Debtor Nation
Tracking the U.S. Private Sector Debt Debacle

New Bankruptcy Law Would Spur Further Credit Expansion

August 15, 2002
Jack Gillis, 202-737-0766
Travis Plunkett, 202-387-6121

Washington, DC - As a creditor-funded campaign to restrict consumer access to bankruptcy approached enactment in Congress, the Consumer Federation of America today released data that show that, in the past year, credit card issuers have dramatically expanded their marketing and available credit while consumers have increasingly said ÏnoÓ to new cards and to new lines of credit. Meanwhile, issuers kept credit card interest rates up while the cost of money plummeted, driving up profits by more than 50 percent over five years ago.

In the twelve-month period ending March 31, 2002, these issuers have mailed five billion solicitations -- nearly 50 per U.S. household. And they now make available more than $3 trillion of unused lines of credit -- about $30,000 per household.
At the same time, consumers are increasingly rejecting these solicitations and refusing to draw on the expanding lines of credit. During the first three months of 2002, according to Federal Reserve Board data, revolving consumer debt (almost entirely credit card debt) declined by $29 billion, bringing the ratio of credit used by consumers to credit offered by issuers to a low of 22.1%.

"Credit card issuers are shamelessly escalating their marketing and available credit to stratospheric levels while demanding that Congress give them relief by making it harder for consumers to declare bankruptcy," said Travis Plunkett, CFA Legislative Director. "Can any of them explain why they need this relief when their profits are increasing, they are trying to sell many more cards and are offering cardholders far more credit? What's worse, erecting new bankruptcy barriers will encourage issuers to market and extend credit even more aggressively," he added.

New Bankruptcy Law Would Spur Further Credit Expansion (Consumer Federation of America August 15, 2002)

American middle class poised for downward mobility...
The middle class - that great bastion of stability for this nationĖs capitalistic democracy - is an endangered species nearing extinction.  Amidst the longest and strongest economic boom in history, the U.S. middle class has lost ground relative to the upper and lower segments of society. Today large numbers of this group can barely stay above water - and this only by use of smoke and mirrors and credit cards.

[The report] fractures some conventional wisdom on the subject, including the stereotype of "the bankrupt poor."  Most bankrupts are not the usual suspects - but are from the solid middle class: schoolteachers, accountants, engineers, entrepreneurs, sales executives, dentists and psychiatrists. Their educational level is slightly above the national average; about half are homeowners.

Debt Lives on Despite Boom Times

...and Washington's going to help them on their way.

As the economy lurches toward recession, and downsizing hits businesses of all sizes, Washington has a message for consumers drowning in debt: tough luck.

New Bill to Make Bankruptcy Filing Tougher Than Ever

Tough new bankruptcy laws brought you by - surprise! - the credit card industry
Filthy, disgusting piles of soft money from credit card banks have influenced Congress into passing a one-sided bill.

Putting the Squeeze on American Families (

Does High U.S. Private (Consumer and Corporate) Debt Matter?

The survey of about 1,000 consumers, commissioned by the Consumer Federation of America and the Credit Union National Association, found 56 percent planned to spend about as much this year as during the last holiday season, while 24 percent planned to spend less and 18 percent planned to spend more.

Of those surveyed, 48 percent said they were either somewhat or very concerned about meeting the monthly payments on their consumer debts -- which include credit cards, auto and installment loans but exclude home mortgages.

Debt weighs on U.S. holiday spending plans-survey (11/27/2000)

Banks and credit companies have been called to a meeting at the Department of Trade and Industry (DTI), to discuss ways to stem the growth in unaffordable debt.

Summit called on personal debt (11/5/2000)

Sheryl Rowling of Rowling, Dold & Associates in San Diego -- she was named by Worth magazine as one of the nation' s top financial advisers -- says "credit card companies are largely responsible" for much of the financial turmoil faced by the average family.

"I fear for the stability of the economy as more and more credit card debts go into default," she says. "My hope is for regulation, before this situation worsens."

Credit card issuers turn plastic into endless debt ( 8/20/2000)

Consumers' borrowing is one of the most conspicuous danger points in the secondary phenomena of prosperity, and consumers' debts are among the most conspicuous weak spots in recession and depression.

Excessive Consumer Credit: The Engine of Future Depression (Business Cycles, 1939)

Robust economy? It's not strong enough for the soaring number of companies filing for bankruptcy protection.

Bankruptcy filings on the rise (USA Today 7/12/2000)

Consumer credit grew by a seasonally adjusted $11.8 billion in May, according to the Federal Reserve, bringing the annualized growth rate to 9.8%. In April, consumer credit had grown at a revised $8.8 billion, or 7.4% annual pace.

Consumer Credit Grew Sharply In May (7/11/2000)

Marquette ushered in deregulation of usury ceilings on consumer interest rates by allowing lenders in a state with liberal usury ceilings to export those rates to consumers residing in states with more restrictive usury ceilings.  The result was a substantial expansion in credit card availability, a reduction in average credit quality, and a secular increase in personal bankruptcies.

Bank Trends - The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate - FDIC May 1998

Many worry that a stock market crash will end this expansion. While a sudden loss of confidence in the economy may show up in stock prices first and produce a snowballing effect, the debt side of the nation's balance sheet poses as much downside risk for the economy as the equity side. In fact, household indebtedness arguably poses a larger downside risk for a slowing economy than a stock market crash.

Risky Debt Service Burdens (Dismal Scientist 7/4/2000)

Once upon a time, American consumers frowned on piling up debt, but not anymore. Despite the record incomes Americans enjoy these days, new research indicates that consumers and businesses are on a real borrowing binge.

All-American Borrowing Binge (7/4/2000)


Unconsidered calls for action, such as CFA's exhortation for lenders to limit families' consumer credit debt levels to 20 percent and their cries that lower-income people are over-using credit cards, often are seized upon by opportunistic policy makers. Alarmist headlines and anecdotal scare stories about credit card debt may trigger legislative or regulatory action that could endanger the free flow of information that led to the democratization of credit. The result could be government restrictions on credit card solicitaions, especially to lower-income groups and government imposed limits on credit lines. The losers would be consumers if government bureaucrats become more involved in credit decisions, rather than lenders and borrowers who have the most to gain . . . and to lose. 

Are Consumers "Sinking in a Sea of Debt"? (Consumer Alert)