Think it Through

Piece by piece, whether it is securities, antitrust, taxes, or the federal government’s willingness to help people overcome financial difficulties, President Obama is dismantling the structure of the Reagan revolution. Obama is doing this with the same intensity, scope, and support among the public that President Reagan had when he tore down much of the foundations of Roosevelt’s New Deal and Johnson’s Great Society programs.

After a weaker version of Obama’s legislation to bring back some consumer protections for credit card holders passed the House of Representatives last week, the Senate has started to consider a tougher version. Although it is far from a sure thing that they will pass anything meaningful, the fact that Congress is addressing this issue at all is revolutionary. For the past three decades Democrats and Republicans have worked at the favor of the banks and credit card companies to strip away consumer protections against predatory lenders. This played to the melody of deregulation – a tune that government began to play first under President Carter but which became so popular it was practically a national anthem under Reagan.

At the same time that Congress loosened regulations on banks and other lenders, the companies began to increase substantially their marketing efforts: Visa began telling us “It’s everwhere you want to be,” Mastercard said spending money was “priceless,” and so on. Since then, we have seen millions of Americans weighed down with debt from which they can never fully recover. No one challenged the laws because we were told that if you fall behind on your payments it was entirely your fault. You were irresponsible. It took years for people to catch on that in many cases it was the lender who was irresponsible.

In 2006, the non-profit organization Americans For Fairness in Lending, asked our firm, Belden Russonello & Stewart, to help it figure out how to educate the public about the problems with the lending laws. They wanted to tell the story of the harm caused by hidden late fees, fine print that hides outrageously high interest rates, and other chicanery that falls under the heading of predatory lending.

We conducted a number of focus groups in Chicago, and I can remember coming away surprised, saddened, and inspired by what people told us.

I was surprised because of the familiarity with predatory lending practices from the average middle class people in the focus groups. I had figured that nobody would know what I was talking about when I introduced the topic, but instead people spoke up, citing instances of people who had been hurt by zero money down for car loans that turned out to include unpayable interest, payday storefronts, credit card misrepresentations that sunk people they knew, especially college students, and mortgages where expanding rates and penalty payments were concealed. We only had to mention the topic and we heard of flood of complaints.

I was saddened because most of these people who were aware of the practices believed that there was nothing they could do about them. Their response, as we used to say in Newark, New Jersey, “whaddaya gonna do?”

Finally, I was inspired by how a little information about the history of these practices could transform their resignation into indignation and the desire to speak up and get involved to change things. When they heard that before the 1980’s we had protections against most of the consumer traps they cited, they were stunned. Why can’t we go back to more sensible rules, they asked? Three years later, their collective response has caught the ear of the Congress and the president.

How strongly the Congress remakes the credit laws will be a test of how well lawmakers have listened to these people. In a larger sense it will also test how far President Obama can take us down the path of undoing the Reagan revolution and bringing balance back to our laws.