BY ERIN ARCHERD
It could be your bright young college student, your neighbor, or your wife and mother whose life is shattered when her credit is “Maxed Out” warned this eponymous film, screened last Wednesday in the Ames Courtroom at an event co-sponsored by the Hale and Dorr Legal Services Center – Predatory Lending/Consumer Protection Clinic and Americans for Fairness in Lending. The documentary examined the tragedies that arise through consumer debt in America and the growing crisis of bad credit and predatory loan practices through a series of juxtaposed vignettes.
Kim Breger of the LSC introduced the film, as well as AFFIL Executive Director Kirsten Keefe, Maxed Out director James Scurlock, and Professor Elizabeth Warren, a contributor to the film. After the movie, the three took part in a panel discussion about consumer debt in the United States.
Though at times more moving than coherent, the movie painted a vivid picture of the terrible situations that many consumers find themselves in when they fall prey to the easy money handed out by credit companies, and the lengths they must go to try to free themselves from their creditors. Heavy on rhetoric critical of the Bush Administration’s lack of consumer protection, and indeed, critical of a generation of presidents beginning with Reagan who have led our country itself deeper and deeper into foreign debt and tried to cover it up, the film focused primarily on the debt of individual citizens by interviewing people on both sides of the industry – consumers of credit as well as those who extend and collect it.
Celebrity and semi-celebrity cameos combined with the stories of people who have dealt with the credit industry. One plotline followed an advocate as he drives throughout the country collecting stories about predatory home refinancings and home equity loans. Another followed the sad saga of a mother who drove off and never came home. Elizabeth Warren provided many glimpses into the theory and workings of companies out to give you money, and then make you keep paying. She explained that the most marginal borrowers are the heart of credit companies’ profits.
It is remarkable what people will say even when they know they are on camera. Like a bad reality show, Chris and Bob of the credit collection agency “People First Recovery” talked a good line about fair treatment of debtors when they were at their office, but over drinks that evening cannot help but exclaim with adolescent zeal that when dealing with debtors, “You’re like this pirate on ship, and you walk them as far as you can along the plank without pushing them off… It feels a lot like when you win a football game.”
Sometimes, people do not make any bad credit moves at all, but are instead victims of mistaken identity, identity theft, and myriad other errors that ruin a person’s credit. One expert mentioned that FICO scores have an inaccuracy rate of 90%, but people rarely ever check their scores or try to correct those inaccuracies.
Gone are the days in which young men and women are taught the three C’s of “Character, Capacity, and Capital” as shown in a 1950’s film reel. Today, students are given credit cards as soon as they show up on campus, and can quickly plunge themselves into thousands of dollars worth of debt.
It is not only young people falling into credit card debt. One story followed a middle-aged woman in an upper middle class suburb who found herself facing foreclosure after the death of her husband. Families today are in more precarious financial positions than they were a generation ago. As Warren observed, “Today’s family has less money to cover food, clothing, insurance. Basics are driving a family right to the edge.” In trying to live up to some version of the American Dream, many families stretch themselves too thin on things like home loans that they would not have qualified for 30 years ago.
Warren warned of the danger of creating a two-tiered society, in which “a large part is always living pay check to pay check. A life of great anxiety and ultimately great vulnerability. [People] go from being middle class to part of the poor.”
After the movie and a brief reintroduction by the LSC’s Roger Bertling, Elizabeth Warren, AFFIL’s Kristen Keefe, and film director James Scurlock fielded questions from the audience. Warren began by talking about the “tricks and traps” used by credit companies that force people into paying fees and installments for as long as possible.
“If you can keep them out of bankruptcy, they’re like little annuities,” said Warren. “You earn back the amount you lent them while keeping up the $50 payments. If they’ve borrowed $2000, they’ve paid off the nut in 7 months. The numbers are out of whack.”
Keefe expressed some optimism that the growing awareness of predatory practices would begin to hasten reform.
“I’m not delusional or think that we’ll have substantive litigation in the near future, but the tides are turning,” Keefe said. “These practices that began with my [poor and indigent] clients are creeping into the middle class…How the bottom is falling out of the subprime [lending] industry is going to make the tide turn even faster.”
An audience member questioned why companies would continue to give subprime mortgage loans when they seem so risky. “Actually, it’s very profitable.” answered Warren. “[These loans] are predatory and making above market. And even if they weren’t profitable, I think they’re lousy and unsafe products. I don’t think we ought to sell them. Subprime mortgages have a 1 in 5 chance of costing you your home in the next three years.”
Scurlock, who has also published a book in connection with the movie, explained why he chose to detail government spending in addition to that of the individuals portrayed in the movie. The national debt is not something confined to the government, but something owed by every American.
“We owe it,” he emphasized. “We have had 4 presidents now who borrowed from social security to make our national debt look smaller than it is.”
Though there were few solutions offered, Warren did have some suggestions for possible steps to take to help stop predatory lending: enact usury-like laws that only allow companies to lend a set number of points above the prime rate and get rid of many of the fees, or create something like a federal financial products safety commission, an idea she credited to one of the law students sitting in the audience.
One final piece of advice Warren gave: “Use the green stuff.” “There are studies that show you have different spending patterns when you use cash,” she said.
Maxed Out has been released in movie theaters nationwide.