioned inequalities, especially of wages and income, worsen the plight of individual debtors. One more distinction needs to be made – that between corporate debtors who receive many favored legal entitlements (even in bankruptcy) and individual debtors who are slammed and harassed by debt collectors.

Start with the Federal Reserve’s low-interest policy of the last five years with no end in sight. Savers who used to get interest of 4 to 5 percent from their bank or money market now get, if they are lucky, ¼ of one percent on their savings. This Fed policy is supposed to stimulate the economy but doesn’t work very well if there is not enough consumer demand in a recession to attract new investment. Meanwhile, the hundreds of billions of dollars held by small, middle to low income savers are generating no interest to help pay their living expenses.

The situation is bad and getting worse. These savers are being turned into “lockbox customers” in peril of having to actually pay the banks to hold their money. The Financial Times reports that “leading US banks have warned that they could start charging companies and consumers for deposits” if the Federal Reserve cuts interest rates further.

Why don’t all those bellowing Congressional deregulators of health and safety standards ever object, except for the pure Ron Paul libertarians, to the overreaching Federal Reserve, the biggest market regulator of them all?

Look at how the U.S. government has treated students borrowing for their education. When the government was not guaranteeing the gouging interest rates and fine-print traps of Sallie Mae and other corporate lenders that still have the iron collar around millions of college graduates, Uncle Sam was directly making money from students with interest rates around 6 percent. Other western nations offer tuition-free higher education as a great investment for their societies.

Skyrocketing student loans now exceed credit card loans outstanding – $1.2 trillion in student loans compared to $1 trillion in credit card loans. With her proposed “Bank on Students Loan Fairness Act,” Senator Elizabeth Warren wants to reduce the student interest rate to the same rate paid by large banks borrowing from the Federal Reserve Bank, less than one percent.

It is stunning how shortsighted this policy of gouging student borrowers is for the health of the economy. Their loan burden after graduation is such that they are less able to buy homes and cars in their twenties and thirties.

In his fine new book Debtors’ Prison, Robert Kuttner recounts the history of debt, including the centuries when under Anglo-American law debtors were imprisoned or executed. He also describes how large corporate debtors today get bailed out or go through bankruptcy proceedings that save the company under a sweetheart rebirth process, complete with allowing executive compensations past and present.

The individual debtors, however, are driven deeper into debt with fiendishly high interest rates (as high as 30% on unpaid credit card balances to over 400% on rolled over payday loans and rent-to-own rackets). Then there are the hundreds of different fees, penalties and costly fine-print impositions that ravage consumer borrowers.

The profits from the credit industry were illustrated this week by MasterCard’s announcement. Its stock is up twentyfold to nearly $800 per share since it went public in 2006. Its profits are enormous, its dividends are surging, stock buybacks robust and there is no end in sight for its upward spiral. For a supposedly staid banking function, MasterCard acts like Apple.

The sheer complexity of borrowing, paying, and getting some so-called relief or refinancing camouflages its own kind of costly exploitation.

If the debtors object, particularly in a persistent manner, over such obvious greed, their credit scores – the new serfdom – can go down and put more burdens on their pocketbooks and future livelihood.

A split U.S. Supreme Court endorsed the compulsory arbitration clause in these fine-print contracts that attaches more shackles. A report by Public Justice (“Wake Up!” can be seen here) found compulsory arbitration allowed predatory lenders to violate federal and state laws that protect consumers and blocked vulnerable elderly patients who had been abused in nursing homes from adequate access to the courts.

Rays of help are coming from the enforcement of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 by the young Consumer Financial Protection Bureau (CFPB). Over-limit fees and repricing actions are mostly eliminated and the dollar amount of late fees is down. Bait-and-switch to higher pricing once the borrower has signed on the dotted line has been diminished.

In its latest report on the law (The CARD Act Report can be seen here), the CFPB recognizes other areas that “may warrant further scrutiny.” These include “add-on products” to credit card users, “fee harvester cards,” “deferred interest products,” and other problems stemming from the relentless ability of corporate lawyers to game and obfuscate the regulatory process and escape prohibitions with new avaricious coercions.

Credit unions, with their ninety million members who are allegedly the owners, should be taking the aggressive lead in denouncing bad practices and thereby bringing even more consumer cooperators into their organizations. Less imitation of commercial banks and more dedication to cooperative service principles should be what members demand from this potentially large reform institution in our country.


Amend the Fed by Ellen Brown

Chris Hedges: The Pathology of the Rich, Part 1

US Higher Education: The New “Treasure Island” for Investors by Joseph Natoli

Michael Hudson: QE, Neofeudalism and Privatization — The End of Consumer Choice

Robert Reich on ‘Inequality for All’ + Jacob Kornbluth: Growing Income Divide Threatens Society

15 thoughts on “The Wild and Cruel Gap Between Debtors and Creditors by Ralph Nader

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  9. Nader understands something most americans dont : dont get in to debt . dont buy from certain companys , and they will go out of business .

    • Many ills of our society can be addressed if we all take the right action, unfortunately this is the ideal, do you think McDonalds would go away, if we all took a stand to end this corporation? although we all know its crap for your health, incidentally a friend of mine or should say acquaintance, whilst walking our dogs, was shocked when I said I have never eaten a hamburger, she was further surprised when I told her I have never drank CoCa-Cola.

  10. We could characterize the entire crippling process as “extraction to destruction (or extinction) ~ via instruction; insurrection; correction, & dejection…” in short, it’s a bad rap ~ Joyce would likely have coined it a crapraptrap ~ you can make your own variations.

    We are surrogate victims who have fallen under the sorcerer’s vicarious spell of deterministic nihilism ~ a magic conveyor belt escalating us luxuriously to nowhere.

    When the “product” consumes its “producer” something has gone radically wrong ~ so maybe we should point this out to the wand -waving wizards of Wall St. ~ because like Disney’s apprentice, they are way out of their depth.

    Stumbling about in this lunatic kingdom of the morally purblind, charming elephants spontaneously morph into monstrous devils.

    Love is not a machine whatever the singularity predicts!

  11. The uprising of the rich and the advantages they have to access highly paid lawyers and accountants to enable them to not only hold on to their wealth but to increase wealth, the rich today having become the nouveau rich, are the new barons that now define what reality is for the individual and what their role is, this insidious operation has nothing to do with conservation or the autonomy of what is best for society or the individual, other than a masquerade of tokenism, to pacify the masses, whilst the rich bathe in the drug induced condition of money and power, for the most this means oppression.
    On TV, a ex-military of rank, having been in active service for some time , had said how the military make a man of you? in spite of statistics showing high suicide rates of those who have been in operation, such as Afghanistan, who die at a rate greater than those who get killed on active service, not to mention PTSD, later in this interview said, “but how would you feel if no one visited your grave?” almost as bad as those who broke down and wept at not being able to have a last glimpse of Mandela, before burial, we are in dire straights when we contemplate our world situation, today.

  12. Ralph Nader is one of the few quasi-politicians I look forward to hearing from. His commentary during the period when Paulson asked for the bailout from Congress was priceless.

    You have some of the best journalists on the beat at Dandelion Salad. Glad to have found you.

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