Kids Are Being Seduced Into Credit Debt

When did usury stop being a sin? Just a thought that occurred the other day as I happened to glance at the small print on a bill and saw I was being charged more than 24% interest on a credit card my college freshman son had obtained.

Isn’t that the sort of excessive profit to the money lenders that major religions have warned against? “Let the exacting of usury stop,” it is commanded in Nehemiah, a passage of Scripture referring to loans among the Israelites that extracted “the hundredth part of the money”--a mere 1% rate. The average credit card interest rate charged today is 18%, which cannot be a good thing. Not when banks borrow from the federal government at a quarter of that rate and when Americans are shouldering $500 billion on 1.4 billion credit cards.

Not when you consider the deceptive ease with which younger people without means of self-support are enticed with teaser rates into a life of spiraling debt, hooked by plastic card pushers who meet them at college gates. These hawkers, offering credit cards emblazoned with school emblems, are endorsed by college administrators, whose schools get a cut. Catch the school spirit, sign up for a credit card.

Students are the target of opportunity for those who see debt as the growth business of the future, and it’s arguably true that a crushing debt can have a deleterious effect on a young person’s physical and mental health. Often they join the 1.3 million debtors a year who declare personal bankruptcy.

Usury is defined in Webster’s dictionary as the practice of lending money “at an exorbitant or illegal rate of interest.” But we no longer have an effective definition of an “exorbitant” or “illegal” rate of interest since Congress has over the years refused to set reasonable limits on credit card interest while denying that right to the states.

The California Constitution, for example, set 10% as the limit on interest that can be charged, but that’s been so watered down over the years by amendments and federal law that the existence of the state’s once very stern prohibition on usury is now a joke.

The federal anti-racketeering act does criminalize loan sharking, a time-honored occupation of criminal syndicates, but federal law excludes financial and other credit-card-granting institutions from the restraints imposed on less savory lenders.

But just how savory are the distributors of credit cards? As legislation now before Congress points out, it is common practice in the credit card industry to offer those low teaser rates, but the terms are designed to have the rates quickly soar. Then, too, your account can be sold to another lender without your permission, as was the case with 32 million credit card customers last year.

And of course the dread specter for those who fail to comply are those dings on your credit report, which has come to represent a more important reflection of your value to society than the combination of your education, years of work and the stability of your family relationships. Perfectly decent, hard-working, tax-paying Americans are harassed at every turn.

You no longer have any right to the most elemental requirements of privacy because anyone can easily pull up your credit report from one of a number of for-profit monitoring agencies, reports that may contain vastly inaccurate information, and you will be put endlessly on hold if you attempt to complain about that.

“Credit card companies have taken advantage of consumers for too long,” says U.S. Sen. Charles E. Schumer (D-N.Y.), who has introduced a bill to curb some of the more egregious scams. “Many credit card holders, especially young adults looking to build a credit history, have been sucked in by low ‘teaser’ rates and unclear disclosure.” Schumer’s bill would beef up disclosure protections and prevent a number of ploys now being used to tack on additional costs of servicing credit card debts. That is also the objective of a bill being carried by Rep. Lucille Roybal-Allard (D-Los Angeles) that would freeze interest rate terms and fees on canceled cards.

Those are all good protections and long overdue, but the key problem here, not addressed by any legislation, is the incentive of exorbitant interest rates that has driven this this lucrative racket.

Until the limit on interest is tied to a reasonable multiple of the rate at which the feds lend money to the banks, the plastic wars will only intensify and the corruption of the young by outwardly respectable lenders will continue with abandon.