One of the paradoxes of the business press is that while everyone should read it, since we all live in the economy, not everyone does. In fact, most people don’t. I suspect, if they look at financial publications at all, they flip through with a sense of disconnect. Forbes, Fortune, the Financial Times, and the agenda-setter for the financial community, The Wall Street Journal, and others are usually sophisticated and informed and often interesting. But they can seem strangely remote from the reality that people live day to day or sense is happening to friends, neighbors, and strangers in far-off states.
Nowhere is this disconnect more pronounced than in the story of credit cards and personal debt. Reading back over the last several years, one can detect two parallel narratives on this subject. One body of work, compiled by nonprofit groups, academics, documentarians, and others, has marshaled data to make visible what readers already sense: a dramatic qualitative and quantitative—and recent—shift in the relationship between the credit-card industry and its customers. Yes, this narrative says, something has changed, and, no, the change does not benefit you. The credit-card exchange, we are told, has shifted from a lending and underwriting paradigm to a sales paradigm; penalties, fees, and default interest at rates that were illegal a generation ago are no longer regrettable outcomes to be avoided but central to the business model.
These non-business-press sources place their credit-card story within a broader context, that of a besieged American middle class caught in an iron vice of stagnating incomes; shrinking disposable income; rising costs for health care, housing, and education; the aforementioned usurious and rapacious practices of the credit-card industry; a growing, consolidating, and increasingly sophisticated debt-collection industry; and, to add insult to injury, a new bankruptcy law that closes the courthouse door to formerly eligible debtors.
This narrative, as we will see, is fully supported by credible anecdotal and aggregate data and happens also to be true.
The business press did not ignore these major shifts in the credit-card industry over the years and actually did several fine stories that documented the changing relationship between the industry and its customers. But those stories were all but unavoidable for business publications under the circumstances and did not come close to reflecting the dramatic reordering of a marketplace. With notable and important exceptions, financial publications as a whole stuck to their usual formula of chronicling the (stellar) financial performance, strategies, and intramural competition of corporate actors and of profiling their leaders:
CHARGE! American Express CEO Ken Chenault is about to launch a huge credit-card war. Backed by an antitrust ruling, he’s gunning for Visa and MasterCard. Let the fight begin.
(Business Week, August 9, 2004)
This is a fine story, by the way, but it comes from a stock-investor’s perspective. It is a Wall Street narrative, the one with which rank-and-file business editors and most reporters are most comfortable. Such coverage, while competent, interesting, and necessary, is in the end insufficient. In retrospect it looks blinkered and out of touch.
I’m talking about a question of emphasis, really. The credit-card and general consumer-credit industry shifted radically in just a few years, faster than the financial press recognized. As a result, news organizations were caught unprepared when the reckoning came.
The full story of the credit-card industry’s growth, transformation, and impact has been piling up for the better part of a decade and can be found in Credit Card Natio, by Robert D. Manning, a Rochester Institute of Technology professor; in the work of Elizabeth Warren, a Harvard law professor, bankruptcy expert, and popular author; and in reports from the Center for Responsible Lending, a Durham, North Carolina, nonprofit that did important and prescient work on subprime mortgage lending. Lately, independent documentarians, including James D. Scurlock, creator of the film Maxed Out, have capitalized on an unmet public demand for information on the subject.
By way of background, as these sources explain, the modern credit-card industry is just a couple of decades old and has two founding fathers: Dee Hock, an obscure employee of an obscure Seattle bank, who in 1970 formed the banking cooperative that would become the modern Visa, which allows banks to share fees charged to merchants; and Walter Wriston, chairman of Citigroup’s predecessor from 1970 to 1984 and a banking visionary who steered the bank into consumer lending, fought tirelessly for deregulation, set a then-unheard-of 15 percent growth target, and outmaneuvered competitors to become the biggest issuer of early Visas. Both men were instrumental in radically transforming banking’s cautious post-war lending culture (a result of huge losses suffered after a consumer-lending binge of the 1920s).