James Scurlock on Fixing the Credit Mess
James Scurlock's film Maxed Out takes a hard look at the American lending industry and how it has enabled the country's spiraling debt. Scurlock, a business school dropout who opened and sold four restaurants before he turned 25, discusses recent shakeups in the business world and where both debtors and lenders should go from here.
The film basically says the credit card industry has become increasingly predatory in the past few decades. If the industry has changed so much, why haven't consumers kept up? Why are Americans still surprised?
The tradition in this country has been one of regulation and responsible lending. When people go to a pawnshop or a financing company, they expect to be screwed. But if they go to a Wells Fargo or Bank of America, they expect they're going to be treated fairly. I just did a radio show where a banker said, "Look, we're in the business of helping people save." And I thought, yeah, that was true 30 years ago, but now you're in the business of getting people to spend as much as possible. The banks are having it both ways. They are still using their marquee to be trusted, and then they take advantage of that trust that people have had for decades.
What about the government's response?
Congress and the president don't tend to do anything when things look kind of OK. In a way, all this credit has made home ownership and college attendance look great. We're borrowing to fight the war in Iraq, and we're taking money out of Social Security to make the deficit look smaller. There's a lot of denial going on. There's also a fear in Congress that if they come down too hard on the industry, this credit will dry up and suddenly the economy will grind to a halt. We live in a consumer economy now, and they're very loath to do anything that might plunge us into recession or worse.
Do the recent Senate hearings on the practices of credit card companies make you optimistic?
They actually did. I'm not an activist and I'm not a consumer advocate, but the people I've talked to, like [Harvard Law professor] Elizabeth Warren, who's been going to Congress for years and years, feel as if things are really changing. Chase announced it would stop double-cycle billing, which was really a nefarious kind of practice, and Citi announced it would no longer do universal default. So yeah, there's reason to be hopeful. Certainly more so than there was a year ago.
Your film is very revealing when it comes to the subprime lending industry. What do you think of its recent problems?
It's incredibly scary because it's like Enron. People don't understand how complex and interrelated and how infested the economy is with debt like this. If New Century [a major mortgage lender to less-creditworthy borrowers] goes bankrupt, we just don't know what the ramifications will be. People are very nervous because nobody knows exactly how deep and how wide this could go.
A lot of critics have said that you didn't stress the importance of personal responsibility–that you mostly vilify the credit card industry.
The film begins with the woman building an 11,000-square-foot brick mansion she knows she can't afford, and it goes on to radio host Dave Ramsey talking about how his Jaguar was taken away because he was stupid. You have this woman taking $4,000 cash advances on her credit card every month to pay the mortgage on a house she knew she could no longer afford. You've got this guy who bought the Abtronic, which was the dumbest thing in the world. Everyone I talked to, except for the most egregious cases of predatory lending, said, "I was stupid" or "I screwed up," and they all wanted to pay back what they owed.
But the problem I have is, do they owe what they borrowed plus a little interest or are they responsible for three, four, five times what they borrowed? That's what we used to call "usury," and that's not only unrealistic but it's ruinous. It's extremely important for people to be responsible for what they borrowed, but when you have these contracts that Harvard Law School professors can't understand, and fees and interest rates that no one can be prepared for, it's just setting people up to fail.
I know you say you're not an activist, but who needs to see your film most to make change?
The bankers. There's a real disconnect between the guys at the top and their customers. They need to understand that a lot of people are getting into trouble and losing their homes, and their lives are being destroyed. Behind every one of those bankruptcies, foreclosures, or defaulted subprime loans is a household losing its home or its life savings. It's really, really devastating.
Whom do you think real change rests upon?
Congress can certainly have the most immediate effect. They could introduce some regulation or reintroduce regulations to make the banking industry more transparent and more intuitive. In the end, though, I suspect that it's going to be Wall Street that really affects the most changes because this has become a business funded by investors. If Wall Street continues to tighten the strings, a lot of this credit is going to dry up. At the end of the day, it's going to be the banks that have the biggest problem.