Easy credit, hard lessons

A post from MPR Public Insight Editor Andrew Haeg on the consequences of easy credit.

On Thursday, Congress will enact new legislation that protects consumers from a range of common lending practices, such as raising rates with little or no notice. In advance, credit card rates are going up, and so are bankruptcy filings.

For Paul Sander, the two were closely connected. In December 2008, he filed for Chapter 7 bankruptcy after years of struggling against a rising tide of credit card debt and interest payments.

When his car broke down, Sander got a new one — and a new loan on top of the old one. He used credit cards to pay for basic things like food and medicine for the kids. He took money from his 401k to fill in the holes. Credit card companies seemed to smell trouble. They eagerly pursued him, and he willingly took on yet more debt.

Sander’s experience is emblematic of a debt-soaked era that’s only now coming to terms with the consequences of easy credit. Bankruptcy filings are on track to hit 1.4 million this year. Filings are already up more than a third over last year. In Minnesota, they’ve jumped from around 14,000 to more than 19,000 (Minnesota ranks a middling 28th in the number of bankruptcy filings per capita, but 18th in the number of Chapter 7 bankruptcies).

Chapter 7 wasn’t that bad,” Sander says. At least not as bad as he’d thought it would be. He didn’t have a lot of land, nor was he filing for divorce, so it was pretty straightforward. You might expect Sander to be bitter. But the way he sees it, at least in the U.S. you can file for bankruptcy instead of having your house and property repossessed by the government. “We are really blessed to live in a country where there are laws in place for this kind of financial trouble,” he says.

Yet he’s less sanguine about the credit card companies. His last post-bankruptcy meeting ended at 11:10 a.m. on Saturday morning. Not more than five minutes later the phone rang. Another credit card offer. And since then, “We’ve been getting calls left and right,” Sander says. This time he’s learned his lesson.

But have the credit card companies? Some big credit card issuers like Bank of America and Citibank are increasing the number of credit card solicitations, after cutting way back on them over the last few years. If Paul Sander is at all typical, they may find a less than receptive audience.

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