There is an old song called "Sixteen Tons" that was recorded by Merle Travis in 1946. It paid homage to the coal miners who found themselves so deeply in debt at "The Company Store" that they were trapped in an endless cycle of borrowing just to stay alive, which put them even deeper in debt.
The one line, "St. Peter, don’t you call me ‘cause I can’t go. I owe my soul to the company store" may seem outdated in today’s modern world but a series of articles, proposed legislation, and published interviews has convinced me that it is as true today as it was back then.
And just like those coal miners forced to buy at fixed prices from that Company Store, consumers today find themselves in much the same fix, having sold their souls for an ideal of an American Dream that is no longer available in the United States to their social class.
Although society still nurtures that dream of being able to climb the social status ladder by "pulling yourself up by your bootstraps"; we are clinging to that American dream of a strong, middle class society that is beyond our economic grasp, just as it was during the 1930 Great Depression.
Since the 1980s (The Reagan years) depleted the working class jobs and brought about stagnate wages, there has been a steady decline in middle class prosperity marked by record setting bankruptcies, foreclosures and nation wide job losses in almost every industry and business. With the working class impoverished, the middle class saw their own social class niche disappearing into the same economic black hole and grasp at the one thing that avoided the reality of loosing that hard won Middle Class status - credit cards.
Just last week the flurry of articles appearing in the "media" about the dangers of using credit cards is like awakening from a nightmare and finding that the nightmare is real. And that reality is that we are a country; both government and citizens; living in the eternal grip of that Company Store that we now "owe our souls" to.
It is not just George W. Bush borrowing from Peter to pay Paul, but the millions of us who have bought into the notion of painless credit. The hassle of borrowing money to pay for items we don’t have the cash for; from big screen tvs, computers, refrigerators or household items as basic as food and medical expenses like medical treatment not covered by our insurance and copays; is put on the plastic card. The more stress inducing foray into borrowing from a "lender" is reserved for new cars and houses; unless your card’s credit limit will encompass such items.
That bit of plastic comes in the mail, often pre-approved, you sign, return and there is a designated sum for you to spend any way you choose. Most heavy credit card users say that it is really not like spending money at all until the end of the month when we get that big shocker of a spending statement. All you have to do is just push it through the reader slot and you’ve bought lunch at your fast food choice or a car load of groceries that you might not have bought if cash had been required.
I remember the first credit card my parents, children of parents trapped in the Great Depression and World War II rationing, received unsolicited from their bank. They looked at it, read the literature and then threw it away. "No good can come from that", said my mother whose philosophy was "pay as you go or do without until you can".
And nothing really has. As the plastic "loan cards" have evolved, we have discovered the Catch 22 in that enticing siren call of "easy credit". Like another favorite, the ATM card, and now the bank debit cards, they have evolved into a modern version of that Company Store. And if the trend isn’t stopped, cash will become obsolete and only "script" will be acceptable payment.
These cards not only came with a debt, they arrived without proper legislation to regulate the industry. First, when thieves and con artists found them a great way to rob you, the card holders were liable for the charges. After consumer outrage over the thousands of dollars they were being held liable for, the Legislature passed laws that consumer liability was limited to $50. That mollified a public that was growing used to easy access to credit.
Then came the ATM card, easy and free, just insert and the cash came pouring out without ever having to visit your bank. And right behind it trailed the thieves with their new methods of accessing your checking account from just stealing your account pin number to stealing YOU to access it for them. And behind them came the banks, who issued the card, charging fees for the service of dispensing your cash to you. And lagging behind came the legislation to control how much you could be charged.
Now we have the ever increasing use of the debit card. In 2006 Congress turned down a bill regulating the responsibility and use of the bank debit card. To date, I have seen no legislation regarding the user’s responsibility, or the bank’s liability for errors or theft. Just like the ATM card, you use it at your own risk; however, stores (WalMart for one) no longer process checks. Write one, and it is run through a machine which produces a credit card like receipt, which you sign and hand back and then your check is given back to you. The amount is automatically deducted from your account at that moment without ever having a debit card involved in the transaction.
So, you say, what is wrong with that? For starters, you have no confirmation that the amount taken out is the amount of the check until you check your account. I once stood in line behind a man trying to make the teller understand his problem. As the line grew longer and the man grew louder, we could all hear him complaining about the amount debited from his account. Somewhere along the way, more than $2,000 dollars had been erroneously taken out of his account for what was supposed to be a couple of hundred. That event culminated with his closing all of his accounts and canceling his credit card. And there was no legislation on the books to assist him.
At present we are entering the "the fight against sneaky credit card fees" as Bob Sullivan, author of the "Red Tape Chronicles" reports.
Elizabeth Warren, a leading credit card industry critic gave this statement before a Senate Banking Committee hearing held January 25, 2007: "Credit cards are unsafe because they are designed to be unsafe." Her analysis is that credit card companies are looking for users who don’t make their payments in full every month, and then charge fees that essentially can hit a consumer relying on that revolving credit with interest payments of over 115%, which make credit card companies akin to that "loan shark" roaming poor neighborhoods and that old "Company Store" holding the miners hostage.
This attitude has also invaded college campuses (get ‘em while they’re young) as the article published on CNN.com, "College can be a crash course in debt", explains. By offering easy credit to college students, many students, also borrowing huge loans to pay for their education, are finding themselves overwhelmed by debt before they even get their first job.
And now that we’re accustomed to losing money to the credit card companies from all that enticing easy credit introduced to the public only 40 years ago we are now losing more of our hard earned money through the use of debit cards. Another "Red Tape Chronicle by Bob Sullivan titled"Debit Cards fuel overdraft outrage" warns us of the pitfalls of relying on this method of getting money from our bank accounts. According to this report, a study of consumer overdrafts shows that debit card purchases are the chief cause of overdrafts.
Like bouncing a check, the fee for a debit card overdraft is as much as $30 because banks do not refuse the transaction if your bank balance doesn’t cover the amount debited and overdraft charges are automatically added. According to the research, financial institutions collected some $10 BILLION in 2005, much of it through their "overdraft protection" plans. They did a comparison of household overdrafts and discovered that 38% of overdrafts were caused by debit cards while only 27% were caused by paper checks.
The Center for Responsible Lending points out that banks are essentially giving out mini-loans that allow them to charge huge fees for "borrowing" the amount of the debit overdraft. Since the Center says that most consumers repay these mini loans back within three to five days, "the annual percentage rate on these courtesy overdraft loans can be as high as 20,000%.
No wonder a nation whose median income was $46,000 (many two income households) and whose fixed credit payments on mortgages on homes costing $100,000 -$150,000 and car payments ranging between $300 - $400 a month find themselves digging themselves deeper in debt with credit and debit cards and no way out. Short of winning the lottery, and just like those miners, these people will be in debt their entire lives. And when you are carrying that kind of debt burden, even if you enjoy the trappings of "middle class" life, you are not middle class any longer.
Where the Bush administration seemed to be on a legislative road to debtor’s prison (New York Times article published March 13, 2001 written by Philip Shenon "Lobbying Campaign Led by Credit card Companies and Banks Nears Bankruptcy Bill Goal"), the new Congress is said to show signs of "favoring consumers" rather than Big Business. There may be a faint light down the tunnel but don’t breath a sigh of relief just yet. Whatever Congress may pass, the cheerleader of Big Business still has the Veto pen.
In spite of all the hype of how great the economy is, the economic reality is that we no longer live in an economy that promotes a solvent middle class. With small raises, inflation among the "volatile" food and fuel prices and the limitless interest that can be charged for credit card or debit card debt there is no way out.
We "owe our souls" to the credit card companies that are helping us through to the next payday. "St. Peter don’t you call us", ‘cause we can’t go unless we’ve managed to pay for a life insurance policy that will get our loved ones out of debt.
So if you haven’t read these articles, do so before you quick draw that "plastic" next time.