Our government has focused much effort and treasure at bailing out and shoring up the financial institutions that led the world into crisis and recession. The following excerpts from an article in The Nation by William Greider suggest that it might be more effective in terms of ending the recession to focus some of that effort on reigning in interest rates on credit cards and helping consumers. To read the entire article, please go to http://www.thenation.com/doc/20091221/greider2
The Democratic Party brushed aside the question of usury last spring when Congress decided not to impose any limits on the ruinous interest rates charged by major banks and other lenders. But usury is now back on the table, put in play by Metro IAF, an alliance of two dozen faith-based community organizations affiliated nationwide with the Industrial Areas Foundation. These politically savvy community groups draw their members from diverse religions and across the usual divisions of race and class. They are staging face-to-face “actions” to confront bankers and politicians around the country with a blunt moral message. Usury is a sin, Judaism, Christianity and Islam agree, and must be stopped.
This demand is expressed in their slogan: “Ten Percent Is Enough.” The campaign seeks a legal ceiling of ten percent imposed on the interest rates for credit cards and predatory practices like “payday loans.” Ten percent approximates the old ceiling on interest rates before 1980, when deregulation repealed the federal law against usury. Ten percent is also the tithe religious adherents give to their churches. As one IAF campaigner put it, “If 10 percent is good enough for God, it should be enough for the bankers.”
[The article mentions legislation proposed by Rep. Louise Slaughter of New York to limit consumer interest rates to 16% as well as a large protest in Boston led by the interfaith group]
The most startling development for the anti-usury campaign is the endorsement from the CEO of Citigroup, Vikram Pandit. Like other leading banks, Citi has been kicking up its credit-card rates as high as 30 percent, even as Citi is kept afloat with billions from the taxpayers. Nonetheless, Pandit told editorial writers at the Boston Globe he would support a legal ceiling on interest rates if it is applied industry-wide. “We’re completely in support of having a rational rate structure.” Pandit said.
The Citigroup executive did not endorse a specific ceiling, but cited the example of the 10 percent credit cards his bank introduced several years ago, believing other banks would follow and lower their rates too (when they didn’t, Citi lost money in the venture). The Globe’s exchange with Pandit was most likely inspired by news stories about the anti-usury actions in Boston.
Pandit made the telling observation that sky-high interest rates are among the impediments to ending the recession. If interest rates are curbed, he explained, banks would likely defend profitability by reducing the available credit and some high-risk borrowers would doubtless be cut off (the banking industry is already pursuing this strategy). However, Pandit added, a dramatic reduction in rates would help deeply indebted families recover their purchasing power. “I don’t disagree,” he said, “with the notion that having high rates in this environment is not conducive to driving economic recovery.”
This insight could be important for transforming the debate on economic recovery. Instead of attending intensely to the profitability of banks, government should concentrate on helping consumers overcome the lack of sufficient demand. Democrats could argue that restoring prudent controls on the terms of credit is actually an an important way to stimulate growth. Usury is immoral, but it is also bad economics.
