Without the work of the Consumer Financial Protection Bureau to put an end to predatory practices, struggling families will find themselves at the mercy of lenders. **Watch Bryce Covert discuss credit cards and consumer debt on CBS Money Watch's Ask The Experts today at 2pm ET.
This week's credit check: A family with two working parents and two young children needs to earn $67,920 a year for economic stability. The median American family saw earnings fall to $47,127 over the past decade.
The GOP won lots of concessions in the deal to avert a shutdown late Friday night, but one of them might at first seem surprising: a requirement that the newly created Consumer Financial Protection Bureau be audited annually and studied by the Government Accountability Office. While it might seem weird to tack this on to a budget deal, the agency has become a point of focus for many in the Republican Party. On the Wednesday before the shutdown deal, House Republicans unveiled a host of legislation aimed to weaken it. Among their proposals is replacing the single job of director with a five-member committee, making it easier to overturn and veto its new rules, and preventing it from using its powers until it has a permanent director. All of this is likely to slow down the reforms and regulations that the agency has been tasked with creating in order to ensure a financial marketplace that works for consumers.
The GOP's attacks couldn't come at worse time for middle class Americans. While many studies look at life below the poverty line, a new study tried to figure out how much money is needed to simply attain financial stability. Its findings about how much it costs to meet basic needs without government support are stark:
According to the report, a single worker needs an income of $30,012 a year -- or just above $14 an hour -- to cover basic expenses and save for retirement and emergencies. That is close to three times the 2010 national poverty level of $10,830 for a single person, and nearly twice the federal minimum wage of $7.25 an hour. A single worker with two young children needs an annual income of $57,756, or just over $27 an hour, to attain economic stability, and a family with two working parents and two young children needs to earn $67,920 a year, or about $16 an hour per worker.
Stack that up against the fact that median real income fell over the past decade for the first time. The median American family saw earnings fall from $52,388 a year in 2000 to $47,127 in 2010. If that family has two young children, it won't be able to meet the standard set by the study for economic stability. It will have to look beyond paychecks to make ends meet.
And when there's not enough cash coming in to pay for the necessities, families have to turn to debt. Americans who carry large debt loads aren't spending on clothes and toys but on necessities: health care, childcare, transportation, higher education, housing, you name it. As explained in "Up To Our Eyeballs," "A typical two-earner family today spends about 80 percent more on housing, 74 percent more on health insurance, and 42 percent more on transportation than did a typical one-earner family in the early 1970s. Many families spend thousands of dollars on childcare, a largely nonexistent expense a generation ago." And they're taking on debt to do so. Two-thirds of all students graduate with student loan debt, compared to just half in 1993, with a total likely to top $1 trillion this year. Total mortgage debt is at $13 trillion, up from $6 trillion in 1999. Families who have to use credit cards to pay for medical expenses owe more than those who don't -- they have an average of $11,623 in credit card debt, versus $7,964 who didn't use it to pay those bills.
This is where the Consumer Financial Protection Bureau and Elizabeth Warren's tireless efforts on behalf of consumers come into play. If Americans are taking on so much more debt in the face of falling wages, they open themselves up to the predatory practices these companies use to keep them mired in debt they can't pay off. But if Warren has her way, lenders will be forced to write agreements in plain language, give notice (and a reason) for raising interest rates and tacking on fees, and offer simple products that help consumers. While more has to be done to support wages that help families find financial stability, undermining this crucial step to make their safety net safer is plain irresponsible.
Bryce Covert is Assistant Editor at New Deal 2.0.