The History of Consumer Debt

Consumer debt has existed from the earliest of human societies, as evidenced by ancient legal codes attempting to resolve conflicts between debtor and creditor. Consumer debt and debt collection practices in early America were modeled after those of Britain, and debt laws have evolved over time. However, according to PBS Frontline, starting about 1980, a large increase in consumer debt in America has occurred, partly as a result of aggressive and questionable practices by the credit card industry.

Consumer Debt B.C.

According to the Code of Hammurabi, written by a Babylonian king in 1700 B.C., debtors were expected to repay creditors and the Code addresses the legal process. For example, farmers who borrowed to plant a crop and subsequently encountered bad weather were excused from the debt that year. If a family became unable to repay debts, family members could sell themselves to their creditor until they either worked off the amount owed or until three years had passed, after which they were free. The Bible forbade charging any interest to poor borrowers or exploiting neighbors financially. It also warned against borrowing at all, on the grounds that, "The rich rules over the poor, and the borrower is slave to the lender" (Proverbs 22:7).

Debt in America

According to "The History of Debt in America" report on the I Hate Debt website, British law allowed for the imprisonment of bankrupt individuals and families. This law was considered progressive, because Greek and Roman debtors had simply been enslaved. By the end of a Depression in 1760, bankruptcy began to be seen not as a moral failure, but as something that could happen to anyone. In the Colonies, defaulting debtors had to give part of their property to creditors in payment and become an indentured servant to each creditor until the debts were repaid. Debtor's prisons operated in America until almost 1850. Written and unwritten debt agreements existed in early America and laws followed the British model. A famous American debtor was Thomas Jefferson, whose property and slaves were auctioned off after his death for repayment.

Rise of Revolving Debt

According to the PBS documentary, "The Card Game," revolving charge accounts operated in America for many years, with credit extended only to those who could reasonably be expected to repay. In the 1980s, however, Providian Financial initiated a plan to extend credit to the 30 to 40 million households who were not as creditworthy, on the theory that they would not pay off their balance and would pay continuous high interest. When other credit card companies noticed Providian's $1 billion annual profit, they began to follow its example.

Growth of Consumer Debt

According to Credit Card Nation, revolving consumer debt in the U.S. rose from $55 billion in 1980 to $603 billion by 2000. According to the Federal Reserve, consumer debt reached a peak just before the economic crash of 2008, with revolving consumer debt at $957.5 billion. The increase in consumer debt from $55 billion in 1980 to $957.5 billion in 2008, or just under 30 years, is unprecedented in U.S. history.