The Two-Income Trap - Elizabeth Warren [72]
There is another important difference. When families arranged credit in my grandfather’s store, he charged them a simple 1 percent per month. Neither he nor the bank had any penalty fees or shifting rates of interest. When someone missed a payment, the rate was still 1 percent a month. Today, that practice has disappeared. Like Jamal’s mortgage lender, many banks routinely double or even triple the interest rate the moment someone is a few days late with a payment. Then there are the fees. This year credit card companies will charge more than $7 billion in late fees (quadruple what they charged less than ten years ago)—a penalty unheard of in my grandfather’s day.59 Moreover, when my grandfather got a check in the mail, he applied it to the principal balance on the loan; he wouldn’t have dreamed of telling those families that with compounded interest at the new rates and special overbalance fees and late-payment penalties, they now owed $4,000 for their original $800 purchase.
Repo Man in the Suburbs
In an era when lenders routinely target the almost-bankrupt for extra loans, how do they ensure that they will get their money back? Corporate lenders don’t have “Jimmy the finger-breaker” on retainer, but they do have thousands of trained professionals who do nothing but hound families for money.60 Most of the time, these agents make their living by calling families at home, reminding them that they are late on their bills and pressing them to make a payment. (Or, in the case of Jamal Dupree, urging them to take on a second loan to pay off the first.) But when a simple request isn’t enough, they, too, use tougher tactics.
Sears, America’s fourth-largest retail chain, got caught threatening to nab a battery from a Massachusetts family’s car unless the family promised to send Sears some money—money that the family no longer owed.61 This was in clear violation of the law.62 The family had filed for bankruptcy protection, so Sears was legally barred from further collection efforts. Aside from that, it is reasonable to wonder: What could Sears possibly want with a used car battery? Or with the used dehumidifiers, mattresses, and Walkmans the company had threatened to take back from thousands of other families?63 Sears was not in the business of selling used household goods. And it would have cost the company several hundred dollars to hire a repo man and send a truck to someone’s door—far more than a used Walkman or car battery would be worth.64 Sears almost certainly didn’t want those goods; the company wanted the money people would pay to keep the Sears repo man away. The company probably hoped that some families were unaware of their legal rights, and that if they were frightened enough, they just might keep making payments on old bills, even after those bills had been discharged in bankruptcy. FBI Special Agent in Charge Barry Mawn described the Sears case as an example of “Corporate America blindly [pursuing] profitability over its obligation to treat the consuming public with fairness and honesty.”65
And Sears was not alone: AT&T, General Electric Credit, Federated Department Stores (owner of Macy’s), J.C. Penney, Circuit City, Tandy (owner of Radio Shack), and General Motors also paid multimillion dollar fines for making collection threats against families whose debts had been forgiven in the bankruptcy courts.66 But these companies were punished