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February 2005

Aristocracizing America

By: Herbert B. Siegel, Ph.D.
The Whitestone Group Ltd.
Telephone: (516) 431-7300
Facsimile: (516) 431-8153

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Beginning with The Bank Holding Act of 1956 that exempted Industrial Loan Companies from federal banking regulations except for keeping them eligible for government- sponsored FDIC insurance, these secondary lenders were a valuable source of high interest loans to a public segment otherwise unbankable. A financial stranglehold has proliferated on all citizens, however, because of misusing an otherwise well conceived statute.

Today, Industrial Loan Corporation charters are open to non-bank corporations wanting to own a financial institution without becoming subject to the provisions of the Bank Holding Company Act. These "Credit Card Companies," with federal deposit insurance protection, are endowed by Congress with "most favored lender" treatment and "exportation" rights pursuant to the Federal Depository Institutions Deregulation and Monetary Control Act of 1980 , a statute enacted to allow a special interest group to usurp all State usury laws, and charge outrageous interest on credit card purchases that masquerade as punitive fees, elected by the card-holder, as an addition to contractually high interest rates.

Only California, Colorado, and Utah offer charters for Industrial Loan Corporations that are eligible for FDIC insurance to exempt them from abiding by bank regulatory statutes, and other State usury laws. In 1986, only the Utah legislature enacted a statute that "mandates" all Industrial Loan Corporations be insured by the FDIC, and be allowed to use the words "bank" and "savings" in their name. This act enhanced the value of their State charters for non-bank Industrial Loan Corporations (previously tainted by the failure of Utah's privatized Industrial Loan Guaranty Corporation that resulted in numerous problems for state politicians including depositor lawsuits.)

The Competitive Equality Banking Act was passed by Congress in 1987 to change the definition of "bank" to include any institution having FDIC insurance but specifically exempted Industrial Loan Corporations from other bank regulations if, among other things, such corporation, "...organized under the laws of a State which, on March 5, 1987, had in effect, or had under consideration in such State's legislature, a statute which required or would require such institution to obtain insurance under the FDIC Act." Utah was thereafter prepared for the "gold rush" of domiciling credit card companies. From 1994 to 1998, at least eighteen major credit card companies obtained Utah State Charters to operate as Industrial Loan Corporations, including American Express, First USA, GE Capital Financial, and Providian Bank. Combined these accounted for over $18 billion in consumer debts in 1998. Today, these chartered "banks," joined by almost 200 others account for $two trillion of outstanding credit card debts-- half of which constitute egregious interest charges and punitive fees (the latter a euphemism for even higher interest rates) that often double the cost of an original purchase on a revolving account. The constitutionality of State and consumer rights to fair and statutory interest is rarely challenged when federal legislation benefits the gigantism of credit card "banks" and their lobbying at all political levels, not to mention the largess of their political action committees (PACs) and soft money contributions." (MBNA, a major company made political contributions of $3.5 million in the last election, and the credit card industry as a whole is estimated to have contributed $19.2 million, two-thirds going to the Republicans). Pernicious consumer laws become accepted doctrine by default because they are rarely tested against the metrics of our founding fathers that entitles every American citizen to freedom from legalized forms of oppression---economic, as well as religious.

Not content with the Utah lottery that entraps the American public into over-shopping then paying credit card companies twice for the privilege, or the merchant clients who also pay fees, discounts, and collection days to credit card companies for the privilege of selling merchandise, the Congressional Judiciary Committee proposes in each session of Congress, consumer bankruptcy law reforms to prevent hard-pressed American consumers from their constitutional right of due process to declare bankruptcy and obtain relief from burdensome debts arising from credit cards including fees and interest. Such legislation, if and when passed, raises credit card debts to the same standing in law as income taxes arrearages (taxes are not dischargeable in bankruptcy). In all of U.S. history, no other type of indebtedness enjoyed such privileged status. Senator Orin Hatch (R-Utah), and former chair of the Judiciary Committee, is quoted as saying, "This bill will do an awful lot of good for people in our society. Article 1 of The Constitution grants powers to Congress to regulate bankruptcy for the purpose of "enacting laws of hope," but can the debtor's stockades be far behind?

Congress is unaffected by the burdensome consequences of having American citizens pay exorbitant and no longer usurious interest rates and masquerading fees, but they continue to profit politically from the payback of passing the Bank Holding Act of 1956. Do we not have political aristocrats who cloak themselves as selfless public servants to further enrich their regal benefactors as well as themselves?

Herbert Siegel, Ph.D. is a master of strategic planning. He has one of the most outstanding records in the nation for rehabilitating, re-engineering, growing or downsizing companies. When necessary to manage change, he makes it work. When a company is troubled, he turns it around. He is a highly skilled expert in all phases of Manufacturing and Retailing at the highest levels of decision making.

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