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Saving the golden goose: preserving America’s middle class |
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By Rep. Keith Ellison (D-Minn.)
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Posted: 07/18/07 07:31 PM [ET] |
The American economy has changed fundamentally over the past generation.
Working families are facing flat to stagnant wages while education, healthcare and housings costs continue to increase dramatically. To make up for the gap in the family budget, working families are turning to credit to help make ends meet.
Credit card debt in the U.S. almost tripled, from $238 billion to $692 billion, between 1989 and 2001. Average credit card debt now stands at $13,000 per family. Our reliance on credit reflects the new economic reality for the majority of American working families: Although spending is down compared to a generation ago, working families now have to rely on credit just to make ends meet. As America has transitioned from an ownership to a plastic society in just a generation, average working families are working harder and longer to just maintain their hold on the American dream.
Consumer spending, which now often translates to debt, is driving our economy, and America’s working families have become its golden goose. As more working families turn to credit, more are subject to unfair and abusive practices by some elements of the credit industry. From unfair high-interest credit cards, to payday loans and tax-refund anticipation loans, a whole industry has spawned to take advantage of working families trying to make ends meet. My passion for consumer justice issues stem from my belief that we must help return economic prosperity to working families. Ensuring that working families are protected from credit abuse will help Americans have more money in their monthly budgets to afford healthcare, college for their children and food for their table.
The first bill I introduced in Congress focuses on banning an abusive credit practice called “universal default,” by which a credit card company can raise the annual percentage rate (APR) on your account if you miss or are late on an unrelated payment, like a utility bill. This egregious practice has been ended by many of the responsible card issuers, and must be banned to eliminate the temptation for abusive companies to use universal default as an excuse to remain competitive.
Another practice that needs to be carefully scrutinized is how online payments made to pay off mortgage payments, credit card balances or utility bills are recorded. Companies can currently wait to credit your account at a time convenient to them, creating a situation where the consumer is vulnerable to late fees for payments that they made on time. We need a process similar to that of paying your taxes: If your payment is dated on or before the due date, companies should be prohibited from charging late fees on it, no matter when they process it.
The sub-prime mortgage and foreclosure crisis is an additional consumer justice issue that has been widely discussed this year. While buyers must bear some responsibility for unwisely entering into inappropriate or costly loans, the mortgage industry must accept a majority of the culpability for the current homeowner crisis in neighborhoods in my district and in many others throughout this country. Poor underwriting standards and the widespread use of abusive lending practices by some in the mortgage industry have created this crisis. It is only by restricting the use of these inappropriate practices that we fix this problem. I will introduce a bill this week based on legislation passed in my home state of Minnesota, considered the strongest model in the nation, which will end many of these shortsighted policies.
The Federal Reserve, FDIC and the other relevant financial regulators recently expressed their strong support for many of the changes proposed in our legislation, including eliminating no-documentation loans, approving consumers for loans at the fully indexed rate and banning “flipping” of mortgages.
It is important to remember that these consumer justice initiatives make for a stronger America — from Wall Street to Main Street. By enacting these bills into law we will once again swing the legislative pendulum back in favor of consumers, and make for a stronger middle class that is the driving engine of our economy. These are not new issues; consumer advocacy groups and members who’ve come before me have toiled for years on them. I commend them for their work and am proud to join them in advocating for fairness and prosperity for working families.
Ellison is a member of the House Financial Services Committee.
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