A couple of weeks ago, we watched Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders, a 2006 documentary about the credit industry. It was written and directed by James Scurlock, whose documentaries include Parents of the Year and Stumped! James Scurlock should not be confused with Morgan Spurlock. We made that mistake.
Scurlock does a great job of providing a microscope on credit cards and other loans. The opening scene includes a real estate agent in Las Vegas drunk with excitement over how an investor could make 100% gains in the Las Vegas real estate market in one year. “If you look like you make money, eventually you will,” she said. We can only assume that she had a pretty heavy hangover in 2008.
Vignettes compare advertising and education about credit between the 1950s and 2006. The 1950s characters would roll over in their television graves if they knew our lax relationship with credit today.
Interviews include Dave Ramsey, Professor Elizabeth Warren (she was not yet Senator), along with several who have been ruined because of credit cards or loans. A very poignant interview includes two mothers whose children each committed suicide in college because they were lured into excessive debt by credit cards and didn’t have the means to pay them off.
Scurlock includes analysis of the acrobats banks will exercise to create new products and services all to make it appear as though credit availability is never-ending. After explaining a new product that is a debit card tied to a pension account, Warren says, “This is one more way that we’re trying to string together with chewing gum and bailing wire to keep the American family looking like its afloat long after it is really sunk with debt.”
Also Read: 7 Ways to Improve Your Credit Score
Warren goes on to discuss a study comparing the average, median income family from 1970 to one of 2006. The family of 2006 found it harder to financially cover basics such as clothing, shelter, food, entertainment and other categories. Because of this, she claims, families are almost forced to use credit and this posed an opportunity for predatory banks.
In 2006, the average American had over $9,200 in credit card debt and was paying about $1,300 in interest payments annually. “Over-limit” and “late fee” charges averaged $43 each with interest payments as high as 21%. At the time, credit card companies made $2 in interest and late fees for every $1 of principal. Maxed Out shows the profitability of lending at that time. It’s still profitable, but the 2009 Credit Card Accountability Disclosure Act (Credit CARD Act) has since helped consumers.
While we found the insight into the lending business interesting, it definitely has a one-sided perspective. Banks and credit card companies are in business to make a profit. Though their methods are questionable and, at times illegal, they are not in business for charity.
Scurlock does not address personal responsibility in his documentary. There are enough cases of people who make enough money to cover basic living expenses who still live beyond their means. An example of this in the documentary is of an older woman who once had a gambling problem and was hiding her credit card debt from her husband and grown child. She sadly committed suicide. There was no indication from the documentary that this woman and her family were struggling financially. Yet, seemingly her debt became too much for her. While this is a tragic story and we feel for her family, it was not clear why she was absolved of responsibility.
It is still the case today that many are simply living beyond their means despite their means being sufficient to cover their needs. We would like to see a documentary from that perspective, as well. We will review that movie after we watch it.
We recommend Maxed Out. It provides a great snapshot of the financial world that at times works against its customers for its own gain and is available for steaming on Netflix. There’s great information and it’s interesting to watch post 2008. If nothing else, it teaches the need to be cautious about entering into lending agreements of any kind. At best, avoid credit altogether. If that’s not possible, and for most it’s not, understand the fine print and risks to you and your family. While laws such as the Credit CARD Act protect consumers, consumers are not alleviated of all risk. Banks are in business to make money and their means for legally doing so can still hurt you financially if you’re not cautious.