Above photo: Money Mart payday loans and check cashing store in Sacramento, California. Photo by Tony Webster / Wikimedia Commons, with edits by Next City.
What if human dignity became our north star for policymaking around household debt?
When individuals cannot meet their basic needs without turning to debt, they face threats to their human dignity. Survival debt — debt that individuals incur to survive and live a life with dignity — is inherently intimidating and degrading.
A person does not have the freedom to obtain a standard of living consistent with human dignity if the only means of acquiring housing, transportation, food, medical care or an education is to incur debt. Many indebted households can barely survive, much less vivir sabroso. Those who incur debt to meet basic needs must work, despite knowing that the fruits of their labor will be diverted to repay debt — while they still struggle just to meet basic needs, let alone accumulate the necessary resources to weather future emergencies or to build savings for retirement.
In my new book, “Dignity Not Debt: An Abolitionist Approach to Economic Justice,” I argue that we should move toward abolishing survival debt entirely. By allowing credit to be the only solution for survival, policymakers are accepting the high likelihood that individuals will ultimately need to sacrifice necessities later to repay that debt.
From a human dignity lens, then, extractive debt — debt that primarily enriches a party other than the indebted individual or their household and provides no substantial benefit to the indebted individual or household — should not exist, either. Whether they come in the form of predatory lending or predatory municipal fines, policies that rely on extraction and dispossession for resource generation must be rejected. Unfortunately, however, under the free-market myth, nothing prohibits treating people as tools for others’ gain, so long as the result is overall wealth maximization.
When I first set out to research whether any scholars or activists had suggested an abolitionist approach to debt, I came across the Debt Collective, a union of debtors that aims to “build a movement to abolish debts and create a world where no one has to take on debt to survive.”
But I didn’t think that abolishing debt altogether was realistic or necessarily desirable. Just as releasing all prisoners would not dismantle the prison industrial complex, erasing all existing debts would not solve the underlying household debt problems in this country.
Just as Angela Davis’s abolitionist approach shows that prisons are obsolete — unnecessary, ineffective and inhumane — an abolitionist approach to survival and extractive debt aims to prove that survival debt and extractive debt are obsolete.
Another lesson from abolitionism in the household debt context is the concept of “non-reformist reform.” As prison abolitionist Ruth Wilson Gilmore explains, criminal justice reforms should “unravel rather than widen the net of social control through criminalization.” In the household debt context, reforms should “unravel rather than widen” the net of unjust and inequitable household debt — a net deeply interwoven with the carceral state.
How can abolitionism help evaluate specific household debt policy proposals? If we adopt the questions that the grassroots abolitionist organization Critical Resistance asks when evaluating various criminal justice proposals, we might ask: Does this policy reduce the reliance on debt as a means for survival? Does this policy challenge the notion that debt is a solution to poverty and inequality? Does this policy reduce the scale of credit-based dispossession?
The United States will never have a just and equitable household landscape without the abolition of survival debt and all extractive debt, which requires rethinking not just debt policy, but all economic policy. Instead, I urge us to imagine an economic landscape in which such forms of debt no longer exist, and to work together to bring us closer to such a world.
Abolishing survival debt requires affordable housing, utilities, clothing, education, health care and transportation. Government programs that offer debt as the only or primary method of obtaining health care, housing, transit and other basic needs are inconsistent with an abolitionist approach to survival debt.
The government should recognize the burden of relying on cars to get to work, school and doctor’s appointments. Rather than having no choice but to take on a car loan to get to work, everyone should have public transit options. With public transit options, car loans would always fall only under the category of opportunity debt, not survival debt. If the government cannot provide the necessary public transit infrastructure, it will have to subsidize vehicle purchases for the poorest families — and not only in the form of credit.
Households must be able to survive emergencies without turning to credit. During the COVID-19 pandemic, the federal government understood that nearly everyone was facing an income shortfall and stepped in to provide unemployment benefits and stimulus checks to hundreds of millions of Americans. Imagine if those checks had to be repaid.
Yet, when households face a similarly sudden expense or loss of income for reasons other than a global pandemic, they do not have access to grants, just credit. New York City offers emergency grants — as many as one per household per year — to those unable to meet an expense due to an “unexpected situation or event.” However, these grants are actually loans that must be repaid, unless the household income derives from Social Security benefits. Although the repayment is based on income, families tapping such loans are unlikely to have surplus income to repay them, despite their being interest-free. The repayment obligation thus creates stress and hardship for households. If the city offered grants instead of loans and focused on community outreach to ensure accessibility, the program could be consistent with an abolitionist approach to survival debt.
Healthcare reform would dramatically reduce reliance on debt for survival. Citizens of other upper-income countries almost never incur medical debt, much less crushing medical debt. Even countries that allow private insurers, such as Germany and the Netherlands, sharply limit out-of-pocket expenses. France’s single-payer system provides free medical care for all and makes coverage compulsory; the government pays for its health care system through payroll taxes, earmarked income taxes, and taxes levied on tobacco, alcohol, and the pharmaceutical industries. The German health care system, funded through general wage contributions at 14.6% shared equally by employees and employers, provides coverage via Krankenkasse or “sickness funds.” Hospitalization co-pays are capped at a maximum of 280 euros — about $315 — for a 28-day stay. Doctor visits have no copay, inpatient care is 10 euros a day, and prescription drugs range from 5 to 10 euros. Medical debt is all but unheard of in Germany, and self-reported unmet medical needs are very low.
Ensuring that individuals do not need to turn to credit to survive in the first place will also curtail extractive debt, since much of the credit on which people rely for survival is extractive — payday loans, auto title loans, overdraft fees and more.
Existing household debt policy, rooted in free-market myths, does not even acknowledge the extractive nature of some debt. While the free-market myth acknowledges the possibility of fraud, it sees those instances as anomalous rather than endemic.
But even if policymakers recognize and target extractive debt, there will always be incentive to make debt extractive as long as people need debt to survive and to achieve opportunities. It’s just too profitable for lenders to quit pursuing, and regulators will constantly play catch-up; when some states banned payday loans, lenders just switched to small-dollar installment loans that continue to hurt borrowers.
Providing borrowers with additional information or increasing efforts to prevent fraud will not always help, either. Many borrowers are so desperate for funds that they have no choice but to accept predatory terms. When asked what the maximum is they would have paid to access a payday loan, 37% of payday loan borrowers responded that they would have accepted the loans on any terms offered.
No amount of transparency or financial education will fix the real problem, which is that these borrowers had no choice but to turn to credit to meet basic needs, no matter how onerous the terms. And these households will have trouble repaying the debt, even absent any fraud or predatory terms.
One might argue that it’s urgent to bolster the regulatory apparatus and increase the penalties for consumer credit violations. But given what we know, targeting fraud directly may not be the best use of political capital. Companies can easily take advantage of consumers as long as they disclose the terms of the loan—terms that borrowers often don’t understand, or which borrowers may feel they have no choice but to accept.
More substantive restrictions on lenders may better reduce extractive debt – for example, imagine that lenders could not collect on loans if, when issuing the loan, they failed to ensure that the borrower had the ability to repay the loan – but such restrictions may also face more resistance and require more political capital to achieve.
Regulation of extractive debt also gives the illusion that debt is safe, and that forcing individuals to turn to debt for survival is an acceptable way for a society to function.
Limits on debt collection and the expansion of exemptions can also help protect the human dignity of households. Wage garnishment and bank account garnishment should be prohibited unless the lender shows that the individual can continue meeting their basic needs while repaying the debt. In addition, no one should ever be arrested merely for failing to repay their debt.
Courts have begun adopting rules that limit the ability of lenders to use the courts to collect. They could also begin to require proof of actual service, amount of debt, and ownership by a creditor or debt collector before issuing default judgments or enforcing debt collection. Courts could refuse to enforce debt collection or creditor actions without proof that the borrower has non-exempt income or assets. Bankruptcy courts can refuse to classify household debt as “consumer debt” since most households did not incur their debt voluntarily and strategically, providing more households access to a speedy discharge without jumping through the means-test hoops.
All of these efforts respect human dignity and avoid entrenching survival debt and debt that is extractive. As Critical Resistance reminds us, abolitionism is “developing practical strategies for taking small steps that move us toward making our dreams real and that lead us all to believe that things really could be different. It means living this vision in our daily lives.”
Excerpted from Dignity Not Debt: An Abolitionist Approach to Economic Justice by Chrystin Ondersma, published by University of California Press. 2024 by Chrystin Ondersma.