Way back in pre-historic times, when I grew up in the 60's and 70's, there was a thriving middle class in America. It seemed Washington wanted the hourly wage earner and low level managers of America to succeed. For example, there were maximum interest rates that could be charged on consumer loans including credit cards. Each state had their own caps on interest rates, but generally credit card companies couldn't charge more than 18%. There were minimum interest rates that had to be paid on savings accounts, 4% at banks, higher at Savings and Loans.
Now we have credit card companies charging as much as 33% and check-cashing stores, payday loan stores, and tax return loan stores charging as much as 900%. In addition, most savings rates are below 1% currently. Such drastically higher rates on borrowing and lower rates on savings would have been unthinkable 30 years ago.
How did this happen? In 1978 the Supreme Court ruled that banks could charge the rate that there home state allowed as opposed to the state in which the customer resided. Shortly after, South Dakota eliminated their usury law and banks beat a path to South Dakota to establish their national charters there to take advantage. Many states followed North Dakota's lead. Then, in 1980 because of high inflation at the time, Congress enacted legislation exempting federally chartered institutions from state usury laws. Further deregulation eliminated controls over rates on savings accounts.
Shortly after that, newly elected president Ronald Reagan removed consumer interest as a federal tax deduction thus making it more expensive to obtain car loans, etc. Yes, that was a de facto tax increase created by Ronald Reagan and a very large one for most middle income earners. So, not only were the banks able to charge much higher interest rates but we could no longer deduct the interest payments from our income to help reduce our tax burden.
Since then, it seems, the middle class just hasn't been able to catch a break. Any legislation coming out of Washington to stimulate the economy only seems to be aimed at giving businesses a break and consumers the shaft. It seems that Washington doesn't even want the middle class to survive much less thrive.
That is until now. President Obama signed legislation last week that gives back some protection from unscrupulous credit card company practices to consumers. Mainly, it prohibits retroactive interest rate increases. This means that when you purchase something on your credit card thinking that your interest rate will be a certain amount, the credit card company can't suddenly raise your rate on that balance, only on new purchases going forward.
While this, along with a boost in the minimum wage and a tax cut for all but the most wealthy, is a help to the struggling middle class, it is not nearly enough. Real wages for the middle class have stagnated for the last thirty years causing many stay-at-home moms to have to go to work. Some parents have had to take a second or even a third job. This then creates the opportunity for their children to be left unattended, unsupervised, and feeling unwanted.
It is in this scenario that we have only 53% of Houston Independent School District freshman graduating from 12th grade. There is certainly a direct correlation between drop-out rate and parental involvement, but how can parents be involved when both parents have to work, and in some cases two or three jobs?
Let's help out the middle class by bringing back meaningful usury laws. While we're at it let's set the minimum wage to a living wage. Low paying service jobs have been replacing higher paying manufacturing jobs for decades. Someone in Washington needs to figure out a way to stop that. It's time to start reversing this decades long pattern of beating down the middle class leading to an ever-increasing class of working poor. Higher paying jobs, lower rates on credit cards, and higher rates on savings should all facilitate the rebuilding of the backbone of America, its middle class.
