NEW YORK (Reuters) - Sky-high interest rates on credit cards can make a mountain of debt seem insurmountable. Eventually for some, it is.
An unfortunate minority depicted in the new movie “Maxed Out” finds the burden too great to bare: suicide seems like the only way out.
America’s predilection for debt is well documented. U.S. consumers owe over $2.4 trillion, nearly one fifth the size of the total economy. As a country, the United States borrows over $2 billion a day to cover an insatiable demand.
Larger-than-life as they seem, these figures mask individual tales of tragedy and despair, according to “Maxed Out,” which gives viewers a peek at moments when indebtedness becomes deadly.
Director James Scurlock uses those personal tales as a platform for a critique of the financial industry, arguing that far from discouraging irresponsible borrowing, the big banks rely on it for the core of their profits.
“Banks and credit card companies are setting their customers up to fail,” said Scurlock. “When we inevitably fall behind, they can charge late fees, over-limit fees and the stratospheric interest rates that drive their profits.”
Indeed, bank profits broke new records in 2006, despite slowing economic growth. Fee income was often cited as a key source of earnings.
The banks themselves argue they are only offering credit to those who need and want it, and that the parties involved should be responsible for paying back what they owe. Furthermore, they say they are in full compliance with existing government regulations on lending.
“There are programs out there for people who are having problems,” said Tracey Mills, a spokesperson for the American Bankers’ Association. “If movies like ‘Maxed Out’ encourage people to reach out to those programs, then we hope that happens. It creates better customers for banks. We want long-term customers.”
Scurlock suggests that rather than acting as a regulatory break, politicians actively encourage the predatory behavior of lenders, coming up with ever more elaborate loopholes for the industry, which is a key campaign contributor.
Elizabeth Warren, a bankruptcy expert at Harvard Law School who is featured in the film, says that instead of reining in financial firms, the government has become an advocate for them.
“One would expect the government to come down on the side of the consumer,” said Warren. “Instead, it regulates on the side of the banks.”
One factor favoring the industry, according to the movie, is a lack of privacy protection that allows debt collectors to amass detailed information about debtors and their families.
One employee of a collections firm featured in the film fancies himself a modern-day pirate: “You want to push them out on that plank as far as possible without making them jump,” he says.
Their methods include calling family members and neighbors in the hopes that the embarrassment factor will shame debtors into payback.
Banks note that the credit boom has helped fuel economic growth. But skeptics say the gains are not sustainable, and are already coming back to haunt many American families.
“Households, in their quest for sources of financing, have now been moved from mortgage borrowing to credit cards,” notes Gabriel Stein, economist at Lombard Research. “This is extremely bad news for the U.S. economy over the course of 2007 and suggests that households are at their last gasp to find some form of credit.”
Scurlock said he set out to take a comic look at America’s spending excesses. But as he dug deeper, most of what he found was tragic.
“I thought this was going to be a light-hearted romp through the world of credit,” he said. “But when I started interviewing people, I came to realize how emotional this topic is. We talked to bankruptcy attorneys and they said these clients will come in absolutely prepared to commit suicide.”
Scurlock tells bizarre tales of lawyers whose safes contained the guns — and even cyanide in one case — of suicidal clients, for whom a visit to the lawyers’ office had been a last hope.
Such stories abound in the film. One features two mothers who lost their children to suicide. Both victims had amassed massive credit card bills in college.
Such lending is readily available to students, with credit card companies setting up booths with giveaways to entice would-be borrowers — even though most college kids have yet to hold down their first real job.
Yet, rather than discouraging such practices, regulators look the other way.
The message of Scurlock’s film, which arrives in theaters on March 9, is clear: regulators’ links to the industry are too tight for political appointees to keep financial services firms in check.
Or, in the Harvard law professor Warren’s words: “The lobbying dollars are all on the side of industry. That’s why they get to make the rules.”