Maureen O’Malley, a leading bankruptcy lawyer in Herndon, Va, sent me this credit card disclosure. It shows it will take $1.1 million to pay off $7783.37. And it will take 2670 years to do it. You can see for yourself here. (The person’s name and account number are deleted, of course, but this is for real!)
This is the worst I’ve ever seen, but I’ve seen plenty disclosures that are shocking. This one shows the impact of the 27% interest combined with the $39 over limit fee. Anybody can see why this person has to file bankruptcy.
At the minimum payment, this person can never pay this card off. Well “never” is not exactly right, but it will take a million dollars and two thousand years.
The banks, who fought for the bankruptcy law of 2005, said that somehow the American people were at fault for the big jump in the number people who file bankruptcy. Actually, the fault is with the high interest rates charged by the banks. And by the failure of Congress to do anything about it.
Before 1978, the state governments could set a limit on interest rates charged to each state. And they did. (One reason for this regulation is that interest rates are hard for most of us to calculate in our heads.)
In 1978, the Supreme Court threw that out. In Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. (439 U.S. 299), the Supreme Court ruled that a law passed back in 1863 blocked the states from protecting their own citizens.
After 1978, if just one state raised its interest rates, banks set up in that state could charge the higher rate anywhere in the country. South Dakota was the first state to do that. And they invited Citibank to move there. Delaware followed. (That’s why so many of credit card payments are still mailed to South Dakota or Delaware.) Interest rates skyrocketed everywhere.
That’s why people who file bankruptcy increased from about 300,000 per year in the early 1980’s, to way over a million a year today.
If Congress really wanted fewer people to file bankruptcy, it would be easy. Cap credit card interest rates at 12%. In four or five years, bankruptcies would be cut in half. In five years, I’ll be 67–I’ll be ready to retire.