Preying on weakness

I don’t know how to properly balance mercy and justice. I know that it is good to spare others the full consequences of their actions; we do this for our children on a daily basis. And I also know that it is good to suffer the consequences of our actions, so that we’ll learn to act prudently and to be considerate to others. But if there is an exactly right line that divides too harsh from too soft, I never know where it is. And it gets even harder when trying to decide how much one should suffer for an action which was taken because of the unjust actions of others.

As the current economic crisis unfolds, I worry that the conservative distain for people who have gotten themselves into dire economic straits is verging on social Darwinism. On one side of the scales we have foolishness, gullibility, ignorance, and a touch of greed, on the other we have unimaginably punitive financial obligations. We assume that the scales balance because, after all, ignorance and gullibility and foolishness and greed are simply no excuse. But I think we need to remember that it is we ourselves that assign the relative weights to these things so that the scales balance, not some biblical standard or some cosmic law. Folks in other times and places have assigned the weights quite differently.

I spend a lot of time thinking about the just consequences for exhibiting weakness, and the just consequences for preying on weakness, and whether consequences for the weak should be tempered because of the strength of the temptation. I don’t have any answers yet, but I have a growing appreciation for just how irresistable the economic forces are that thrive when ordinary people stumble, and only when they stumble.

In a recent column, Joe Nocera reprints an email from a bank executive who has become disgusted at the lending practices of the past ten years. (All emphasis added.)

I received a catalog today from Casual Living and in big bold print on the front page, it said “BUY NOW, PAY NOTHING”. Then in significantly smaller print underneath, it said, (until April). That mantra has been sung throughout the credit markets over the last 10 years. The banks waive a carrot in front of the consumer and reel them in and encourage them to go deeper and deeper into debt. They do this by prescreening customers through credit reporting agencies, mailing offers to apply, and to transfer balances at teaser rates or zero percent financing. They base it on credit score and not on capacity to repay. A good credit score does not equate to the ability to repay debt.

It is important to remember that last sentence as you think through the responsibilities of the various parties involved. The executive goes on:

Over my career, I have seen thousands of consumers that have credit card lines in excess of their annual salaries. Some are sinking under their burden. Some have been fiscally responsible and have minimal amounts outstanding. My 21-year-old daughter, who’s in college, gets pre-approved offers all the time. She has no ability to repay debt, yet the offers flow in just the same. We all know how these lines are accumulated. The banks, in their infinite stupidity, keep upping credit lines because the customer pays the minimum payments on time. My daughter’s credit line started at $1,000 and has been increased over the last two years to $4,400. She has no increased earnings to support this. But the banks do it without asking. And without being asked. The banks reel in the consumer, charge interest rates higher than those charged by the mob, increase lines without the consumer asking and without their consent, and lure them into overextending. And we can count on the banks to act surprised when they aren’t paid back. Shame on them.

Out of curiosity, I totaled up our own credit limit. We have four credit cards that we keep for convenience. In 1989 (!) we got our first card, from Discover. Six or seven years ago we got a second Discover card to help us keep business and personal expenses separate (it didn’t help, and now we only use one of them). A couple of years ago Amazon was offering $25 or so to anyone who would sign up for their Visa card, so we did that, using it for Amazon buys plus other occasional purchases where Discover isn’t taken. And then Kroger offered a good cash gift when you took out one of their new MasterCards, so we got one of those (but stopped using it when we began doing the bulk of our grocery shopping at Wal-Mart.)

So, four cards, three of them lightly used, none requiring any stringent review of our finances. Credit limits?

  • Discover 1: $18,000
  • Discover 2: $13,500
  • Amazon Visa: $8,300
  • Kroger MasterCard: $9,000

Total credit limit: $48,800. Available at a moment’s notice, offered to us by people who have no clear idea of our current financial situation. Which I guarantee you doesn’t deserve even one-tenth as much unsecured credit.

How is it that our credit limit is so far out of line with our ability to repay?

As a banker, let me describe what we do wrong when we accept and review an application for a credit card. First, we don’t verify income. The first ‘C’ of credit: Capacity to repay, is completely ignored by the banks, just as it was in when they approved subprime mortgages. Then we ask for “household income” — as if other parties in the household could be held responsible for that debt. They cannot. And since we don’t ask for any proof of income, the customer can throw out any number they think will work for them. Then we ask if they rent or own and how much they pay. If their name is not on the mortgage, they can state zero. If they pay $1,000 in rent, they can say $500. (Years ago we asked for a copy of the lease to verify this number.) And finally, we don’t ask how much of a credit line the consumer is looking for. The banker can’t even put that amount into the system. There isn’t any place on the application for that information. We simply put unverified information into a mindless computer and the computer gets the person’s credit score and grants them the biggest line that score and income (ha!) qualifies for.

I recently had a client apply for a credit card. She is a homemaker, with no personal income. The house she lives in is in her husband’s name. She would have asked for a $3,000 credit line, just to pay miscellaneous expenses and to establish some credit on her own. So the computer is told that her household income is $150,000; her mortgage/rent payment is zero. The fact is that her husband’s mortgage payment is $7,000 a month (which he got with a no income verification loan). She had a good credit score, but limited credit since she has only lived in this country for the last three years. The system gave her an approval for a $26,000 line of credit!

I understand that all this is legal. And I understand that someone who falls prey to the temptations being pressed on them has made a mistake and should rightly suffer some consequences. But are the consequences in line with the mistake?

More than once while reading about yet another person who took a mortgage they obviously could never repay, the reason given was, “I figured that they wouldn’t have given me the loan if I couldn’t be expected to repay it.” Is that an unreasonable assumption?

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4 thoughts on “Preying on weakness

  1. Rick,

    Add me to the column of those struggling to weigh out mercy and justice. I was reading Psalm 103 last night and was reminded that God:

    “Like as a father pitieth his children, so the LORD pitieth them that fear him. For he knoweth our frame; he remembereth that we are dust. As for man, his days are as grass: as a flower of the field, so he flourisheth. For the wind passeth over it, and it is gone; and the place thereof shall know it no more.”

    In considering the mercy that we should extend to others, I am always reminded that the foundation upon which the exhortation “Be merciful” is grounded is the extent to which “our Father is merciful.”

    Actions do have consequences and God is also just. Yet if God should mark all our iniquities, who should stand? In his illustration on how to pray, Jesus prayed: “deliver us from temptation.” If God were to permit us to be tempted without restraint, would any be able to withstand?

    I understand the frustration that conservative individuals have with the seemingly infinite amount of bailout money surfacing. As an anecdotal aside, 13 years ago we purchased a rural property for $64K. I made barely $30K at the time and was petrified at the amount of the loan. The property had two houses on it, so we ended up purchasing the property with a family from church. This enabled us to borrow an additional 12K for some repairs and helped make the purchase affordable. Still, I worried greatly at the responsibility of a 38K debt. I can’t imagine why anyone would want to borrow any more than that! :)

    Sometimes I think of the odd jobs worked and the little things we ignored so we could make our monthly payment and I get a little irritated at the concept of someone merely being forgiven tens, if not hundreds, of thousands of dollars of a loan. I am frightened when I think in this way.

    I have a pretty rigid view in honoring the promises that I make. If I sign a dotted line, my conscience feels obligated to make good, even if I have proven to swear to my own heart. Yet God has been merciful to me and remembers that I am feeble as dust. While I am not convinced that it is possible to bail out the world, it seems awful petty to me to take pleasure in my resourcefulness to the extent that I am unwilling to be merciful to those in need.

    Just how are people bailed out? D Wilson on his blog recently posted three possible answers: “War, theft, or fraud.” Well, I don’t like any of those solutions, but the pragmatic part of me thinks that the bailouts allow some of my countrymen to escape misery, let’s roll the dice and sees what happens. I really don’t have any desire in seeing my neighbors pulling their possessions down the road in a red wagon.

    On the other hand, if these bailouts eventually destroy the fabric of our currency and economy, has any true mercy been been conferred upon the suffering? Is being merciful to one’s neigbhor the platfrom behind the bailout schemes? My, what a quandary we are in!

    Incidentally, I have really enjoyed the past series of posts you have shared here. They have provided much to consider.

  2. Bob,

    Thanks as always for a thoughtful comment. I find it extremely helpful when a brother is willing to think through such difficulties with me, pondering and reflecting and shining what light we have to offer, rather than trying to argue for a neat and tidy solution.

    Just how are people bailed out? D Wilson on his blog recently posted three possible answers: “War, theft, or fraud.” Well, I don’t like any of those solutions, but the pragmatic part of me thinks that the bailouts allow some of my countrymen to escape misery, let’s roll the dice and sees what happens. I really don’t have any desire in seeing my neighbors pulling their possessions down the road in a red wagon.

    I was surprised to read this, but I went and looked at his blog and he sure did say that. I was surprised because Wilson once resolved an economic injustice in his own church by simply turning back the clock, i.e. instructing the various participants to restore the prior situation by returning whatever funds they had obtained in the process to their original owner. I doubt this kind of justice could be fully realized with mortgages, but even a partial implementation might end up preferable to what is happening now.

  3. It seems to me that if the government really wanted to do some good in this they’d pay off the outstanding mortgages. What they are doing will only make matters worse and I can’t figure out if they’re too stupid to realize it, or if they’re doing it on purpose, which is evil.

    Okay, that’s very uncharitable of me.

    I, too, have had a rigid idea of what it means to honor promises. There were several things that we learned [i]at closing[/i] (on this house here in Virginia) that had we known beforehand we would never have even made an offer. We felt like we’d been deceived, but we’d made a promise, so what could we do?

    Loooking back on it, I think we still could have backed out and let them keep the earnest money. But it’s hard to figure out where we’ve been foolish or stupid, and where we’ve been hurt by other people’s actions. We prayed earnestly for wisdom, asking the Lord to close this door if it wasn’t his will. We were trying to find a place to rent but couldn’t, and it did seem at the time that he led us to this house, and there is much to be thankful for, though it has caused other difficulities that we could not have foreseen and wouldn’t have chosen if we had.

    Ultimately, in our situation we have to realize that we made the best decision we could at the time, given our circumstances and what we knew of the situation, and we have to trust the Lord’s sovereignty and his goodness. But it is a hard providence, and it’s hard to be gracious to others when feeling “victimized” (and I realize that’s a sinful attitude). And, as I said, it’s hard to sort out our own sin so we can repent of it, when we thought we were seeking God’s will and submitting to him in all this.

  4. Kelly,

    It seems to me that if the government really wanted to do some good in this they’d pay off the outstanding mortgages. What they are doing will only make matters worse and I can’t figure out if they’re too stupid to realize it, or if they’re doing it on purpose, which is evil.

    I think the question of what the government thinks it’s doing (and what most of the citizenry wants it to do) is both simpler than we want to think, and scarier that we care to contemplate. Everything that has been done and will be done is aimed at surviving until things back on track. The assumption is that the economy will eventually right itself and continue on its pre-crisis path, no matter what we do; the actions taken—tax rebate checks, repeated extensions of unemployement insurance, bank bailouts, auto company bailouts, infrastructure development programs—are only intended to carry institutions and people through the difficult but finite turmoil of this unexpected setback.

    But what if it isn’t an unexpected setback? What if it is exactly the logical end point of the booming consumer economy that preceded it? Then there is no getting back on track; in fact, who would want to get back on track if it means ending up here again?

    Unfortunately, I don’t think there is much point in worrying about what is happening at anything above the local level, because the systems in place can comprehend nothing but maintaining and optimizing the status quo. It is conceivable that we could all sit down and choose another, wiser path, but the current systems don’t allow for such thinking.

    I, too, have had a rigid idea of what it means to honor promises. There were several things that we learned at closing (on this house here in Virginia) that had we known beforehand we would never have even made an offer. We felt like we’d been deceived, but we’d made a promise, so what could we do?

    Your experience goes straight to the reason I have started looking hard at the issue of fairness. It seems the system is holding us hostage to the high standards we as Christians want to set for ourselves. I agree with you about the power of a promise, and the need to keep our promises for our own sake. But is a promise made between two parties of good will the same as one made where one party is willing to take legal but still unfair advantage of the other? If your transaction had been taking place in my imagined medieval village, the elders would have either forced the seller to make things right or nullified the purchase—even if you discovered the deception some time after you had taken possession. After all, that would be fair.

     

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