Buy now, pay never

Posted: Mar 14, 2001 12:00 AM
The basic question is, or ought to be, If you borrow money, should you pay it back? The answer seems self-evident, but then of course flat propositions of that kind get complicated when you begin to conjugate them.

If you buy a car and fail to make payments on it, should the seller have the right to repossess? Once again the answer seems plain, and once again can be more complicated.

Suppose that your income is based on sales made possible only through the use of that car, traveling door-to-door to make your sales? Well, in such situations different states have different provisions. If bankruptcy threatens, or is invoked, prime assets aren't taken from you: namely, your house and your car (in Texas, two cars).

And so it goes. But the story of the day, making media rounds, could be written by advocates of quickie bankruptcies. You find your debt overloaded? File for Chapter 7, and start out from scratch, giving up only what can be positively identified as unnecessary to your basic needs. To be sure, when you apply a second time for credit, the credit agencies will look more carefully at your application, requiring, e.g., a larger down payment on the purchase of a house.

But the main story going out these days, using The New York Times account by Philip Shenon as an example, pays little heed to the excesses of the appetites of the borrower, focusing rather on the cupidity of the lender. For instance:

  • There are a pack of lobbyists in Washington who are beating the drums for the new bankruptcy law passed last year but vetoed by President Clinton. They even report minute-by-minute progress (e.g., bringing an individual legislator around to their cause) on cell phones right there in the Capitol.

  • Among the biggest beneficiaries of the proposed new law would be the MBNA Corp. of Delaware, and guess what? "Ranked by employee donations, MBNA was the largest corporate contributor to the Bush campaign." Not only did this credit card giant contribute to the campaign, it pledged $100,000 to help pay for inaugural festivities.

  • You thought there were two candidates out there running for president? But MBNA's political contributions went 86 percent to Republicans, only 14 percent to Democrats!

  • Not only were credit-card-company contributions greater for Republicans than Democrats, they rose in quantity by almost 800 percent in the last eight years.

  • Do you want a financial analysis of what a new bill would bring on? An analyst for Morgan Stanley says the new bill would increase profits of credit card companies "by as much as 5 percent." Helpfully, this is translated into increased profits for MBNA. Want to know by how much? "$75 million."

  • And for an academic perspective? Professor Elizabeth Warren of the Harvard Law School describes the bill as "the credit card industry's wish list." She is not alone: "Consumer groups describe the bill as a gift to credit card companies and banks in exchange for their political largesse.

  • Are all important legislators conscripts in the credit-card-company bribe? Not Patrick Leahy of Vermont! "I always assume senators are doing things for the purest of motives." When saying this, the reporter divulges, "his voice (was) thick with sarcasm." And to punctuate the grandness of Senator Leahy's stand, he is quoted stoically, "I have never had credit card companies show up at my fund-raisers, and I don't think they ever will."

    The avarice of the credit card industry is unmistakably there. Invitations to sign up are everywhere, the costs of doing so understated. What tends to happen is credit card ballooning, keeping one company at bay while living off the second, in turn kept at bay while living off the third and fourth, and so on.

    Although it is impossible to unearth concrete details from The New York Times story, the proposed laws make it more difficult simply to turn on the Chapter 7 tap when the water has got too hot. America is, and has been since the days of the Yankee hustler, a country given to industrious merchandising. The philosophical question is: To what extent should the state interpose itself to guard against (a) deceptive merchandising, and (b) opportunistic buying?

    To represent a product as other than it is violates laws. Laws forcing fuller disclosure of the consequences of indiscreet purchasing through credit cards should be welcome. But the news stories should cover the gluttony not only of the credit card companies, but also of credit card consumers.