Facts & Figures from the Book
A typical two-earner family, for example, today spends about 80 percent more on housing, 74 percent more on health insurance, and 42 percent more on transportation than did a typical one-earner family in the early 1970's.
American families extracted some $700 billion in home equity from 2001 to 2005. About half of this borrowing was to pay off higher-cost debt, mostly credit card debt.
Between 1973 and 2004, home equity, as a share of total home value in the United States, fell from 68.3 percent to 55 percent.
…the industry's recent innovations have been designed for one of two purposes-either to lure customers in or to saddle them with unanticipated costs. In the mid-1990s, as interest rates went down, a few credit card companies began imposing penalty interest rates for late payments; now almost all do.
Total consumer penalty fees jumped from $1.7 billion in 1996 to 17.1 billion in 2006. Such fees, which now average $34, have become the industry's fastest-growing revenue source.
Between 1989 and 2006, the nation's total credit card charges increased from about $69 billion a year to more than $1.8 trillion. The proportion of households carrying a balance from month to month has grown (it was 58% in 2004), and the average amount owed by those households has increased by a staggering 88%--from $2,768 in 1989 to $5,219 in 2004.
In 2005, hidden fees and penalties generated nearly $14.8 billion dollars in revenue for credit card companies-comprising nearly one-half of their annual profits.
In 2004, the average senior had five credit cards and carried an average balance of $2,864. Almost one-quarter of students had credit card debt greater than $3,000.
As the number of subprime mortgages rose, so did the rate of delinquency. Foreclosure proceedings set a record of 847,000 in 2005, before jumping to 1.2 million the following year. Complaints of mortgage fraud increased fourteenfold between 1997 and 2005. During that time, more than eighty thousand fraud complaints were logged by the federal Financial Crimes Enforcement Network.
Between 2001 and 2006, Americans cashed out an estimated $1.2 trillion in home equity. So while more people "owned" homes, most people owned less of their homes. (Total homeowner equity has been on a downward slide for decades, falling from 68.3 percent in 1973 to 55 percent as of 2004.)
In one generation, tuition at public universities has risen 122 percent, from $2,628 in 1986-1987 to $5,836 in 2006-2007 (in 2006 dollars). In the last five years alone, tuition and fees at public universities have gone up 40%, taking inflation into account.
Between 1994 and 2004, spending by the states on need-based scholarships for undergraduates increased by 95 percent, while sending on merit-based aid increased by 350 percent.
In 1995, for example, the average student from a family with an income below $20,000 received $836 in institutional grant aid, while the average student from a family earning $100,000 or more received $239 in grant aid. In 2003, the average award to low-income students had increased 50 percent, to $1,251, while the average award to students from families earning about $100,000 had grown 227 percent, to $781.
In 2005, Demos and the Center for Responsible Lending surveyed some 1,150 low- and middle-income households with credit card debt. Nearly a third said they had used credit cards to pay medical expenses. Those households were also notable for having substantially higher levels of credit card debt-an average of $11,623 versus $7,964 for households without medical debt. Forty-four percent of medically indebted families had credit card debt of more than $10,000.
In Los Angeles, 61 percent of all households live within one mile of a payday lender, with the percentage varying from 42 percent for white non-Hispanics to 76 percent for African-Americans and 70 percent for Hispanics.
According to the Boston Globe, Portfolio Recovery Associates, based in Norfolk, Virginia, purchased 658 debt portfolios with a face value of $16.4 billion over the last decade-paying just $415.4 million or about 2.5 cents for each dollar of bad debt it purchased. In turn, it collected on average 7.5 cents per dollar from this old debt. At first, profits were relatively small. The company made $402,000 in 1998. But the debt-buying business has exploded as more creditors sell off their bad debt, and Portfolio Recovery turned a profit of $36.8 million in 2005.
Debt Stories from the Book
"In Chicago, a telemarketer convinced Delores King, a seventy-year-old retiree, to refinance her home in February 2005. King started off at $832 a month--slightly more than she had been paying on her old mortgage. But her loan turned out to have an unusually low teaser rate, lasting just a few months. King's payments quickly jumped to $1,488--more than her monthly income. Her motivation for taking out the loan in the first place had been to pay off credit card debts of about $3,000."
"Rene ran up a student loan bill of $20,000 at a for-profit two-year college. Since then, she has held four different jobs, all administrative in nature, none utilizing her degree in multimedia production. Now working as an office manager, she earns $37,000 a year. Paying off her loans is a remote prospect. She has moved home three times since she finished school, and often has trouble making ends meet. She has turned to her mother for help repeatedly. 'It's degrading,' she says. 'I shouldn't have to be doing this. I'm twenty-six years old. I live on my own, I have a full-time job. I shouldn't have to ask my mom to feed me.'"
"Peggie Sherry was running cancer camps for children when she learned about her own breast cancer. She got the diagnosis in November 2002. At the time, Peggie and her husband Glen had a joint income of $140,000 a year, placing them comfortably in the top ten percent of American families. They owned a four-bedroom house in a gated community of North Tampa, Florida. They had a savings account and health insurance. In other words, they had checked off just about every possible box on the scorecard of financial responsibility; and just the same, Peggie's illness became a financial as well as a physical calamity… As Peggie navigated the dizzying gaps in her insurance coverage and dealt with a succession of health care providers and bill collectors, the family savings disappeared and the debts mounted. By the time her cancer had been eradicated, Peggie and Glen owed $40,000, $10,000 of it on credit cards, and they were struggling to hold onto their home because Glen had fallen five months behind on the mortgage payments without telling her."
"In suburban Boston, Lauren and Jefferson Riordan accumulated more than $3,000 in medical and dental expenses on their credit cards, partly because Lauren's medical insurance had a $650 deductible for prescriptions. (Once she could get drugs for a $5 copayment, but that provision was eliminated years ago.) Lauren Riordan fell into the habit of shifting medical debt from card to card, watching the mail for zero- percent interest-rate offers and transferring balances--it had all became a matter of course to her. 'You need a prescription because you have an infection or something,' she said, 'and you just put it on your credit card.'"
"Mary H. Monroe, a 71-year old retiree in Williamsburg, Brooklyn, received repeated calls from a debt collector about an $8,000 debt from tuition and fees at a beauty school she had never attended."
"Phil Specht was a maintenance worker at a retirement community [in Albuquerque NM] and Judy Specht worked at a local semiconductor plant. For a while, the couple-in their late 50's-was making enough to cover their mortgage payments with a little left at the end of the month. But the couple fell on hard times when Phil was diagnosed with a bone-marrow disease and was forced to retire early, and Judy lost her job and her health coverage. To make matters worse, Judy developed a range of health problems that added to the couple's already spiraling medical expenses. To save money, the couple began cutting corners. They sold furniture and jewelry, and rationed their pills. Judy stopped taking her cholesterol medication altogether. 'I was left with a choice,' says Judy, 'my medication or a roof over our heads.' It turned out that she got neither. With $4,000 in medical bills and $90,000 left to pay on their mortgage, the couple filed for Chapter 7 bankruptcy and eventually lost their home. Even after declaring bankruptcy, the couple is still saddled with $1,000 in medical bills."
"Ohio consumer Wesley Wannemacher… paid over $6,000 to Chase Bank on a credit card account for which he had made only $3,200 in purchases, and would still be making payments today had Chase not forgiven his debt and issued him a public apology upon learning that he planned to testify about his experience."