A Nation Running on Empty

The deregulated credit industry is a major force in American life. With two out of three Americans unable to pay their credit card bills each month, along with bankruptcy rates that are ten times higher than those during the Great Depression, the United States could be heading down a path to economic disaster. James Scurlock, director of the documentary Maxed Out, which comes out this week on DVD, spoke with TAP about the devastating personal and financial effects of debt throughout the nation.


Elizabeth Henderson: The major question of film is: Why are Americans unable to get out of debt? Could you explain for our readers how millions of Americans have become trapped in this cycle?

James Scurlock: Well, if you look at the data you'll find that over the past 20 to 30 years people's incomes haven't kept up with the cost of living -- major costs like health care, housing, day care, things like that. So, as incomes haven't kept up, people have turned to credit a lot of the time to fill the gap, and credit cards have become ubiquitous. A lot of people use credit cards to pay these things, and these are very high-cost ways of paying for things. There are a lot more fees, there are all sorts of penalties, your interest rate can go upwards of 30 percent in some cases. When you're paying 20 to 30 percent interest and fees and penalties on top of that, it adds up very quickly, much faster than most people realize.

There have been some major changes in the credit industry, such as deregulation and the increased accessibility of credit cards, in the past 30 years. How did these changes occur, and in what ways have they affected consumers?

On the regulatory side, in 1978, you have the U.S. Supreme Court deciding that banks could export their interest rates. They used to have very effective usury laws, caps on what you could charge for interest, and in 1978 that was effectively obliterated. So, suddenly, credit card companies like Citibank in South Dakota could base themselves with no usury laws, no rates, no caps, and they could charge whatever interest rate in any state in the country that they wanted to. So that's when credit card lending became very profitable.

As for access, the game just became giving as many people credit cards as [you] possibly could because you could charge any price that you wanted to. In fact, you could not only charge whatever price, you could change the price. It's the only product where you can change the price after someone has bought it.

I've read that initially the film was intended to be more of a comedic romp, focusing on consumer irresponsibility, and that it then evolved into focusing on the absence of corporate responsibility. How did this shift occur, and did this evolution alter any ideas or assumptions that you may have had going into the film?

The film is actually pretty true to form as far as what I experienced making it. So it starts out in Las Vegas with this woman who's building a 10,000 square foot home that she can't afford if the interest rates go up, and it's just this sort of bizarre world of these huge McMansions. Then Dave Ramsey, this sort of down-home, folksy money guru, turned me onto this family in Indiana who had written a letter to his show because this woman's mother had disappeared, and it turned out after she had disappeared that she had a secret life of credit cards and she had a gambling addiction and so forth. When we went over to Indiana and started talking with this couple that was the point where I realized, wow, this is something that's very personal and emotional and something that really just strikes at the core of who we are in this country.

I interviewed a guy from Debtors Anonymous, which is the twelve-step program, and he was saying this is really the last taboo. It's like, you can talk about drug addicts, or alcohol, you can talk about your sex life, but the one thing that you can't talk about is being in financial trouble. You know, in this country, in this culture, saying that you're broke, saying that you failed, is like death.

Another thing that the film poignantly demonstrated was the way in which the exploitation of the poor by the credit card companies perpetuates poverty.

Certainly, which is very maddening. Because what you have are these neighborhoods, a lot of times minority neighborhoods, where they have worked very, very hard, saved up, and achieved the American Dream, which is owning their homes and retiring feeling financially secure. And along come these lenders convincing people to cash out the equity on their homes, and being very misleading, getting them to sign these horrible re-financing agreements or whatever, and pretty soon all the equity in those communities has just been wiped out. And where you had a really solid middle-class community, suddenly you just have a bunch of foreclosures and poor people. It's just really shocking.

The basic point for credit card companies seems to be to target the consumers who are the least able to repay.

Well, yeah. Last year there were $18 billion in late penalties and over-limit fees, and that's up 1,000 percent from 1996. So, it's become a game of how you can charge people another fee, another penalty, and that's a real change. It used to be you made money on credit cards by the spread, by the difference between what you gave for that money and what you charged your customer for that money. But now it's really all about fees and penalties.

Some of the people that you focus on in the film are attempting to maintain or attain a lifestyle that, for them, is representative of the American Dream. But to what extent is this dream even still attainable?

Well, that's a really good question. The American Dream used to be being debt free and owning your own home -- being financially secure and having a roof over your head. It's obviously gotten much harder to really own a home, not to just have a mortgage, but to actually own something. In Seattle or New York or D.C., or any major American city, home prices are just outrageous. How attainable is the dream now? Well, I just don't know.

For most of the film you were looking at solidly middle-class people who had been affected by credit card debt. In the United States, how many people in the middle class are impacted by this debt compared to those who are lower-income or poor?

I think the numbers aren't there because the industry doesn't release them, but there was just a study done in the L.A. Times and it found that, overall, 35 percent of Americans feel financially insecure. Now, that goes up to 54 percent when you're talking about people making $40,000 or less. And it goes up to 70 percent when you ask minorities if they feel financially insecure.

Just like with the sub-prime mortgage meltdown, it used to be that if you were poor you couldn't get credit. If you were poor you couldn't get a mortgage, if you were poor you couldn't get a credit card. Well, now there's the sub-prime market so instead of getting an HSBC credit card, you can get their Orchard Bank credit card. Instead of getting Washington Mutual, you can get the Providian cross-country bank. Those are much higher costs than the credit card that a wealthy person might get. So it absolutely has more of an impact on people at the lower end.

Are we missing some great sign of impending economic crisis? And is that what it's going to take for credit regulation to finally come back in?

I think that's certainly what it's going to take. I don't think there's any question about that, because Congress isn't going to regulate on its own. You know, the head of the Government Accounting Office just went on a tour of the country that he paid for himself to warn everyone that this country is bankrupt; that was his message. That's unprecedented. Warren Buffet called America a sharecropper society, a public squanderville. How much longer can it go? How long can that last? I don't know. But it's certainly not sustainable.

To what extent can we free ourselves from the style of living that you refer to in the movie while continuing to have an economy that is dependent upon credit and debt in order to function?

Well, you know, debt is a tool, and a very useful one and a very necessary one in commerce. Now, that being said, it's not necessarily such a great tool for individuals. One thing that experience has taught us is that individuals are very bad at managing risk -- that's why you have insurance. Debt is risk. So it's much more appropriate for a large company or a government to take on liabilities and risk than it is for an individual.

Talk a bit more about the absence of congressional action. Is this mainly the result of the credit industry's lobbying efforts?

It's many things. Certainly one is lobbying. Another one is that this industry contributes a huge amount of money to the campaigns of these politicians. But the other is that Congress is really terrified of what would happen if you pulled the plug on all of this easy credit that's been making the economy go on and on and on for so long. So they really don't want to come down too hard upon it because maybe all of that credit will dry up, and we'll have a recession or worse. I think they're just terrified of killing the goose that's been laying the golden eggs for so long.

Do you think that the congressional hearings on credit in 2005, which are featured in the film, were at all successful in holding the credit industry accountable? Or were they just a complete waste of time?

The hearings of 2005 were a complete and utter waste of time. All the hearing in 2005 did was tell the credit card executives, 'You won't be held accountable.' You don't even have to answer a single question from Congress, much less from the media and from your customers. That's all it did.

One of the goals of the film was to increase awareness and the discussion of this issue of consumer debt. To what extent you think that the film has succeeded in achieving this?

You know, a lot of people, most people, really, don't want to talk about this. And it was sort of bizarre because here you are with an issue you know affects just about everyone, and yet no one wants to talk about it. That being said, the people that we did talk to were generally so angry, were so resigned, that I think they were very eloquent and had really given it a lot of thought. A lot of the Q&As for the film were like confessionals -- people weren't asking how much it cost, or what kind of camera we used. They were telling us their nightmares. So, I think it's definitely succeeded.

Does part of this success have to do with the film's ability to reframe the issue of consumer debt as an issue of corporate responsibility rather than one of consumer irresponsibility?

It does. It absolutely does. I've had some people say, "Well, what about personal responsibility?" And I go, "Were you not watching the film?" There's plenty of irresponsibility going on, but, you know, the issue is, "Was I treated fairly? Or was I really just taken advantage of once I screwed up?" Because none of those people told me, "Oh, I don't think I should pay this." Their dream in life is to pay it. Their biggest wish in the world is to be able to pay it back.