The Discredit of Credit:
A Study of Consumerism and Class

Kurt Reymers 1995
Department of Sociology
University at Buffalo
Reprint by permission of author only,

Part 1: A brief history of credit
Part 2: The availability of credit
Part 3: Different credit for different classes
Part 4: Debt and consumer attitudes
Part 5: Credit and class struggle

Table 1: Assets of Middletown Building and Loan Associations
Table 2: Debt as a Percent of Disposable Income



The ubiquity of credit arrangements that are offered to the consumer cannot go unnoticed in the contemporary economy of the United States. Consumer credit has become a permanent fixture of the American economy over the past two decades, especially within the realm of unsecured risk, i.e. credit that is available without collateral, such as with credit cards. The de-regulation of finance capital in the United States during the 1980s has expanded the role of credit even further, causing exponential increases in the availability and use of consumer credit. The implication of this de-regulation is that the availability of such credit will foster an expansion of the economy, boosting growth for corporations and, perhaps more importantly, making the purchase of durable goods for consumers easier, thus bringing the material circumstance of the classes of worker and entrepreneur closer together.

The economic analysis of credit and its consequences is at the core of such a hypothesis. Very seldom, however, are the observable
social interactions and consequences of consumer credit examined. The above hypothesis of banking advocates and political pundits regards credit as undeniably necessary for the stability of the economy (and thus the social system). But what of the possibility of negative social consequences of credit?

A hypothesis that quite clearly is the antithesis of this mainstream economic belief has been offered by Robert Lynd and Helen Merrell Lynd during a time similar to our contemporary period when credit was first made available to the consumer-at-large. The Lynd’s famous sociological studies of "Middletown" (i.e. Muncie, Indiana) (1929, 1937) expose credit as an institution that divides the classes of worker and businessman rather than bringing them closer together. These studies occurred in the very early part of our century, but the circumstances of credit availability to consumers were remarkably similar:

The allied business institution of credit is coming rapidly to pervade and underlie more and more of the whole institutional structure within which Middletown earns its living. Middletown in the early [eighteen] eighties may almost be compared to an English provincial town in the middle of the eighteenth century when "there was little capital laid down in fixed plant and the machinery of finance and credit was very slight." When the fathers of the present generation in Middletown wanted to buy a piece of land they were likely to save up the money and "pay cash" for it, and it was a matter of pride to be able to say, "I always pay cash for the things I buy" (Lynd & Lynd, 1929: 45-46).

While this provincial style of living of course did not exist thirty years ago, the availability of unsecured credit to the consumer in the 1960s and 1970s to today can be compared to the period between the 1880s and the 1920s:

Today [that is, in the 1920’s], Middletown lives by a credit economy that is available in some form to nearly every family in the community. The rise and spread of the dollar-down-and-so-much-per plan extends credit for virtually everything - homes, $200 over-stuffed living-room suites, electric washing machines, automobiles, fur coats, diamond rings - to persons of whom frequently little is known as to their intention or ability to pay.

The building of a house by the local carpenter today is increasingly ceasing to be the simple act of tool-using in return for the proper payment of a sum of money. The contractor is extensively financed by the banker, and this more and more frequently involves such machinery as "discounting second-mortgage notes." A veteran official of a local building and loan company summed up the present-day optimistic reliance upon credit for all things great and small: "People don’t think anything nowadays of borrowing sums they’d never have thought of borrowing in the old days. They will assume an obligation for $2,000 today as calmly as they would have borrowed $300 or $400 in 1890" (1929: 46-47).

The import of this availability of credit to the Lynds can be found in the class relations that are established between what they define as the "working class" and the "business class". These classes are differentiated occupationally, which means that there is a divergence in the activities of the people involved amounting to much different economic roles. These different roles define how people act (or fail to act) with other people in their class and outside of their class. The different functions are similar in scope to Weber’s conceptualization of the difference between ‘budgetary management’ and ‘profit-making’. The impact of credit on these social positions was incontestable to the Lynds. Take, for example this passage from

Never was there more pressure in the business world for solidarity, conformity, and wide personal acquaintance than exists today [c. 1929] under the current credit economy. But among the working class certain factors operate to make more tolerable than formerly the position of the "queer cuss" or the "lone dog": no particular expression of sociability is necessary for or evoked by operating a machine; if the position of the individual tool-worker has become more precarious as he has been increasingly reduced to the status of one of the plant’s raw materials, his isolation is being compensated for at certain new points [such as workmen’s compensation or life insurance]…It will not be surprising if we find the worker’s leisure time less closely organized than the business man. But his increasing isolation and a rising standard of living fostered by the habit of leaning the present against the future through time payments are constantly exposing the worker at new points more rapidly than the organized agencies bolstering him in his emergencies can develop; the lone-wolf worker in Middletown has his flanks somewhat protected but he follows a precarious trail (1929: 278).

This precarious trail is economic in its origins, but it entails more than economic consequences. As the Lynds explain, with the establishment of credit the economic difference becomes smaller in the short term for the working class individual, but the lien that remains in the background against that individual’s future actually expands the social distance between the classes rather than shrinks it.

The relation of other extra-economic (i.e., cultural) aspects to the occupational class structure is what is of primary importance to the Lynds. The concept of consumption was clearly what separated these classes according to the writing in Middletown. In a similar strain as Veblen (1899) (but with a bit less animosity), the Lynds speak of the role of the woman/wife with regard to the common consumption tasks assigned to that role:

In a world dominated by credit this social function of the wife becomes, among the business group, more subtle and important [than simply setting the family in a secure social position] (e.g., see fn.); the emphasis upon it shades down as we descend in the social scale until among the rank and file of the working class the traditional ability to be a good cook and housekeeper ranks first (1929: 116)

The social status that accompanies the class of business man’s wife is sponsored, in part at least, by the availability of credit. Such credit allows these women to purchase the symbols of the business class, symbols that are notoriously conspicuous, such as "beauty".

In this example, credit is seen by the Lynds as a factor responsible for the social construction of gender identities within the business class . In another example, it is credit that consolidates the business class into "loyalty groups":

In general, the greater accessibility of those on the lower business rungs to sources of credit through lodge, club, church, and social contacts would seem to make fresh opportunities through the starting of a small industrial shop, retail store, or business of their own easier for them than for the working class. No direct study was made of the chance for promotion among the business group, and the local sentiment is such that one may not talk to business men and their wives about their personal advancement as one may to the working class (1929: 67-68).

Confronted by the difficulty of choosing among subtle group loyalties, the Middletown citizen, particularly of the business class in this world of credit, tends to do with his ideas what he does with his breakfast food or his collars or his politics - he increasingly asserts a blanket pattern solution To be "civic" and to "serve" is to…be a "booster, not a knocker"; to accept without question the symbols. Hence one tends to find certain groups of loyalties linked together (1929: 492; my emphasis).

The import of credit in this description of how the Middletown person constructs his social groups is that it acts as an "unmasking device" to the social nature of the construction of classes. By offering the working class individual the possibility to possess many of the same symbols that the business class have appropriated for themselves, and by noticing that a similar appropriation by the working class does not occur, we can eliminate the possibility of a single direct relationship between consumption and class construction. There are clearly more variables at work than merely economics or occupations in the construction of class boundaries. What is more astonishing is that the businessmen that the Lynds describe seem to be (perhaps unconsciously) aware that such a social fact becomes clear with the establishment of the institution of credit; thus they create ideologies designed to limit the discourse regarding what it means to be "civic" and to "serve".

These descriptions of Middletown identify some of the political and cultural factors that effect the relative social standing of the occupational classes in terms of the opportunities that are open to them. As I have noted, a similar state of expanded credit exists in contemporary America, as the 1980s saw massive de-regulation of the banking industry. I will argue in this study that the same processes of class distinction and separation associated with credit that the Lynds observed in Middletown will be visible in our contemporary era by virtue of the similarity of circumstance. The data I use to study the phenomenon of expanded credit was gathered primarily through a content analysis of 1) first-hand observation (i.e. through the observation of a multitude of credit offers, both active and passive), 2) through the financial and popular news media, and 3) through financial journals and handbooks. The hypothesis that I will assume is the same premise that the Lynds follow, namely that the expansion of available credit, rather than offering expanded opportunities for the working class, divide the working and business classes farther apart.

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Availability and Use of Consumer Credit

In order to assume that a similar comparison can be made to "Middletown", the first burden of proof falls upon the notion that we are indeed living in a period that offers an expanded availability of credit vis--vis the past few decades. This will, fortunately, not be too difficult a task.

"Middletown" had an explosion of credit availability and use once the idea caught on. The assets and membership of the building and loan associations of Middletown from their inception are noted below (Table 1).

Table 1

Assets of Middletown Building and Loan Associations

Year 1 1889 $ 230.00 28 members
Year 2 1890 $ 4,471.47 data not available
Year 6 1895 $ 36,068.98 data not available
Year 11 1900 $ 142,621.34 data not available
Year 21 1910 $ 678,428.50 data not available
Year 25 1924 $ 2,733,667.92 7,090 members

Source: Middletown (Lynd and Lynd, 1929: 104).


According to the Handbook of Consumer Lending (1992) a similar explosion has occurred in recent times:

Some aspects of the [consumer loan] business that were evident in 1984 have continued: explosive growth in the use of credit and credit cards, the trend toward home equity loans (speeded up by the 1986 Tax "Compilation" Act), and the development of increasingly sophisticated tools used to control and understand the business. In fact, I could not have foreseen how important the consumer business would become. In fact, in the early 1990s it has been the only profitable business for several of the largest banks. The other thing that could not be foretold was the quality of the new competition. The entry into the bankcard business by such diverse companies as AT&T, John Hancock, Prudential, General Electric, and American Express with its Optima card, has changed the nature of the game forever. And the giant automotive companies, Ford and General Motors, have recently seen their financial offshoots become the only source of profits in an otherwise dismal business climate for automobiles. It’s a new ballgame (Lawrence, 1992: viii).

The institutionalization of the consumer credit industry has surpassed merely the banking sector of the economy and ventured into telecommunications, insurance, and even manufacturing. "Only 30 years ago," continues the Handbook, "consumer credit was confined almost exclusively to mortgages and automobile loans, as well as small personal loans primarily offered at high rates by slightly disreputable finance companies. For the most part, people cashed checks at their local grocery store or reclaimed some of their paycheck, along with everyone else, at a long line at the bank, and paid for everything with cash" (xv). The title of a recent Business Week article mocks this proclivity of old toward cash: "Sorry, We Don’t Take Cash" (12/12/94: 42).

Journalist Mike Hudson (1994a) has surveyed the credit available on one particular road in his hometown of Roanoke, Virginia:

Amid the convenience and secondhand stores are merchants who offer credit and financial services to consumers who are mostly squeezed out of the mainstream banking system. In many cases, those mainstream companies profit from the businesses that charge much higher rates. Some "shop 'til you drop" spots on Williamson Road - they are part of the credit economy for people who can't pay in cash - include:

3302 NW Credit Tire and Audio
Buy your tires and car stereo on credit. Next door at Bankers' Optical, youcan get your eyeglasses the same way.

3733 NW Mr. Car Man
Rent-to-own cars. Transmission jobs on credit.

3806 NW Town and Country Pawn Shop
Charges 120 percent annual interest on small loans.

4517 NW Prime Time Rentals
This rent-to-own chain offers high-interest "Fast Tax" loans.

6431 NW Avco Financial Services
One of the nation's 20 biggest consumer finance companies.

7222 NW Beneficial Finance
An outlet for one of the nation's largest consumer loan companies.

The proximity of these outlets offering either explicit or implicit credit deals is not uncommon to many urban and suburban areas. Another outlet for distribution of credit cards can be found at the local university. A survey I conducted of the University at Buffalo found credit card flyers and pamphlets on nearly every bulletin area available to public posts; what’s more, the offers were even present, in multitude, in many of the classrooms. And if these silent reminders weren’t enough, a walk through the Student Union or the Commons, popular places to eat and shop, would find two to three credit card "hawkers" on the average day, beckoning people to accept their "wares".

If this weren’t enough, the offers that many people receive by mail or over the telephone have been increasing dramatically since the 1980s. The availability of credit to the average citizen is, then, well-established. But does the mere
availability of credit mean that people are taking "advantage" of the multitude of offers being made?

Sullivan, Warren and Westbrook (1989) note that in 1981 572.2 million credit cards were outstanding - that is 2.5 cards for every man, woman and child in the United States (p.178). According to the aforementioned
Business Week article (12/12/94), "Andersen Consulting says the average spender held seven cards in 1989. Today that purse or wallet carries 11. More people are shopping with more plastic." A chart alongside the text (using data from the Federal Reserve) reveals that consumer use of revolving credit, seasonally adjusted moved from $275 billion in September 1993 to $325 billion in September 1994, an increase of 18% in one year alone. An incentive is clearly produced at the market level for such increases: "Credit-card marketers keep offering consumers more reasons to whip out plastic. They’re coaxing businesses-from supermarket chains to family dentists-to accept the cards. And by offering airline miles or rebates, they’re providing more incentive to use credit cards in place of cash or checks." According to the Wall Street Journal (12/26/91, A10: 4), in 1991 there were at least 5,000 credit card issuers in the U.S. Another Business Week article (March 6, 1995: 92) notes the increase in consumer’s embrace of these credit cards by two of these issuers: Visa & MasterCard credit cards issued at the end of 1990 numbered 208.3 million, whereas by the end of 1993 that number had jumped to 266.5 million, an increase of nearly 22%.

The trend seems clear. The availability and use of consumer credit today is on a par with that established only at the beginning of the credit industry, back at the turn of the century, when the Lynds were observing "Middletown". The next task, then is to see what is happening with regard to credit and class: Is the increased availability of credit indeed leading to new opportunities for class disintegration based on new economic flexibility, or are the class distinctions growing wider based upon deeper cultural factors than are expressed by mere economic formulae?


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Different Credit for Different Classes

The consumer credit industry has diversified in ways; we have seen the integration of many totally diverse aspects of capital (manufacturing, retail, telecommunications) engaging in the phenomenon. This diversification of credit is not only drawn at a conceptually horizontal level, however, but exists at a vertical level as well. In other words, different forms of credit are available for different classes.

The data that support this assertion focuses largely upon the
target market and rate of interest that is attributed to each form of credit. Hudson (1994b,c) has uncovered some of the connections between large banking conglomerates and their subsidiaries that charge higher prices to people whose race, income, or credit histories have locked them out of the competitive rates charged by banks and traditional retailers. For example,

NationsBank is the nation's third-largest bank and ninth-richest company, with $157 billion in assets. In 1993 NationsBank bought Chrysler First Inc., at that time a defendant in 189 consumer lawsuits accusing the company of fraudulent lending practices. As part of the purchase, NationsBank secured a three-year indemnity agreement shielding it from liability for any Chrysler First loans. Last year, NationsBank and four other banks set up a $125 million line of credit to fund the expansion of Cash America.

Cash America is the nation's largest pawn chain, with 251 shops in the United States. The company's target market is the 60 million Americans who don't have bank accounts. "A guy in a business suit is going to get good service from us," says President Jack Daugherty, who started with a single pawnshop in Irving, Texas. "But we're gonna serve the guy who has coveralls and grease on his hands first. Because that's our customer." Cash America charges an annual interest rate that averages 200 percent.

The number of pawnshops has doubled in the last decade to about 10,000. At least five pawnshops are publicly traded. The "PWN" that runs across the New York Stock Exchange’s electronic ticker stands for Cash America, the chain of pawnshops financed by NationsBank.

These "pawn" chains are not alone in the competition for working-class consumers looking for credit. Rent-to-own operations are also prevalent:

Thorn EMI PLC owns the U.S.'s largest rent-to-own chain, Rent-A-Center. Rent-A-Center's rent-to-own prices for furniture and appliances are two to three times retail. The Roanoke store recently sold a used 20-inch Hitachi TV for $8.99 a week for 61 weeks. Total cost: $548.39, plus tax and insurance. Price when new: $299. "Rent-to-own" stores have installment plans at prices that equal interest rates of 100, 200, even 300 percent. The number of rent-to-own stores has grown from about 2,000 to 7,500 since the early 1980s. Rent-A-Center controls about one-fourth of the $2.8 billion market (Hudson: 1994b,c).

Other establishments focus on the brevity with which money can be accrued to the working-class consumer:

Beneficial Corp., with help from H&R Block, controls one-third of the market for high-interest refund-anticipation loans. Beneficial outlets in Roanoke and elsewhere charge $29 for a tax-refund loan. For a typical two-week loan, that translates into 101 percent interest on a $750 refund, and 151 percent on a $500 refund.

American Express is a $94 billion conglomerate that is helping finance the U.S.'s largest check cashing chain, ACE America's Cash Express. In Roanoke, as elsewhere, ACE charges up to 6 percent to cash payroll checks and up to 12 percent on personal ones. ACE's target customers earn less than $35,000 a year. The number of check-cashing outlets has doubled since the late 1980s to an estimated 5,000 (Hudson 1994b,c).

These high-rate lenders that target working-class consumers differ from the mainstream credit industry in the interest rates and target markets that are offered. For example, the classroom "literature" on credit cards that I collected typically have interest rates between 17.6% and 19.8%, considerably less than those rates offered to the working class, but still greater than the rates offered to professionals, that typically range from 11% to 16%. Business credit is a different story altogether. Rates are typically low for capital-investment; however it may be significantly harder for the individual wishing to start his or her own business to obtain such loans, because of the social barriers involved. The Lynds noted this as well:

The ramifications of this banking control of the community’s credit resources are wide and subtle. Only the insiders know its details, but one picks up constantly the remark in conversation that "The banks now control the Jones plant" - and the Smith plant and the Brown plant. There is probably some measure of truth in the statement by a businessman, who in the earlier study had always proved a reliable source of information, that "If you don’t join up with the inner ring, you can’t work with them and you can’t work against them, and you won’t get the credit to run your business if they are not for you" (1937: 79).

The modern system of credit is still strict when it comes to commercial and industrial loans. According to study ordered by Eugene A. Ludwig, federal Comptroller of the Currency, out of the 40 big banks, only 9 appeared to have eased their credit standards for this group since last April (1995), when Ludwig issued his first strong warning to bankers against making loans to risky applicants. His second strong warning came on November 9, 1995 (NY Times, 11/9/95 D 2:5). The warning is in response to the ease with which loans and credit cards are made available to smaller creditors. As opposed to the nine banks that eased credit standards for commercial lenders, 19 of the 40 big banks have "eased somewhat" their lending standards for home equity loans. Other private analysts have said that there was considerable evidence that banks continue to pursue low credit risks with zeal. "More banks are making it easier for the less creditworthy to borrow," says Robert K. Heady, the publisher of The Bank Rate Monitor. "There is internal pressure within institutions to drive up their loans and increase their revenues."


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Debt and Consumer Attitudes

The availability and use of credit cards is a necessary but a sufficient element in the analysis of class divisions and consumer credit. What is also necessary and makes the analysis closer to complete is the examination of the lien that consumers enter upon using the credit available to them. If people are simply using consumer credit as a revolving method of payment, the analysis falls apart. However, according to the data, that is not the case.

The debt to disposable income ratio reported in the Handbook of Consumer Lending (1992) appears on Table 2, below. Since the early 1980s, this debt has been increasing, from 14% in 1982 to 19% in 1990, an average growth of approximately .7% per year. In 1994, this figure jumped to 26%, according to the First National Bank of Chicago (Fortune: 1/16/95, p.70), bringing that average to 1% per year.

Table 2

Debt as a Percent of Disposable Income

Source: Federal Reserve (in Handbook of Consumer Lending, 1992, p. xvi.)


The Los Angeles Times notes this same trend, but adds real numbers to it:

The last time the United States was in a recession, consumer debt as a percentage of income was at 14.1%. Now [December 1990] it is 18.4%. Bank card debt outstanding has quadrupled over the period, totaling $132 billion versus only $31 billion in 1982 (12/13/90, A28: 1).

Meanwhile, The Wall Street Journal (7/12/95, A2:1) reports more conservative estimates, although these monthly estimates contain greater variation than the yearly summary provided in Table 2. Consumers expanded their debt loads in March 1995 at a 19.3% annual rate, in April 1995 at a 14.9% annual rate, in May 1995 at a 14.6% annual rate (or by $11.51 billion), according to the Federal Reserve. Cross-cultural figures confirm that this is a global phenomenon: "In Britian, for example, between the years 1982 and 1989, the national consumer-credit debt rose threefold to reach a total of 45.4 billion (Lee, 1993: 136). "The figures suggest," continues the Journal, "that, although Americans are buying considerably less than they did late last year, they are still relying heavily on credit for what they do purchase. Many analysts believe the fast rise in consumer credit is being caused in part by promotional gimmicks and the usage of credit cards in supermarkets" (7/12/95: A2:2). These analysts seem to have missed one of the more obvious aspects of debt: the social class function of the ‘need ‘ to consume.

The Los Angeles Times (12/13/90, A28: 1) reports anecdotal and statistical evidence on consumer debt that underlies this dimension of spending and impresses upon us the huge effect that working-class attitudes have upon the debt structure:

Deborah Mann is a credit counseling client. For the last several years she had been using her credit cards to supplement her monthly income. If she could not afford it, she just charged it. "It was a matter of keeping up with the Joneses. I knew I didn’t have the money, but I wanted to leave an impression on me kids that we could have things and go places," she said.

Economists believe that the high rate of credit card delinquencies accounted for by consumers like Mann is a troubling sign for more than just bankers. Credit card delinquency rates are a leading indicator of consumer financial health, experts say.

"Delinquencies on credit cards are particularly alarming because the minimum payments due on a credit card represent a tiny fraction of the total amount due," says Elgie Holstein, director of Bankcard Holders of America. "So, when people are delinquent in paying even the minimums, it is a sign of potentially serious future financial problems for individuals and for the economy as a whole."

Hudson (1994a) also reports similar attitudes of working-class credit users. "You pay double--I know that," says a woman who has been a customer at a couple of Williamson Road's rent-to-own stores. "But if you want nice things, where are you going to go if you can't get credit?"

Even if one can get the kind of mainstream credit of which this woman speaks, the prospects for mobility are still not enhanced. While new markets are being made widely available to credit card consumers, new debts are also imminent. "New opportunities to charge also mean new opportunities to sink into debt," says Business Week (12/12/94). For example, seventy-two percent of grocery charges are paid by the month’s end, avoiding interest charges; however, that leaves even 28% of people who currently charge their groceries paying high interest on such a fleeting commodity. Food can hardly be considered a ‘liquid asset’! "When the economy gets worse," analysts predict, "it will be tempting to roll over charges for essentials month after month." Another Business Week article (3/6/95, p.92 ) notes the inevitability of this rising debt: "We have no doubt that delinquencies and losses will rise from these levels," says Moshe Orenbuch, an analyst at Sanford C. Bernstein & Co. "The only question is the speed." Scott Marks Jr., executive vice-president of First Chicago Corp agrees: "everyone in the industry expects upward pressure on credit losses as interest rates ratchet up." Today 72% of all standard cards have variable rates versus 33% three years ago [1992], according to Bankcard Barometer. And many of those cards were issued at "teaser" rates below 9% that rise after a set period. One example: Citibank offers an 8.9% initial rate for customers who transfer balances to a Citibank card, but after a year the rate changes to prime plus 9.4%, or 18.4% at today’s (March 1995) rates.

However compelling this phenomenon of consumer debt may be, it is becoming clear that the desire for "nice things" is by no means the only factor by which the mechanisms of social stratification work. The consistent tracking of certain groups into certain types of credit institutions leads one to believe that there are greater structural processes at work. "Why do people pay these prices?" Hudson (1994c) asks. "Some are snared by their lack of education or financial savvy. But many simply have no place else to go for credit. A 1992 Federal Reserve Bank of Boston study shows that banks and S&Ls are 60 percent more likely to turn down blacks for loans than whites--even when their incomes and credit histories are the same." Many similar studies have shown the same discriminatory tendency of capital (cf. Harvey, 1989; Massey & Denton, 1993).

Hudson (1994) concurs:

Many of America’s biggest and most powerful corporations now own or finance the fringe businesses that target low-income, working-class, and minority consumers…The banks and other mainstream businesses that have locked the poor out of the market for competitively priced financial services - and forced them to go to lenders who charge exorbitant rates- are using their money and power to protect their profits.

The growth in predatory lending has been fueled by the "secondary market." Banks that refuse to lend to disadvantaged borrowers directly nonetheless "buy" homeowners' mortgages and other loans from street-level brokers and home-repair contractors--purchasing the right to collect the monthly payments from the borrowers. Those corporate dollars help the street-level brokers expand their businesses and target more victims.

Certainly, however, these usurious practices have not gone unchecked. An argument can be made for solidarity among the working class by virtue of the numerous class-action lawsuits that have been pressed against these "powerful corporations." For example, last year a New Jersey judge ruled against a rent-to-own company on the basis of that state’s usury laws:

A New Jersey court held that so-called rent-to-own transactions are a form of credit sale subject to tough consumer lending laws, in a blow to companies that rent goods to consumers with the option to buy.

The rent-to-own industry has been criticized by consumer groups across the country who contend that its business practices take advantage of the poor. Customers who make every installment may end up paying several times the items retail value.

In the New Jersey case, the defendant, Continental Rentals, had charged effective interest rates ranging from 71% to 148%, and one of the plaintiffs had made rental payments of $3,335.86 covering merchandise with a cash price of $2,785.12 - and still had her furnishings repossessed by the company.

"It is appropriate to penetrate the technique and reach the economic verity of the transaction," said Passaic County Superior Court Judge Herbert Alterman. The judge held that the company had charged interest that was in excess of the state limit of 30% a year, and that the interest charged represented an "unconscionable practice" (Green vs. Continental Rentals, N.J. Superior Court, Passaic County, No. L 3182-90, as reported in The Wall Street Journal, 3/30/94, B8:1).

A similar case was brought against Rent-a Center’s parent company Thorn EMI PLC (see p. 13, above) in October of 1995:

A federal judge declared void all rental contracts issued by Thorn EMI PLC’s rent-to-own unit to customers in Minnesota after August 1, 1990, and ordered the company to refund all payments made under the contracts.

U.S. District Judge Michael Davis in St. Paul found that the contracts were unlawful because they violated state usury laws against excessive interest rates, and that they violated federal racketeering law.

Minnesota’s State Supreme Court last year ruled that rent-to-own contracts are subject to the state’s usury law, clearing the way for Judge Davis’s ruling. Similar class-action suits over rent-to-own contracts are pending in other states.

Consumer groups have said that rent-to-own customers, mostly people who can’t afford to immediately pay in full, end up paying interest as much as 200%.

Judge Davis rejected Thorn’s argument that the high interest rates reflect such services as delivery and maintenance, noting that the contracts don’t itemize any of these costs. "Without an itemization of the services allegedly provided customers under [Thorn’s] rent-to-own contracts, this court cannot find that such costs for services were agreed upon, let alone reasonable or bona fide," he said (Fogie vs. Rent-a-Center Inc., U.S. District Court, St. Paul, Minn., No. 3-94-359, as reported in The Wall Street Journal, 10/2/95, B5: 3).

These rulings are, by and far, the exception rather than the rule, however. As Bill Keese, executive director of Progressive Rental Organizations, an Austin, Texas, trade group for rent-to-own companies, explains "The [Continental Rental] ruling flies in the face of 36 state legislatures and several court decisions" (
Wall Street Journal, 3/30/94, B8: 2). Nancy Johnson, a spokeswoman for the Wichita, Kansas based unit of Thorn EMI agrees: "Minnesota is out of step with the rest of the country," she said, adding that 41 states have laws specifying that rent-to-own contracts are leases rather than credit sales, and thus not subject to usury laws (Wall Street Journal, 10/2/95 B5:4).

Another lawsuit, brought against Fleet Financial Group, Inc. (a subsidiary of New England’s largest bank), was not as successful as the rent-to-own cases. In 1992, Georgia’s attorney general filed a brief supporting borrowers who sued a unit of Fleet Financial Group Inc., alleging that the unit violated the state’s usury laws. However, when the case came to court, ample justification for a guilty verdict was not forthcoming:

The Georgia Supreme Court ruled that a Fleet Financial Group Inc. unit didn’t violate the state’s usury law, as charged by borrowers in a class action suit. In it’s ruling, however, the court stated "We do not condone Fleet’s interest-charging practices, which are widely viewed as exorbitant, unethical and perhaps even immoral." The court added that the practices "suggest further regulation of the lending industry is needed" by Georgia’s Legislature.

The borrowers had alleged that the Fleet unit, Fleet Finance Inc. in Atlanta, charged fees on loans of up to 18% at closing, thus violating the state’s limit on interest of a maximum rate of 5% a month.

Fleet said that it was "extremely pleased" with the ruling, which "clears the air over Fleet’s alleged usury violations" (Wall Street Journal, 6/15/93, A5:6).

Many other corporations that commit "unethical, perhaps even immoral" lending practices choose to settle the claims against them, thus avoiding the possibility of the questionable nature of their activities ever coming to light. For example,

ITT Corporation is a $70 billion conglomerate whose mortgage and small-loan division, ITT Financial Services, is considered by consumer advocates to be one of the most predatory lenders in the nation. In California, ITT Financial Services paid $20 million to settle charges of abusive lending practices, including selling optional insurance to customers who didn't know they were buying it or who were led to believe it was required. The company paid $48 million to settle similar charges in Minnesota. ITT Financial Services has also been hit with lawsuits in Arizona and Florida (Hudson 1994b).

These lawsuits demonstrate the formidable dominant position that the credit industry has in dictating what the economic discourse will be between consumer and lender. Forces that existed in past societies, for instance the church of medieval Europe or the aristocracy in early modern England, show very little presence in contemporary society. The result is a very clear and distinct hegemonic division between an upper business class and a lower working class. This is reflected in the fact that in 1989, the top four percent of American workers earned $452 billion in salaries and wages--the same amount as the bottom 51 percent (MoJo Interactive, March 1995). It is also reflected in the great disparity of different credit offers and their accompanying interest rates, as well as the massive consumer debt that is currently being accrued through consumption that, ideologically, is in the name of losing the very class distinctions that separate the underclass and overclass.


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Credit and Class Struggle

This study has elaborated upon the same theme sponsored by Middletown seventy years ago. Very similar trends in the differentiation between the working class and the business class were found with respect to the analysis of what it means to people to have credit available, to use that credit and to go into debt. It has been seen that this meaning has largely to do with the consumption of goods in a world that cannot afford them, but needs them to maintain social relations. The economic lien that accrues for the working class individual is not as publicly visible as the material lien that once existed when such a thing as credit was unavailable. Furthermore, this factor of "visibility" supports the capitalistic ideology that necessitates credit in the name of economic stability. As Gerry Phelan (1987) states,

Sales are, of course, essential, if capital is to be accumulated. But the relation between the price level and the wage level coupled to the need of producers to sell quickly meant that existing wage levels were inadequate to support the sales. A mechanism was needed to supplement wage income by drawing on as-yet-unearned future income. That mechanism was installment credit.

Using future income to buy current output suggests a fundamental instability in the economic system. But the focus of the present discussion is the effect of these mechanisms on social inequality. Other financial instruments were developed such as credit cards. With hire purchase [i.e. credit cards] all can buy now and thus appear to have equal access to the market, to be visibly equal. Any inequality between people manifests itself in the amount that can be borrowed (which depends on income), in time for repayment, or in the sacrifices that have to be made in order to continue the repayments. These inequalities are not as publicly visible as inequalities in income. They have been pushed out of public view to the level of the individual alone or the individual in the family. This means that they have been pushed out of the political process. If access to current output were a function only of the wage level then the inability to buy current output would almost certainly be a focus of industrial action by organised wage and salary earners, i.e. they would engage in struggle. But when did we last hear of industrial action around the terms of hire purchase or around interest rates in general? (p.117)

Perhaps the recent rulings against
Continental Rental and Thorn EMI PLC represent the beginnings of this struggle. But, as taxpayers continue to pay off the savings and loan industry from its recent collapse, it seems that the justification for a consumer credit system that on the one hand fosters class divisions, while on the other hand masks them, will remain a cornerstone of the ideology of our capitalist society.



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Harvey, David. 1989. The Urban Experience. Baltimore: Johns Hopkins
University Press.

Hudson, Mike. 1994a. "My Hometown." Mojo Interactive:

---------. 1994b. "Hall of Shame." Mojo Interactive:

---------. 1994c. "Robbin’ the Hood." Mojo Interactive:’.html

Jones, Norman. 1989. God and the Moneylenders: Usury and Law in Early Modern England. Oxford: Basil Blackwell.

Langholm, Odd. 1992. Economics in the Medieval Schools: Wealth, Exchange, Value, Money and Usury according to the Paris Theological Tradition 1200-1350. NY: E.J. Brill.

Lawrence, David B. 1992. Handbook of Consumer Lending. Englewood Cliffs, NJ: Prentice Hall.

Lee, Martyn J. 1993. Consumer Culture Reborn: The cultural politics of consumption. NY: Routledge.

Lynd, Robert S. and Helen Merrell Lynd. 1929. Middletown: A Study in Contemporary American Culture. NY: Harcourt, Brace and Co.

---------. 1937. Middletown in Transition: A Study in Cultural Conflicts. NY: Harcourt, Brace & World, Inc.

Marx, Karl. 1956. Karl Marx: Selected Writings in Sociology and Social Philosophy. T.B. Bottomore, trans. NY: McGraw-Hill.

---------. 1975. Karl Marx: Early Writings. Rodney Livingstone, trans. NY: Penguin Books

Massey, Douglas M. and Nancy A. Denton. 1993. American Apartheid: Segregation and the Making of the Underclass. Cambridge, MA: Harvard University Press.

Muldrew, Craig. 1993. "Interpreting the market: the ethics of credit and community relations in early modern England." Social History: 18, 2.

Phelan, Gerry. 1987. "Property and Inequality Today." Mankind, 17:2.

Poggi, Gianfranco. 1983. Calvinism and the Capitalist Spirit: Max Weber’s Protestant Ethic. Amherst, MA: University of Massachusetts Press.

Sullivan, Teresa A., Elizabeth Warren and Jay Lawrence Westbrook. 1989. As We Forgive Our Debtors: Bankruptcy and Consumer Credit in America. NY: Oxford University Press.

Veblen, Thorstein. 1899. The Theory of the Leisure Class. NY: Penguin Books.


Newspaper/Magazine Articles:

Business Week, "Sorry, We Don’t Take Cash," 12/12/94; 42.

Business Week , "Plastic: Are Banks Over Their Limit?", 3/6/95; 92.

Fortune, "Consumers Will Rein In Spending," 1/16/95; 70.

The Los Angeles Times, "Credit Card Delinquencies Hit 4-Year High," 12/13/90; A28:1.

Mojo Interactive, "Clintonomic Factoids", March 1995,

The New York Times, "U.S. Warns Banks Again On Risks of Lax Lending," 11/9/95; D2:5.

The Wall Street Journal, "Rent-to-Own Ruling," 3/30/94; B8:1).

The Wall Street Journal, "Solving the Credit Card Mystery," 12/26/91; A10:4.

The Wall Street Journal, "Georgia Court Rules Unit Didn’t Violate Usury Law," 6/15/93; A5:6.

The Wall Street Journal, "Consumer Credit Increased in May In All Categories," 7/12/95; A2:1.

The Wall Street Journal, "Thorn Must Void Rental Contracts, A Judge Decides," 10/2/95; B5:3.


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