When a family struggles to pay its bills, when a parent gets laid off or unexpected medical expenses arise, it enters what Professor Ronald Mann of Columbia Law School has called the “sweat box” of credit card debt, like any good trap, the entrance to this one is easy: a high credit limit and soon enough a high credit balance. If you can’t pay the balance off, then they have you: a payment delayed, a minimum not met, and now your interest rate doubles, and fees and penalties pile one. You can’t escape, and they sweat you. Under this business model, the lender focuses on squeezing out as much revenue as possible in penalty rates and fees, pushing the customer closer and closer to bankruptcy. When its customer finally does fall of the financial edge, the lender can recover a portion of the outstanding principal under the bankruptcy plan.
