The Check Is In The Mail

But although the overall burden of debt isn't as bad as the headlines make it sound, a small but growing minority is indeed in crisis. The banks are their enablers. Credit cards are so profitable that banks have been dealing preapproved cards to practically anyone with a heartbeat and a mailbox--former bankrupts, 20-card wonders, heavy debtors, octogenarians who never had cards before, even the poor whose credit lines sometimes exceed their incomes. In 1994 and 1995, lenders mailed some 5 billion credit-card solicitations. That's 32 offers for every American between 18 and 65, says George Salem of the New York investment bank Gerard Klauer Mattison & Co. Credit-card debt declined between 1983 and 1992 for families earning more than $50,000, but more than doubled for those earning under $10,000.

Most of the marginal borrowers manage to pay. In fact, they're a gold mine because they're charged high interest rates. If they pay late, they're socked with fees. On fees--have you noticed? --card issuers are getting to be as inventive as banks.

Sooner or later, however, these borrowers suffer high delinquency rates--not because they're more careless than others but because they're more vulnerable to life's financial blows. The bankers don't care; they price their cards to cover the risk. It's the newbie users who suffer, all the way to bankruptcy court.

Merciless lending:

But bankruptcy isan't entirely the fault of artless buying or merciless lending. SMR Research, a financial-services firm in Budd Lake, N.J., finds that bankruptcy bears only a slight relationship to debt-to-income ratios or, for that matter, to unemployment rates, rates of mortgage delinquency or poor economic conditions.

The critical factor appears to be state and local public-policy choices, which may put debtors in harm's way. They lead to huge and unforeseen financial burdens, ruinous even to families that don't overspend. Some "insolvency events":