FDIC SAYS CONSUMERS BOTH BETTER AND WORSE OFF IN OBTAINING CREDIT

September 27, 2003

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Consumers are both better off and worse off when it comes to obtaining credit today, the chief economist of the Federal Deposit Insurance Corporation told a gathering in Washington last month, according to Bankruptcy Law Reporter. Richard Brown told members of the National Economists Club and the National Association of Business Economists that consumers have more access to credit than ever, and that banks can withstand the risk of lending to borrowers with less than good credit. He added, however, that consumers are worse off because they have the freedom to go deeply into debt, the potential for being cheated when they are not educated in personal finance and the burden to pay punitive interest rates when their credit rating is bad.

Brown noted the quadrupling of annual personal bankruptcies filed in the past 20 years. In his remarks, he listed several factors contributing to the increase in bankruptcies. First, earlier bankruptcy reforms provided for wider asset exemptions, such as homes. Second, he pointed out that the stigma of filing for bankruptcy has been removed. Third, he noted that the lack of medical insurance contributes to bankruptcy, as does divorce. Fourth, he added that he has seen an increase in casino gambling, particularly on riverboats and on Indian reservations. Another reason was the debt accumulated by college students using credit cards.