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Government for Sale, GOP Style


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THOMAS OLIPHANT

 

A GOP fleecing of card users

 

By Thomas Oliphant, Globe Staff | August 29, 2004

 

NEW YORK

OF ALL the business tycoons assembling for their favorite party's convention this week, none will get a warmer, perk-filled welcome than the personal finance crowd that has figured out how to imprison tens of millions of ordinary Americans with interest charges and other fees worthy of loan sharks.They are profiteering on a growing mountain of debt that is increasingly crucial to meeting expenses in a "recovery" marked by stagnant household income.

 

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What ought to be called the usury business has earned its caviar from President Bush's Republican Party. The banking, insurance, and real estate interests have ponied up more than $25 million for Bush this year, six times more than in 2000.

 

And the biggest corporate supporter of all, as it was four years ago, is a monster called MBNA -- the largest of all the independent credit card-issuing companies, that is now expanding its lucrative (thanks to Bush) business worldwide. Its now-retired chairman, Charles M. Cawley, was an original Bush fund-raising Pioneer and still is one, and his successors have continued the tradition of trading cash for national policy. The president has earned his largesse.

 

The latest goodie was a ruling from Bush's Treasury Department preempting all state laws, notably in California, that have sought to put a brake on some of the most abusive credit card practices -- a remarkable flip-flop for a conservative government supposedly respectful of states' rights.

 

The campaign cash is also gushing because the personal finance people know Bush will back another attempt in Congress to make it harder for Americans to escape, via bankruptcy, the debtor prisons constructed for them.

 

The usury industry now has another reason to give Bush money: John Kerry's decision to take aim at one of the most abusive of the credit card scams -- the sudden jacking up of interest charges on consumers who are making their card payments on time. Millions of Americans know too well how this works: You miss a payment on some other bill (it could be a $50 phone bill) and all of a sudden your credit card interest rate soars to anywhere from 30 percent to as much as 48 percent.

 

In the racket, they call this "universal default," but it amounts to changing the terms of a loan in the middle of the game. Kerry would end this practice, he announced last week, with the stroke of a regulatory pen.

 

The finance business is also opposed -- and therefore so is Bush -- to another Kerry proposal that would require full disclosure to families of the true cost of making only those deceptively small minimum payments the credit card bosses entice people to make. The reason they do this is that they want to trap you into high-interest debt for as long as they can, and telling you the true cost interferes with their business strategy. Continued...

 

Page 2 of 2 -- For example, on a credit card debt of $9,000 (par for the course), minimum payments at 15 percent will keep you paying for 39 years at a total cost of $23,000.

 

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The home mortgage people, trapping more and more Americans of modest as well as median means in the same kinds of prisons, aren't much better. Here, legislation is needed, and for all those who listen to the Bush propaganda about Kerry's Senate record (a domestic version of the smear on his Vietnam service), he is well known as one of housing's most consistent champions.

 

So-called "subprime" mortgages are an excellent way to help lower income families make their most important investment, but they come at a very high cost. Many housing experts believe they are unnecessary for half their present holders. It's not a minor financial matter; over 30 years, a subprime can cost an extra $400,000-plus on a typical home.

 

Naturally, the real estate and finance folks backing Bush want to block Kerry and protect their gravy train. In particular they want to protect the mechanisms for abuse -- penalties for early prepayment, delayed or "balloon" payments that require still more financing, and ridiculous insurance mandates requiring up-front payments no matter how long a mortgage is held.

 

As the Census Bureau reminded us last week, incomes are stagnant three years into an anemic recovery. At $43,000, median household income (half make more, half make less) is actually lower than it was in 2000. For the rich, tax cuts cover higher costs; for everyone else, they didn't come close to matching 50 percent increases in health insurance premiums, $2 per gallon gasoline, higher local taxes, and higher tuition expenses.

 

This means that for a huge portion of the public, debt is how people keep up with current expenses, and the usury industry is doing its best to make sure that that elusive goal is always kept just out of reach. On top of all the other higher burdens on working families, credit card and mortgage interest scams have added something like $30 billion to the burden of just getting by.

 

The big shots gathering here will make sure Bush has no answer. Kerry does.

 

Thomas Oliphant's e-mail address is oliphant@globe.com.

© Copyright 2004 Globe Newspaper Company.

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