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You Are Pre-Approved--8 Billion Times

posted by Elizabeth Warren

In 2005, Congress gave the credit industry what it wanted:  tighter bankruptcy laws.  In 2006, the credit industry responded by mailing out 8 billion credit card solicitations--up 30% from 2005.  Larry Ausubel and others predicted during the debates over the bankruptcy laws that if Congress made it tougher to go bankrupt, then lenders would engage in riskier lending as they tried harder to get people to borrow. 

What kinds of risks are the card companies willing to take on?  With about 110 million households in the US, that's about 73 card offers per household.  If the average card offers is about $5,000 in pre-approved credit, that about $365,000 in offers for every American household--or about $1000 a day, every day of the year. 

By comparison, median household income is about $46,000, or about $127 a day.  It wouldn't be unreasonable to speculate that many families are offered about seven times their annual incomes in credit card debt.  Of course, the mailings are the only offers that are counted.  There are solitications in the malls, on college campuses, and stuck in magazines.  They are on television, radio and the internet.  I find credit card solitications in the bottom of the plastic bag every time I buy something at a nearby college bookstore. 

There is no sign that credit card issuers cut back on their mailings when families are over-extended.  In a macro sense, card offers and total debt outstanding have been rising together for two decades.  The numbers here would point toward credit card issuers willingness to offer $7 in unsecured credit for every dollar of annual income a household earns. 

If debtors have no bankruptcy option, Ronald Mann points out that creditors can keep them in the sweat box longer.  Perhaps if bankruptcy were outlawed altogether the mailings would go to 16 billion, and if debtors' prisons were reinstituted, could the mailings top 25 billion?  Ah, the possibilities.


That's an enormous number of credit card offers. But I do believe that most of these 'pre-approved' offers are actually 'pre-approved if approved' offers. So the question is how many applications would be accepted people responded to all of those 8 million mailings. Probably a much smaller number.

When I get these I always mail them back without filling out the required information. I stick a Post-It note to the form saying that if I'm really pre-approved they don't need all of that information.

This is all part of the greatest credit bubble ever seen in Human history. It's not the reactionary laws that should concern us, since you still have to choose to become so monstrously saddled with debt. No, what should concern us are steps by authorities (like our governments, employers, etc.) to make sure we participate in the enfranchisement of credit. In short, they will ORDER us to go into debt. For examples: Certain taxes become collectable only by using a credit card. Airline flights demand the use of a credit card. Employers demand passing credit checks for jobs requiring signature authority. Etc.

That "sweat box" that you refer to I like to refer to as the "credit treadmill". The absolutely worst place to be financially. Especially if you have have a medium to high interest rate. You will be running on the treadmill for decades and lose tens of thousands in interest. And that is a stone cold fact.

i agree with this article because it's right.

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