One of the paradoxes of the business press is that while everyone should read it, since we all live in the economy, not everyone does. In fact, most people don't. I suspect, if they look at financial publications at all, they flip through with a sense of disconnect. Forbes, Fortune, the Financial Times, and the agenda-setter for the financial community, The Wall Street Journal, and others are usually sophisticated and informed and often interesting. But they can seem strangely remote from the reality that people live day to day or sense is happening to friends, neighbors, and strangers in far-off states.
Nowhere is this disconnect more pronounced than in the story of credit cards and personal debt. Reading back over the last several years, one can detect two parallel narratives on this subject. One body of work, compiled by nonprofit groups, academics, documentarians, and others, has marshaled data to make visible what readers already sense: a dramatic qualitative and quantitative--and recent--shift in the relationship between the credit-card industry and its customers. Yes, this narrative says, something has changed, and, no, the change does not benefit you. The credit-card exchange, we are told, has shifted from a lending and underwriting paradigm to a sales paradigm; penalties, fees, and default interest at rates that were illegal a generation ago are no longer regrettable outcomes to be avoided but central to the business model.
With no adequate regulatory regime to replace what had been lost, an increasingly sophisticated industry transformed the market from a convenience product to, in the phrase of Demos, a nonprofit New York-based research group, the American family's "plastic safety net." And the safety net proved a costly one:
• Americans' credit-card debt now stands at $900 billion, up 9,000 percent from $10 billion in 1968, adjusted for inflation.
• It rose by a third in the five years ended in 2006, even during a housing and stock market boom, and as consumers shifted card debt to home-equity lines.
• Low and middle-income Americans average $8,650 in credit-card debt.
• The percentage of families that pay more than 10 percent of their income on credit-card payments rose to 23 percent in 2004, from 13.5 percent in 1989.