Burning the Consumer

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January 22, 2008 1:23 p.m.

Liz Pullam Weston is pulling no punches. She begins her column today with “The Bankruptcy law from two years ago should be renamed the Drive More People into Bankruptcy Act of 2005.” She notes that creditors seized on the tighter bankruptcy laws “to crank their wide-open spigots even wider” so that revolving debt per household rose at a real rate of 4.6%, the steepest increase in five years.

Teaser mortgages are creating a mess, but if the consumer starts to melt, it will be widely held credit card debt that are fueling the fires.

During their very expensive lobbying campaign to get the bankruptcy bill passed, the credit industry and their friends in Congress repeatedly said that bankruptcy laws affected creditor behavior. But they spun a different tale, claiming that then-current bankruptcy laws were costing every American family $400 in increased credit costs, so most Americans could save money if the bill passed. Two years later, what do credit card customers have? Not a $400 rebate. Instead, we got more credit at higher prices–with higher short-term profits for the companies.

Now it looks like the American consumer is on the financial ropes. Debt loads are up, and so are defaults. Spending is coming down. There are a lot of causes for this trouble, and lots of need for change in the mortgage markets. But let’s never forget the role of the credit cards. If the consumer collapses, there will be plenty of blame to spread around, but keep in mind the credit card industry and the legislation it pushed through Congress.

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