The collectors were all nice folks in person, at least the ones I knew. One of them gave me a frame for my then-new granddaughter's picture because I had helped out with something or other. They were only bad guys when collecting. When the collectors had extracted all they could, an account would be "charged off". The account would be closed, the amount would be zeroed, and the "loss" reported to the credit bureaus. In truth, the losses on these low-limit accounts -- $500 to $1000 -- were often less than had been taken in by fees and interest.
The company certainly had a right to do what they did. They were taking a risk by loaning the money at all. The loans enabled many people to buy things they needed or thought they needed to improve their lives. Our risk management people held the line on issuing cards to really poor risks. They used to joke that, were it not for risk management, marketing would be mailing out cash in envelopes -- which is way too close to the truth. In fact that is not too different from what banks were doing by making real estates loans to people who could not afford to buy or maintain a house. By doing away with down payment minimums and/or allowing people to borrow down payment money, the banks dived into the deepest end of the risk pool, dropping below the established score limits to reach the people who would pay higher interest rates and penalties. The difference was that the government, through its federal loan agencies, was willing make guarantees for these riskier borrowers.
Lending and borrowing is part of the free market system. The system can seem rather cold-hearted, but it is always governed by something most of us can understand, that is, profit. Its purpose is neither cruel nor kind; it seeks merely to make money. People live off the profits of financial institutions just as they do off of other businesses. Businesses that do not make money also do not have employees. While I am not much of a supporter of so-called "consumer loans", as long as the lender is risking his own capital, it is his business. When, however, we start throwing words like "compassion" and "fairness" into the system, it is easy to throw the market out of balance. No longer is risk being assessed purely in terms of arithmetic but politics is tossed onto the scale. Lenders are encouraged to increase their exposure because of government regulatory pressure. The stick might push a donkey near the edge of the cliff but not over. To do that, the government must offer a positive incentive -- to underwrite the risk so that the lender's exposure to loss is decreased. This gives us a perfect illustration of the law of unintended consequences.
It is not the free market that has caused our current financial crisis, but this socialist, one might even say, fascist relationship between government and business, and in particular between financial institutions and the federal government. Do you think calling the system fascist is going too far? Take a look at Wikipedia's definition.. Consider this excerpt:
Fascist economics supports the existence of private property, the existence of a market and the use of the profit motive, however state directed, as they reject laissez-faire.
Taxpayer money and government debt has been used to bolster the economy since the mid-1980's. The federal government pumped money into the real estate market through these unwise loan programs and created an unnatural bubble in housing prices by creating an unsustainable demand. We are not going to solve a problem created by too much government intervention with more government intervention. The same is true with health care and insurance. Government intervention via Medicare and Medicaid has fueled the rise in health care costs. The system is going broke. The solution is not to make it still bigger.
The time has come to take the hit, go into a deflationary depression, and get the government entirely out of the market aside from minimal referee/regulatory role to make sure that everyone plays openly and with the same set of rules. Unfortunately, that medicine is too bitter for the politicians and the parasite class to swallow.