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The growing issue of personal debt (the so-called debt crisis) is more and more being represented as an issue of individual financial capability and responsibility. Problems of personal debt are constructed as something that can be remedied through improved access to financial management education and by householders taking responsibility for their money.  This ignores the impact of wider social issues. The ‘debt crisis’ cannot be understood without also taking account of stagnating wages, financial deregulation and changes in the international labour market. The emphasis on increased individual responsibility and improved individual financial management create a situation where policy makers implore people to ‘spend smarter’, when it is a lack of money, not a lack of acumen that is the problem. Framing the ‘debt crisis’ in this way means that the wrong solutions are offered for the wrong problems, with the real problems largely ignored.

How are the banks getting away with this? Where public debate about banking has taken place, it has focussed on the profoundly damaging activities of retail and investment banks. Discussion about the best way of reforming banks has focused on capping bonuses and tighter regulation. However, public debate should be focussed on the Asset Backed Securities (ABS) market for personal debt. These processes of financialisation and ‘securitization’ of personal debt have been instrumental in increasing the supply of credit and have transformed lending patterns.

The ABS market involves bundling together of thousands of small loans into a master trust in which investors buy shares and receive interest payments. Within credit markets they allow the recycling of loan pools and hence increase the supply of credit. Importantly, credit-card backed ABSs are much more popular in the UK than elsewhere in Europe with 30% of all credit-card backed ABSs originating in the UK. The prevalence of ABSs exerts a number of effects on the credit market. Principally it biases lenders toward targeting and acquiring persistent revolving debtors, who will continue to generate credit-card debt. The ability to issue an ABS is dependent on the existence of a certain proportion of unpaid balances. This need to generate unpaid balances is the reason we find ourselves unable to get out the front door in the morning for letters offering credit card balance transfers with 0% interest.

For this system to work there also needs to be more and more people unable to pay back their debts. Customers who pay their balances promptly every month actually cut into company profits, so somewhat perversely they are the bad customers. The market need for bad debtors (i.e. good customers) has seen an intensification of marketing activities toward vulnerable people.

This market focus has also affected how credit scoring operates. Decisions about how much to lend a customer are now made by computer algorithm. These algorithms are stacked towards the ABS market, so they just keep lending until people can no longer repay.  Staff working in branches know that they need to lend because if they don’t, they miss their targets. Those who default on repayment then find themselves in a ‘private hell’ that they didn’t imagine when they put the week’s shopping on a credit card. They are repeatedly phoned, threatened, abused and even receive ominous silent calls by collection departments staffed by lowly paid workers who themselves are quite likely to have to push aside red letters from the door mat when they get home. These collection practices are usually constructed as a regrettable necessity in the battle to get people to pay what they owe. Any distress caused is a lamentable side effect of the process.

Shame and fear threaten identities but that they also play a role in transforming identities, to create pliant, fearful subjects. The experiences of the collectors and clients that we spoke to suggested that affective practices, where collectors would intentionally and repeatedly make clients feel ashamed, scared and vulnerable, were used as tactical weapons of the trade ‘in order to create customers who would become docile and compliant subjects’. These practices increase or commence the repayment of owed money. Through these practices of instilling fear and shame coupled to high pressure and relentless contact, many debtors reported they became isolated, distressed and ‘broken’ or ‘shut down’.

In this condition, they were now ready to make the transformation from unsustainable debtors, those who were unable to manage their resources, into just-sustainable revolving debtors. The type of debtors that the ABS market just can’t get enough of. Put simply, banks lend until it becomes unsustainable for customers to repay and then their collection practices brutalise people into a form of sustainable repayment that maximises the revolving debt. After this affective transformation has taken place, and following their engagement with debt support agencies, many are once again drawn back into the credit industry, both by necessity and through renewed offers of credit. This time however the experience of their previous abuses and humiliation makes them less likely to move into unsustainable credit use. Revolving debtors who are paying the maximum interest to financial institutions don’t just happen by chance. They require a whole array of subjective transformations, affective brutalities, facilitating discourses, regimes of targeted hyper selling and unreliable credit scoring. And what emerges from the sausage machine are people disciplined into the revolving debt that is so essential to both the Asset Backed Securities market and the national economy.

About the Author: Carl Walker is the course leader for the MA Community Psychology at the University of Brighton. He works with a range of community groups in the Sussex area on issues of debt, poverty and mental distress.