The year 1865 is seen as a highlight in American history. The nation was reunited, generations of slavery finally ended, and the era of Reconstruction began. However, reconstruction is dirty, messy, and hard work. It gave rise to a new practice called peonage that wouldn’t end until 1867. Peonage is defined as debt servitude. It was based on the principle that a small elite can manipulate someone’s debt into a profit. People are no longer forced to work in dangerous mines or chain gangs, but the American populace is paying exorbitant amounts to support the new economic elite. This isn’t a history lesson though, modern peonage still occurs under a new name. Consumer debt and compound interest.
In the past peonage made the greatest profit when groups of people were swept up by police on trumped up charges and convicted of petty crimes. Corporations or wealthy landowners rented prisoners to be workers for the duration of their sentence. Today when you become indebted to a company, you usually have a small grace period. If you haven’t managed to come up with the money yet, plus interest and late fees of course, one of two things will happen. The first scenario deals with debt collection agencies. When the creditor has reached their patience they call a third party in and make a deal. If the debt collector is able to squeeze the money out of you and return it to the creditor, they get to keep a small percentage. The second method is debt buyers. In this case a private company or wealthy elite (sound familiar?), purchases your debt for a fraction of the price. After that, they’re free to use any legal means necessary to recover your debt. However, don’t get hung up on the word “legal”. They will attempt to intimidate and cow you. The favorite method is filing multiple court cases. According to a Newsweek article written by Ryan Bort, debt buyers are the primary users of state court systems. The catch is that if they’ve sufficiently terrorized you into avoiding court, you will automatically have to pay the debt in full. If you do show up, well the unfortunate truth is that the law isn’t necessarily on your side.
After researching and reading articles there were still questions. What’s the logic and motivation behind this? The motive came fairly easily. Profit. The goal of any company is to make money and more money after that. Still, why wouldn’t the creditor attempt to get it the money themselves? The unfortunate and rather ugly truth is that creditors want a profit and know how to make it happen. Contracts the customer doesn’t really understand, overdraft fees, debt, and penalties are their bread and butter. Companies know the possible outcome long before you do. They might be lenient for a time, but it’s only to get a bigger catch in the end. Actuaries are employed by companies to compute the risk to their business. It also lets them find margins of an acceptable loss. It results in a scenario like this. Creditors allow your debt to build up to a certain level before selling it to a debt buyer, in order to make a profit. Say you owe $100 in debt. If your creditor waits until you owe $400 dollars before selling it for $0.50 on the dollar, they make $200. In the end your interest rates will be raised, you must pay the late fee, and your credit score is lower. And you still have to go back to a creditor to restart the cycle.
If you take nothing else away from this article, please let it be this. Why is this important? So an article has a fancy analogy that compares peonage and debt, so what? Well, it’s important because it isn’t too late to avoid this and the worst is yet to come. In September of 2017 consumer debt reached an all time high of 1.3 trillion dollars. In a Market Watch report the TransUnion credit reporting agency stated they predict consumer debt to rise by at least 1%. It might sound small, but that’s an increase of roughly 1.3 billion dollars. So what can we do now? Well if you’re a wealthy a John Oliver, please follow his example of buying debt and then wiping the slate clean. Hope isn’t lost thought for the everyday person. Experts agree that the best way to deal with creditors is proactively. The next time you’re late on a payment, call the card company first and explain your situation. Next, when the letter or phone call arrives, don’t ignore it. There is always the chance that you can reason with them and work out something better than the alternatives above. Finally, if it progresses to debt buyers, don’t let them intimidate you. They will try, and they will try to take you to court. In the eyes of the law, not showing up only reinforces the notion of your guilt.
In the end, our economic system is often seen as corrupt and broken. Creditors are using you and your misfortune to turn a profit. What they’ve forgotten, is that the American people are not peons. We have rights and those rights are upheld and protected by laws like the 2009 Credit Card Accountability and Disclosure Act. If you read this article and see the flaws in our system, act against them. Write to your local officials and report misconduct when you see it. The government has a tip line just for that purpose here. We all know what should happen, we’ve just forgotten the right way to do it. Hopefully, this article serves as a reminder for yourself, and a reminder to give to others.
Sources:
- Hess, A. J. (2017, September 19). Here’s what happens if you don’t pay off your credit card debt. CNBC. Retrieved from https://www.cnbc.com/2017/09/19/heres-what-happens-if-you-dont-pay-off-your-credit-card-debt.html
- Bowers, J. (2018, January 2). Customers Won’t Pay? How to Choose a Collection Agency. Business News Daily. Retrieved from https://www.businessnewsdaily.com/7811-choosing-a-collection-agency.html
- Bort, R. (2016, June 6). John Oliver Explains The Terrifying World Of Debt Buying. Newsweek. Retrieved from http://www.newsweek.com/john-oliver-last-week-tonight-debt-buyers-466887
- Understanding How Credit Card Interest Works. (2017, October 16). Retrieved from https://www.discover.com/credit-cards/resources/how-does-my-credit-card-interest-work
- Amadeo, K. (2018, January 15). Consumer Debt Statistics: Causes and Impacts. Retrieved from https://www.thebalance.com/consumer-debt-statistics-causes-and-impact-3305704
- Slavery v. Peonage. (n.d.). Retrieved from http://www.pbs.org/tpt/slavery-by-another-name/themes/peonage/
- Board of Governors of the Federal Reserve System. (2018, January 8). Consumer Credit – G.19. Retrieved from https://www.federalreserve.gov/releases/g19/current/
- Official Guide to Government Information and Services. (n.d.). Credit Cards, Find Out Your Rights When It Comes to Credit Cards and How to Choose the Right One. Retrieved from https://www.usa.gov/credit-cards
- Consumer Financial Protection Bureau. (n.d.). Consumer Finance. Retrieved from https://www.consumerfinance.gov/policy-compliance/enforcement/
- Prater, C. (2016, January 26). 12 consumer protections in the Credit Card Act. Retrieved from https://www.creditcards.com/credit-card-news/help/card-act-12-consumer-protections-6000.php
- Federal Trade Commision. (n.d.). Credit, Debit. and Charge Cards. Retrieved from https://www.consumer.ftc.gov/articles/0332-credit-debit-and-charge-cards
- Lamagna, M. (2018, January 6). One Sure Fire Prediction for 2018: Americans Will Take on Even More Debt. Retrieved from https://www.marketwatch.com/story/one-sure-fire-prediction-for-2018-americans-will-take-on-even-more-debt-2017-12-18
- Arnold, C. (2017, September 12). Americans’ Borrowing Hits Another Record. Time To Worry? Retrieved from https://www.npr.org/2017/09/12/550250789/americans-borrowing-hits-another-record-time-to-worry