Usury, or the (New) American Way?

Merriam-Webster's Dictionary
usury
One entry found.
usury Main Entry: usu·ry Pronunciation: \ˈyü-zhə-rē, ˈyüzh-rē\
Function: noun
Inflected Form(s): plural usu·ries
Etymology: Middle English usurie, from Anglo-French, from Medieval Latin usuria, alteration of Latin usura, from usus, past participle of uti to use
Date: 14th century
1archaic : interest
2: the lending of money with an interest charge for its use; especially : the lending of money at exorbitant interest rates
3: an unconscionable or exorbitant rate or amount of interest; specifically : interest in excess of a legal rate charged to a borrower for the use of money

Note from Greetings:
As you read the following article on this holy of times, please bare in mind the above definition of "usury", and think of the credit card companies who are now charging upwards of 30 percent interest on their debts. This, to me, is creating a living "debtors' prison", not seen since the times of Charles Dickens - or at least John D. Rockefeller.

Having grown up in the 50's and 60's, I remember my parents, who grew up in the 20's and 30's, talking about the people who were out of work, losing their homes, and who were in debt to people my parents called "loan sharks"... people, usually criminals, who would give loans to those who could not afford them, and then charge rates my parents found incredible... 30 percent or more! (Hmmm... can you hear me Bank of America, Advanta, and the others?) Then, it was thought to be criminal.

How did we get to a point where the banks have now taken on that outlandish rate of interest, and are beginning to foreclose on mortgages? How have we arrived at a time that is starting to remind me of the oncoming of the great depression, which left millions homeless, jobless (or with lesser jobs), and in neverending debt.

And how does one get out of debt at 30 percent interest on WalMart wages? How did Congress and this President allow the banks to first convince the government to pass a bill not allowing Americans to declare bankruptcy, and then to get government to look the other way when the banks raised their interest rates to usurous levels, often depriving people of food and shelter.

And how did they allow jobs of Americans to go overseas (or manipulate them to go overseas), leaving those in debt with paltry wages and often without insurance, giving them only a credit card with which to pay many of those debts?

And ... what will Congress or the next President do about this?

I, personally, look forward to a future where I can wish everyone Merry Christmas, knowing that they have a roof over their heads, food to eat, and a government that will protect them from things we thought only happened in the times of Dickens or the Great Depression. But, still... Merry Christmas... to all...and to all a good conscience. (AP article follows)


Unpaid Credit Cards Bedevil Americans

By RACHEL KONRAD and BOB PORTERFIELD, Associated Press Writers. December 23rd, 2007

SAN FRANCISCO - Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.

An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.

Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.

"Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa," said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. "We're starting to see leaks now."

The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. That represented more than 4 percent of the total outstanding principal balances owed to the trusts on credit cards that were issued by banks such as Bank of America and Capital One and for retailers like Home Depot and Wal-Mart.

At the same time, defaults _ when lenders essentially give up hope of ever being repaid and write off the debt _ rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission.

Serious delinquencies also are up sharply: Some of the nation's biggest lenders _ including Advanta, GE Money Bank and HSBC _ reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.

The AP analyzed data representing about 325 million individual accounts held in trusts that were created by credit card issuers in order to sell the debt to investors _ similar to how many banks packaged and sold subprime mortgage loans. Together, they represent about 45 percent of the $920 billion the Federal Reserve counts as credit card debt owed by Americans.

Until recently, credit card default rates had been running close to record lows, providing one of the few profit growth areas for the nation's banks, which continue to flood Americans' mailboxes with billions of letters monthly offering easy sign-ups for new plastic.

Even after the recent spike in bad loans, the credit card business is still quite lucrative, thanks to interest rates that can run as high as 36 percent, plus late fees and other penalties.

But what is coming into sharper focus from the detailed monthly SEC filings from the trusts is a snapshot of the worrisome state of Americans' ability to juggle growing and expensive credit card debt.

The trend carried into November. As of Friday, all of the trusts that filed reports for the month show increases in both delinquencies and defaults over November 2006, and many show sequential increases from October.

Discover accounts 30 days or more delinquent jumped 25,716 from November 2006 and had increased 6,000 between October and November this year.

Many economists expect delinquencies and defaults to rise further after the holiday shopping season.
Mark Zandi, chief economist and co-founder of Moody's Economy.com Inc., cited mounting mortgage problems that began after this summer's subprime financial shock as one of the culprits, as well as a weakening job market in the Midwest, South and parts of the West, where real-estate markets have been particularly hard hit.

"Credit card quality will continue to erode throughout next year," Zandi said.

Economists also cite America's long-standing attitude that debt _ even high-interest credit card debt _ is not a big deal.

"The desires of consumers to want, want, want, spend, spend, spend _ it's the fabric of our nation," said Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, Fla., which has advised more than 5 million people in debt. "But you always have to pay the piper, and that can be a very painful process."

Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7 _ where debts can be wiped out entirely _ except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13.

Personal finance coaches say the problem is most grave for individuals who are months delinquent or already in default _ like Kenneth McGuinness, a postal clerk from Flushing, N.Y.

His credit card struggles began nine years ago, when he charged his son's college tuition and books. He thought he was being clever: His credit card's 6 percent "teaser" interest rate was lower than the 8.6 percent interest on a college loan.

McGuinness, 61, soon began using Citibank and Chase cards for food, dental work and copays on doctor visits and minor surgeries. Interest rates surged to 30 percent. Now he's $37,000 in debt and plans to file for bankruptcy in February.

"I tried to pay what I could and go after the high-interest accounts first," McGuinness said. "But it just kept getting higher and higher, and with late charges and surcharges I was going backward."

In the wake of the jump in defaults on subprime mortgage loans made to borrowers with poor credit histories, banks have been less willing to allow consumers to consolidate credit card debt into home equity loans or refinanced mortgages. That is leaving some with no option but to miss payments, economists said.

Investors also are backing away from buying securitized credit-card debt, said Moshe Orenbuch, managing director at Credit Suisse. But that probably has more to do with concerns about the overall health of the U.S. economy, he said.

"It's been getting tougher to finance any kind of structured finance _ mortgages, automobile loans, credit cards, student loans," said Orenbuch, who specializes in the credit industry.

Capital One Financial Corp. reported that delinquencies and defaults are highest in regions where troubled mortgages are concentrated, including California and Florida.

Among the trusts examined, Bank of America Corp. had the highest delinquency volume, with overdue accounts valued at $5 billion. Bank of America defaults in October were almost 200 percent higher than in October 2006.

A spokesman for Charlotte, N.C.-based Bank of America declined to comment.

Other trusts _ including those linked to Capital One, American Express Co., Discover Financial Services Co. and those containing "branded" cards from Wal-Mart Stores Inc., Home Depot Inc., Lowe's Companies Inc., Target Corp. and Circuit City Stores Inc. _ also reported striking increases in year-over-year delinquency and default rates for October. Most banks and other financial institutions holding credit card debt on their own books also reported double-digit increases in delinquencies.

The one exception in October was JPMorgan Chase & Co.'s credit card trust, which reported declines in both delinquencies and defaults. A Chase spokesperson attributed this to its focus on prime borrowers and aggressive account management.

By contrast, Capital One executives told analysts last month that the company projected 2008 write-offs of credit card debt to be at least $4.9 billion. This projection, analysts were told, took into account growing delinquencies and potential effects if the housing market continued its downward slide.

Capital One spokeswoman Julie Rakes said the increase in delinquencies could be due to an accounting change last summer, which shortened the grace period between when statements were issued and the due date.

Capital One also reported that the number of accounts 90 days or more in arrears had increased between October and November. More than 1.2 million of Capital One's 30 million accounts were either delinquent or in default.

Many personal financial coaches expect this trend to accelerate in 2008 _ particularly among people who took out untraditional loans whose interest rate has risen, requiring owners to pay mortgages several hundred dollars more than just a year ago.

"You're looking at more and more distress _ consumers desperately trying to preserve their credit lines, but there's nowhere else to go," said Robert Manning, director of the Center for Consumer Financial Services at Rochester Institute of Technology. "It's like a game of dominoes."

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.