"I believe in personal responsibility whether you think something is fair or not," says Kim Hodges, a 37-year-old single mother who says she has paid $24,000 in late fees and interest on her credit cards. "The card companies didn't make it easy by giving me more credit than I could afford," observes the self-employed graphic artist from North Carolina, "but I blame no one but myself."
Hodges is an example of the millions of Americans who have used credit cards to drive themselves to the brink, or more and more into bankruptcy. What makes her unusual is that she primarily blames herself, not the lender, for her predicament.
Credit card issuers are often accused of tempting consumers into carrying more debt than their income justifies. Then, when the customer is drowning in debt -- stumbling to make even the minimum payment -- they will pile on late fees, jack up interest rates and begin what often becomes a crescendo of collection calls. The lenders claim they have to collect as much as they can as someone becomes "riskier." The borrowers insist that with just a small, often inadvertent misstep, the card company will destroy their hopes of financial survival. The contentious blame game over record consumer debt, and the default that often follows, leaves both sides in seemingly intractable disagreement.
If there is one thing consumer advocates and the banking industry do agree on, it is that the abundance of convenient credit gets a lot of people in trouble because they are financially uninformed. Financial education is neither subsidized by the industry nor is it included in the Bush administration's "No Child Left Behind" reform of education. Ironically, industry critics say, financial education is included in a new version of the Bankruptcy Reform Act
that Republicans have introduced in Congress, and which is expected to pass in the coming session. That bill, which has been stalled for years, would make it much harder for consumers to shed their unsecured credit card debt when they go into bankruptcy. It would also require both credit counseling prior to filing for bankruptcy, and post-bankruptcy instructional courses on personal financial management as a condition to discharge debt.
This effort to increase financial literacy is an important step. But many say it would be more sensible if it was provided before consumers get into trouble. Consumers filed for bankruptcy 1.6 million times last year -- double the number just 10 years ago.
To many, giving consumers the use of a credit card is similar to giving people the keys to a car without driving lessons or having a license. If they are lucky, they'll learn by only having some fender benders. But millions get into multiple car accidents that spin out of control and eventually into bankruptcy.
Ed Yingling, executive vice president of the American Bankers Association, the credit card industry's largest trade association, agrees. "Consumers are in the driver's seat when it comes to managing their personal finance," he says, "Yet we realize that drivers don't, and shouldn't, take the wheel without first learning the rules of the road. Since our schools, unfortunately, seldom teach personal finance skills, banks and others have been working to fill the gap."
Yingling says the bottom line is that an educated consumer makes the best bank customer. "You just can't build a long-term financial relationship with someone who mismanages their personal finances," he says."It's in the industry's best interest to make sure consumers understand the responsible use of credit and the importance of savings."