Maxed Out: Hard Times, Easy Credit. James Scurlock D.
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product is beaten to a pulp on a marble slab while you watch. The Louisville Slugger Museum is within walking distance, as are several gleaming high-rises occupied by large banks. But just around the corner from the hotel is another city: check-cashing stores, Popeyes Chicken & Biscuits with bulletproof glass, convenience stores with broken windows, and crack houses.
My destination is New Albany, Indiana, a suburb across the Ohio River. New Albany is strip malls and churches, and modest-size brick homes in cul-de-sacs, and white people. The largest employer is the UPS distribution center at Louisville Airport, where employees work at night sorting packages. The biggest news is still the Caesars Palace Casino, which opened a few years ago. When New Albany voted against gambling, the commissioners in the next county couldn’t believe their luck. Hell yes, they wanted a casino! So Caesars built their casino megaplex a few yards from New Albany’s county line and started wooing its citizens immediately. They had promised a boom in jobs and tax revenues, a quick fix to urban blight and the recession plaguing the burbs. But, according to the local paper, neither materialized. The neighborhood churches and service providers, however, were flooded with new charity cases who had somehow contracted all kinds of addictions, mostly related to gambling and alcohol, Caesars’ top-selling products.
The house I’m visiting is a two-story colonial in the middle of a development of similar homes with large yards. An SUV and a minivan, both American-made and both gas guzzlers to be sure, linger in the driveway like red herrings. The home belongs to Yvonne Pavey and her husband, who drives a truck for FedEx. Six months ago Yvonne disappeared without so much as a note. That morning she dropped her grandson off at school in her blue Mercury Tracer, bought six dollars of gas at the Wal-Mart, and was never seen or heard from again. Yvonne’s daughter Kathi immediately called the sheriff’s department. A few days later, when she discovered the truth about her mother, she called the man that both women had turned to for guidance over the years in matters financial and otherwise: Dave Ramsey. Kathi’s discovery was that her mother had secretly run up tens of thousands of dollars in credit card debt to feed a gambling addiction. Yvonne had disappeared the day before she and her husband’s credit reports—ordered by her husband on Dave’s advice—were due to arrive in the mail. The local police think that Yvonne panicked, drove thirty miles into the wilderness, led her car down a boat ramp into the Ohio River with the windows down, and drowned herself. They find a lot of cars in the river, apparently. When the water gets low enough, the police told Kathi, the antenna of her mother’s car will show, or a barge will scrape the roof and then they’ll send a truck to pull it out.
It’s worth mentioning that “debt suicides” are occurring in the UK as well. Dereck Rawson, a 51-year-old forklift driver who owed over £100,000, took his life and left a note to his sister saying “I can’t pay the bills and the credit card companies won’t leave me alone.” Father-of-two Stephen Lewis, 37, killed himself after running up £70,000 in debt on 19 credit cards. Most tragic, perhaps, is the indebted Wales student whose suicide has recently attracted a great deal of media attention.
Jon Ballew, Kathi’s husband, greets me at the door. He’s middle-aged but his buzz cut suggests younger. He wears a company polo shirt over a small potbelly and blue slacks. We sit down in the living room and Kathi joins us after leaving her two young sons to the jungle gym outside. She’s dressed like a young mom: shorts and tennis shoes. Unpretentious. As it turns out, Jon and Kathi were college sweethearts. Now he works at a brokerage firm and she works part-time at the local movie theater. They go to their neighborhood church and take the kids to pizza buffets. They used to play dominos with Kathi’s parents every Wednesday night. Kathi likes listening to Dave Ramsey. I like them both immediately.
Unfortunately, however, they do not have much to add to Yvonne’s story except their grief. They are hoping that the documentary I’m filming may help lead to Yvonne, even though they seem resigned to the police theory. They just want to know. They show me the “missing” flyer they have posted at every church and restaurant within a ten-mile radius. Kathi and Jon talk about how Yvonne got the credit cards even though she was an unemployed housewife, only later finding a job as a parking valet at Caesars Palace, a job that paid the minimum wage. They describe a constant stream of harassing phone calls from banks and debt collectors and, now, the threat of lawsuits. I am amazed by their composure. They do not blame the banks, or else they swallow their anger very well. They don’t want to make a spectacle of themselves; they just want to know where Yvonne has gone.
After college, Jon married Kathi and went to work for the local bank. At the time there were only two banks in his town, and they sat across the street from each other. The focus was on building long-term relationships, which meant taking care of the customer, which Jon did very well. He treated people as he would be treated. He was empathetic and honest. He worked his way up to manager and the potbelly grew from long hours sitting at his desk. Jon was the quintessential small-town banker, the one we like to think still exists.
But a glance at Jon’s résumé tells me what’s happened to the banking industry over the last twenty years. The independent bank where he began his career has become, over the course of no less than a dozen mergers, one of thousands of branches in the JPMorgan/Chase/Bank One/First USA empire. With each merger Jon gained a new title and lost a little authority until, just before he quit banking altogether, Jon was nothing more than a cheerleader for mortgages, car loans, credit insurance, credit cards, and all of the other financial products that banks package. True, Chase’s long-time slogan was “The right relationship is everything,” but twenty-first-century banking is as much about building relationships as Wal-Mart is about building communities. The game is delivering credit (the enabler) as efficiently as possible to the maximum number of consumers and converting that credit into debt (the product). What’s really important, then, is being the low-cost provider. And to do that, you must maximize your economies of scale: You must get bigger and bigger and you must become ruthlessly efficient at every level of the company. This is why Wal-Mart is trying so hard to build a bank, and why the big banks are so zealously lobbying against it.1
This also explains the wave of mergers and acquisitions over the past decade, the annoying ritual of having your cards replaced every other year so that you can advertise their new brand and logo. Ergo, the obsession with centralized decision-making and efficient customer “processing”—which, for the vast majority of us, translates into phone-tree purgatory and customer representatives with exotic Bangalorean accents. Ergo, the conversion of what we used to call “banks” into sales centers where we are hard-sold a credit card and second mortgage (otherwise known as a “refi”) the moment we try to open a savings account. But apparently these initiatives haven’t mustered up the desired response, for, at the end of the day, the banks always seem to raise fees—or create new ones—to make their numbers. There are fees for going over the limit (but only when the bank approves of you going over limit in the first place) and there are fees for paying early. Fees for paying by phone and for paying in person. There are fees for paying after a certain hour on a certain day. There are penalties for taking out too much debt and too little. By one estimate, the credit industry now collects $20 billion per year in fees that didn’t even exist twenty years ago. Familiar fees, like returned-check and late-payment penalties, have gone up nearly two-hundred percent in the past ten years. These fees, incidentally, cost the banks nothing. Similar scams have been gaining steam in the UK, where the banks are showing even less restraint. Consider a typical scenario: if you exceed your credit limit by £16, for example, most banks will charge you £39 for the privilege. They may also impose a £28 monthly “unauthorized overdraft fee” (though they have clearly authorized the overdraft by paying it) and, for good measure, would almost certainly levy interest at more than 30 percent per year—a total markup of more than 400 percent! No doubt shocked by the banks’ audacity, the Office of Fair Trading has ruled that no charges should exceed £12 from now on. So, to Wal-Mart, I say, “Bring it on!” They’ve never charged me a processing fee for running my Cocoa Puffs over the scanner. And they let you use the bathroom.
In fact, the banks now seem to be pursuing the opposite strategy of Wal-Mart: Be the high-cost provider—just make sure to pass that cost on to the consumer. The key is to sell as much fee-generating product as possible and lock it in over the longest possible period of time. That’s why, if you pick up the want ads, you’ll find that