Elena Bethea
Appearances
Debt Heads
S1.E3 - The House Always Wins (Part Two)
I'll give an example of something that came up multiple times when I was interviewing people, which is like attending the weddings of friends and family members. If this was 1916, you needed to talk to a community banker and like sign something in paper before that person would hand you a check. Would you be like, excuse me, sir, I want a loan to go to my cousin's wedding? Probably not.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
But would you put it on a credit card if you weren't completely sure whether you were going to pay it off in full that month or not? Statistically, yes, a lot of people do that, right? And so there's a lot of things in that middle category, which are not pure wants, and also not pure needs. And I think that middle zone is a huge, huge driver of debt.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
Is your kid literally going to die if they don't get anything for Christmas? Well, no, but is our cultural celebrations like an essential cornerstone of how we derive meaning in this world? Yes.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
I call the debt machine like this system of laws and policies and cultural attitudes that is transferring money from working class and middle class and poor families into the hands of wealthy people.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
Overall, it was a good thing. But I think people had, like, wildly inflated ideas about what this bill could accomplish.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
And it's really rooted in this assumption that there's a limited number of deceptive features. But I think the issues are like much more endemic to, yeah, the basics of the business model.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
So if you look prior to 1983, the median American family had zero non-mortgage debt. So they didn't have any student loans. They didn't have any auto loans. They didn't have any credit cards. They didn't have retail debt. They just had none. I mean, there's plenty of families who did have debt, right? But the median had none.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
I do also have, like, one of each type of allergy medicine. Oh, thanks.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
If you look prior to 1983, the median American family had zero non-mortgage debt.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
There's always been people who have struggled financially. But yet for many, many decades, people navigated the world with more often than not, no debt.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
So I was really interested in how credit worked, like how lending worked. And so I went online. to go work at Capital One right after I graduated college.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
You know, I had a mental model of somebody whose car breaks down and then they need to get to work. And if they can't fix their car, they're going to lose their job and then have a lot of money. Right. And as long as people are going to want or need to borrow money, you probably need to have like lenders who are offering things as an option. It's because we were meeting an unmet need.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
Capital One has long boasted about the fact that it runs tens of thousands of experiments on its customers per year. It's a very widespread and systematic approach to finding ways to get the most in interest and fees from each family.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
You know, you apply for a credit card, you get an initial credit limit, and then over time that credit limit gets raised. A high percentage of all the debt people are in are coming from these credit line increases that they haven't requested and that aren't per se meeting any need, right? Because people weren't otherwise going to apply for credit.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
And that sort of is the first thing that made me realize that a lot of this debt is not driven by what families decide that they want or need. It's really driven by how much banks decide that they want to lend.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
On the surface, it doesn't sound so bad, when in reality, the amount that people tend to borrow on their credit card is proportional to what their credit limit is, right? So as people's credit lines go up and up, they end up borrowing proportionally more.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
Take, for example, somebody who tends to use an average of like 60% of their credit limit. That person is going to use 60% if they have a credit line of $3,000, 60% if they have a credit line of $5,000, of $8,000.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
Literally get to see what role does giving people additional credit, like what impact does it have on their lives?
Debt Heads
S1.E3 - The House Always Wins (Part Two)
Most of the time, the people who did not get more credit were better off.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
There's big ways that it happens, like the credit line increases, and then there's a bunch of small ones, right? Like moving the due date from 5 p.m. to midnight or back and forth.
Debt Heads
S1.E3 - The House Always Wins (Part Two)
Do that on 10 or 15 little things. You're running constant experiments. You're like... Toggling the lights on and off on each one, depending on what the experiments show, is the best way to get that customer into more debt or have them pay a higher interest rate or accrue more fees.