Credit Industry Needs a Wake Up Call

With big banks announcing new fees on customers faster than you can say “bailout,” and with the Occupy Wall Street protests in full swing, it’s suddenly become clear that Americans’ relationship with the credit industry is at a breaking point.

The credit industry in America — including banks, credit card companies, and all the other lenders who have lately made a habit of burying regular folks in mountains of debt — has become increasingly out of touch with ordinary Americans.

For the last two centuries, these institutions have been an important pillar of our economy, and they were one of the reasons this country was able to grow at such a fast pace. The “Big Four” banks, all created within about the last 200 years (Chase in 1799, Citibank in 1812, Wells Fargo in 1852, and Bank of America in 1904), helped to spark innovation and growth by allowing people to buy homes and by providing capital for entrepreneurs and large companies alike.

While credit card and student loan companies are a more recent innovation (having been created mostly within the last 45 years), they too have played an important role in helping the economy by allowing people to finance educations and pay for important purchases in advance.

But somewhere along the way these institutions morphed from traditional financial entities into straight-up profit guzzlers, like oversized mutant vacuum cleaners spread across the globe guzzling up cash instead of dust bunnies.

Which would be fine. Except that the people supplying the cash happen to be ordinary citizens who have reached their breaking point.

Middle class wages in the U.S. have been almost flat over the last 40 years. Not coincidentally, that period of time aligns exactly with the rise of the credit industry as we know it today.

At the same time that most people were making up for stagnant wages by getting in debt due to mortgages, student loans, medical expenses, or credit card expenses, the credit industry was getting rich. In 2010 alone, MasterCard reported profits of $1.8 billion and Visa reported profits of $2.9 billion .

Compare that to a person who posted his story at wearethe99percent.tumblr.com recently, saying:

“I am 32. I have an MBA. I am sitting on a mountain of school loans. I am extremely grateful to have a job, even if it does not have benefits, so I don’t complain about the hours.”

It’s this juxtaposition between the huge profits of the credit companies and the struggles of regular people that has caused an outpouring of anger toward the banks and lenders who seem so out of touch. When Bank of America recently announced a new $5 fee on most of its debit card customers, many people took to the Internet to voice their frustration with the entire industry.

No one wants to deny these companies their right to make money, but what they need to realize is that while wringing every last dollar from customers might be a profitable short-term strategy, that kind of approach won’t be tolerated by the public anymore. Not when everyone remembers how the credit industry helped bring about the recent global economic crisis with predatory lending practices and the creation of deeply flawed and dangerous financial instruments.

And especially not when taxpayers gave bailouts to many of the biggest financial institutions ( including Bank of America ).

Instead, these companies are going to have to change their mentality — or face the possibility that people’s frustrations will boil over, which could lead to breaking up the largest financial institutions entirely. Already last year, a bill that would have put limits on banks’ deposits and other liabilities reached the floor of the Senate before being killed. And ordinary people are figuring out how to stand up to their lenders .

The message to the credit industry is clear: Either heed the wake up call you’re being given and start reforming your practices, or get ready for reform to be forced upon you by a fed up populace. People are not going to abide your selfish ways anymore.


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