Badrinath: Hello, everyone.

Welcome to Ideas and Insights, a show devoted to exploring novel perspectives on contemporary issues.

I and Badrinath, for your host.

Today we are tackling a pressing issue affecting most Americans except for the affluent.

Most Americans are grappling with household debt, which collectively amounts to over $17 trillion, a staggering 77 million Americans, 35% of the adult population, have at least one debt that has gone to collection.

To make matters worse, over half of working Americans live paycheck to paycheck and one third have no savings.

Joining us today is Prof. Chrystin Ondersma, a distinguished law professor at Rutgers University in New Jersey.

She is the author of Dignity Not Dead and Abolitionist Approach to Economic Justice, published by the University of California Press this year.

An expert in bankruptcy law.

Prof. Ondersma offers seminal insights on the complex issue of household debt, disputing the widely held view that people are mired in debt because of their extravagant lifestyles and bad choices.

She highlights two insidious factors responsible for the burgeoning size of household debt.

First, sheer survival forces the underprivileged to take on debts.

Second, predatory high interest loans peddled by what Prof. Ondersma characterizes as the debt industrial complex, make it virtually impossible for the vulnerable to be debt free.

Unmindful of these crippling realities, the law and official policy view deck from the distorted lens of economic efficiency and market forces, Prof. Ondersma posits that our debt policies are vitiated by two myths the idea that credit leads to prosperity and equality, and the baseless boogeyman of the strategic debtor who takes loans without the intention of repaying.

Prof. Ondersma passionately argues that the problem of household debt is best viewed as a human dignity issue, requiring the abolition of exploitative debts taken for survival and basic needs.

Respect for human dignity demands a society that makes ruinous debts for everyday life redundant.

Approaching debt from the twin perspective of free distribution and reparation.

She pleads for a more robust welfare system, providing affordable housing, education, health care and transportation.

Prof. Ondersma maintains that dismantling barriers such as racism and opportunity hoarding is indispensable for upholding the inalienable human dignity of debtors.

And doing so will lead to a more just and equitable society.

She joins me to discuss her ideas further.

Welcome to Ideas and Insights, Prof. Ondersma.

Thanks for joining us today.

Prof. Ondersma: Thank you so much for having me, Badri.

Badrinath: Let's begin with the main theme of your book.

You offer a masterful account of the problem of household debt.

Can we start by talking about how big this problem of household debt is, and why it matters?

Prof. Ondersma: It's a really big problem.

Many Americans have to rely on debt just to survive.

40% of Americans don't have an extra $400, so if they face an emergency, a car breaks down, a kid gets sick.

They face an unexpected expense.

They have no choice but to turn to credit.

And then many people, unless they are getting a raise all of a sudden, can't easily repay that debt.

One out of every three adult Americans has a debt that has been turned over to a collection agency, and household debt is at an all time high.

Nearly a quarter of Americans, said that they incurred them with credit card debt so that they incurred that debt to pay for basic necessities such as food, utilities or rent.

Then you have the problem of student loans over 1.7 trillion outstanding.

Half of Americans also carry a medical debt, and more than half of those with medical debt owe at least $1,000 in medical debt.

In addition, thousands of Americans end up in jail every year because they couldn't pay a private civil debt.

And our policy is they they rely they force people to rely on debt to survive, but then they end up punishing those who struggle with debt.

So, it's it's unjust.

Badrinath: As serious as these issues are.

Here's something in your book that makes me really, worried.

On page 25, you say, and I'm quoting you, the interest rates on payday loans average around 391%, but they can be over 1,000%, unquote.

Now, I would like to think that this is a typo.

Is there.

Prof. Ondersma: Unfortunately not.

The payday lending industry, is has a long history of, using very abusive terms.

And the reason that these interest rates can get so high is that most people don't just take out one payday loan, they end up having to borrow again to roll over that loan.

And most people that take out payday loans end up needing to take out eight on average.

And with every loan, the there is more and more fees and interest and more and more of the, the, the debtor's resources, rather than, being used to meet their basic needs, end up being diverted to these payday lenders.

Badrinath: Let's now move to an important point that you raised in the first part of your book.

You begin by saying that the conventional legal classification of household debt is deeply flawed, and you offer an alternative classification, which you think is more, just appropriate and helpful to those that are in debt.

Can you tell us more about this new classification that you propose?

Prof. Ondersma : Sure.

So U.S. policies create barriers to debt relief for families and households that have what's defined as consumer debt.

While, creating lots of benefits for business debt.

And this is based on the myth that people are strategically running up debt on their credit cards, buying frivolous consumer goods, and then, strategically, abusing the bankruptcy system, shirking off their debts in bankruptcy.

But in reality, as we said, many households that struggle with debt or just taking on debt to survive, medical care cards to get to work, loans to get a basic education.

Then you also have this problem where in the public consciousness there's this idea that, oh, if if I just take on good debt and avoid bad debt, then I'll have financial security and I'll be able to avoid trouble with debt.

So in order for, our US policy is to match the reality of household debt, I propose this new taxonomy that can help, hopefully help policymakers discern, between harmful and potentially beneficial household debt.

And so I have three categories.

Survival debt.

Survival debt is that that households incurred to survive, to achieve a standard of living consistent with human dignity.

Examples include medical debt, payday loans incurred to avoid, for example, having their utilities shut off or groceries that you have to put on the credit card, or any education that you have to, get in order to earn a living wage.

And then I have opportunity debt, which is debt that households incur to expand resources or opportunities such as homes, cars, a new washing machine, or educational debt as well.

So some of these debts overlap and education can be both necessary to survive and also an opportunity.

Then I have this category of debt that I call extractive debt.

Either, survival debt or opportunity that can be extractive.

I define extractive debt as that that primarily benefits someone other than the borrower and is in fact substantially likely to harm the borrower.

Examples of this include predatory high cost loans such as payday loans, subprime credit cards, or mortgages, and, high cost private student loans.

These predatory loans.

And then I use the taxonomy, and I argue that that policymakers should take an abolitionist approach to survival and extractive, that these types of debt that we don't want.

And then opportunity debt, if it's not extractive, may be permissible as long as, we use, what I call a reparative approach.

Badrinath Rao: Well, you, have raised a number of issues, in response to my question, which I'll take them one by one.

Indeed, it is true that, the way things are right now, under the law, household debt is treated differently from business debt.

And you think that is unfair to people who are forced into debt because of their, circumstances?

Aside from this very important point, you also talk in your book about what happens to people when they default on their debts.

You, for example, talk about, racial debt collection policies and how it disproportionately affects, racial minorities.

You also talk about substantive and procedural in justices in the debt collection system.

Can you tell us what you mean by this?

Prof. Ondersma: Sure.

Well, in terms of racial disparities, black and other marginalized households, first of all, are less likely to have wealth, due to historical discrimination and then are disproportionately targeted for both predatory loans and for debt collection.

So even controlling for income.

Studies show that rates of debt collection are higher in majority black communities than white communities, including, some cities such as Saint Louis, Chicago, and Newark.

Even controlling for income more than twice as many, debt collection suits against black borrowers, against borrowers and majority of black neighborhoods, as opposed to white neighborhoods as majority white neighborhoods.

And then, the consequences, can be very harsh.

These debt collection procedures can, as I mentioned, earlier, even result in, people becoming incarcerated.

So people might miss court dates for a number of reasons.

Many people don't realize that there's, an action out there against them.

Or maybe they can't miss work to attend the the hearing.

Or maybe they just think they don't have any defense for whatever reason, they may miss the court date.

Maybe they have medical issues or they can't find childcare, but then there ends up being a default judgment entered.

And then there are subsequent post judgment hearings that they may also miss for similar reasons.

And once they miss these, these hearings, their, can be issued what's called a contempt of court order, right.

And after that, there can be a warrant issued for people's arrest, even if they never received notice or just didn't understand what was going on or, couldn't attend the hearing.

And there are thousands of people in jail and millions, actually, that are threatened with arrest each year.

As a result of this.

So, we have a major, due process problem when it comes to debt collection.

And, that collection is now the most common case for our state courts.

So we taxpayers are funding, these creditor proceedings, that end up, you know, extracting resources often from the, the, the, the debtors who can individuals, that already are facing the most financial precarity.

And again, this can even be as extreme as folks ending up in, in, in jail.

Badrinath: Let's now move to the second part of your book, where you discuss what you call two prominent myths in the discourse on household debt.

The first one that you discussed at length in your book concerns the critical role of debt in fostering entrepreneurship.

There are many who argue that household debt and debts in general are good.

They are useful.

They help people gain access to moneys that they can use to become entrepreneurs.

Now this argument seems unassailable, does it not?

Prof. Ondersma : Well, I mean, it's not that there are no success stories, when it comes to, to entrepreneurs.

However, it's, it's more difficult than one might hope, especially when it comes to things like homeownership, or education.

Especially, for those who have no savings whatsoever and, and low incomes.

Professor Abby Atkinson over at Berkeley writes about this, in depth, and, in her beautiful papers.

This idea that, credit leads to, both equality and and prosperity, is not borne out by by the facts, unfortunately.

If you think about if you have no savings whatsoever and your income is low and you've incurred debt, you're already struggling to meet your basic needs, that if you faced any hiccup, again, if you get sick or your car breaks down suddenly, you can't make a payment on that debt.

Then you have higher interest rates.

You have higher fees.

And, you know, unless, suddenly you have, more income, to offset that, your, your being a, in a precarious situation.

And then when it comes to, to, to racial disparities, unfortunately, because of discrimination, are, there are, predatory lenders, that primarily target black and other marginalized communities, for things like for profit education or even homes.

Which seems like a great opportunity.

But in the end, it may be a home that, is going to need so many repairs that it won't actually be valuable.

And because of redlining, homes in black communities are worth worthless.

There are many studies on this, so you may think that you're building a valuable asset, but because of historical and ongoing discrimination, it may end up being a burdensome debt rather than, a valuable asset that improves and increases your wealth.

Badrinath: Let us now move to the second myth that, you tackle in your book, and this is the myth of the abusive debtor.

There are a lot of people who make light of this question of household debt.

Pointing out that people take on debt because, they are not frugal.

And then there are others who take on debts with no intention of repaying.

This is the problem of the abusive debtor.

And you seem to disagree.

Tell us more.

Prof. Ondersma : Well, I disagree, and the all the empirical evidence disagrees as well.

This is a concept of the abuse of consumer debt.

It was dreamed up by a credit lobbyist, by the the lawyers, for the, creditors.

And it was sort of billed to Congress, tried to persuade Congress, to change the bankruptcy code, to make it harder for people to get, relief.

So congressional testimony is filled with things like, oh, the classic case of the consumer debtor as someone who recklessly runs up credit card debt to buy luxury electronics.

This is not the reality.

Study after study shows, that people file for bankruptcy for one of three reasons.

They have medical debt, experience, a family breakup, or job loss.

They're just now, they're the it's not it's not the case, that that people turn to bankruptcy is strategically, in fact, people, that should seek bankruptcy relief hesitate to because of the stigma associated with filing, because they're ashamed.

A study, of a study show that many, in fact, struggle for years before filing because they're so ashamed to file bankruptcy and that they will cut back on, on food, unnecessary medicine, to avoid having to seek bankruptcy relief.

So it's quite the opposite that in fact, more people, should be, getting debt relief than, than are, getting debt relief.

Badrinath: Let me ask you a quick follow up question on these two met while talking about these myths.

You point out that, they are premised on this idea that, free markets are good for the common well-being, that they tend to foster, entrepreneurship.

And you call this the myth of the free market?

How is the free market implicated in the problem of household debt?

Prof. Ondersma : Yeah.

So, I mean, the the underlying idea behind the free market is that we're all just rational actors, that are making decisions.

And if, if, we all pursue, you know, what we want, and, and the government stays out of it, that everybody will be, better off, right?

That, that, and the the underlying goal is supposed to be a sort of wealth maximization, and efficiency.

But in fact, we don't have a free market, right?

The government, our banks, rely on, government backing.

And the government has, in fact bailed out big financial, companies again and again.

And there has been some government help over the years.

It's, to households, although it's been primarily, to white, communities.

There just has not been a sufficient support for, for those who, who need it the most.

So it's not a matter of whether we're going to have government intervention, because you can't have a functioning financial system without government intervention.

The question is, what, do we want the government to do?

And I argue that rather than, focusing on, efficiency as the primary goal, that it's much better to, to to have, a concept of human dignity as, as a guiding principle.

And I'm not saying that, everything about the market is bad.

You know, it could be the case that, you know, capitalism will never work and is just rotten to the bone.

But we never actually tried to.

Capitalism with meaningful regulation, redistribution and reparations.

Right?

So it might be interesting to see what it would look like, if.

Okay, corporations are allowed to pursue profits, but we decide that we don't want we, the taxpayer, refuse to make profits our priority.

That instead our priority is making sure that everyone can live a life of of dignity.

Badrinath: Well, you raised the question of human dignity.

Let's talk more about that while rejecting the argument about economic efficiency, about how that fosters, entrepreneurship and so on.

You say that that is a more fruitful way of approaching the question of household debt.

And that's where you invoke the framework of human dignity.

How do you understand human dignity?

And why do you think this framework is most appropriate for tackling the question of household debt?

Prof. Ondersma : Yeah.

So this free market efficiency, goal and myth has stubbornly held on as the guiding principle, probably due to a rhetorical reason.

As much as, for anything it's actually done isn't much.

But it's it's clear and it's universally comprehensible.

So I was looking for, an alternative principle that is something that is readily can be readily understood, is clear, and, is available to, around the globe.

And the principle of human dignity is already, codified and dozens of human rights instruments.

And it's also linked to specific human rights obligations like privacy and due process and nondiscrimination.

So, it's, it's already there for us.

And in terms of what I mean by human dignity, in my book, I cited a bunch of, philosophers and human rights, documents.

But right now, since our time is here, I just want to share my favorite, thinker on human dignity.

Who is Florencia marquez, Colombia's new vice president, the first female and first Afro-Caribbean vice president.

She popularized this phrase, Vivian, but also on the campaign trail, but also, comes from her home region of Choco, and it literally translates to live deliciously.

But it means something to live richly and with dignity.

And she talks about she defines that's living with dignity and peace, with guaranteed rights without fear, and to live with joy.

So I, I take inspiration from that phrase and, and the way that I understand human dignity and I, I say that, the principle of human dignity means that we should, have a, have encouraged, a standard of living, consistent a define a standard of living consistent with human dignity as a standard of living in which individuals can meet their needs and live life without degradation and fear.

So, without degradation and without fear, and that is something that most Americans simply, don't have access to right now because of the precarity.

And, fear and degradation associated with debt and debt collection.

Badrinath: We are almost completely out of time.

Prof. Ondersma , let me end by asking you one quick question.

Aside from human dignity, you also advocate approaching the question of household debt from the twin perspectives of risk redistribution and reparations.

What do you mean by this?

And how does it work?

Prof. Ondersma: Yes.

So, for for extractive debt and survival debt.

I have one an abolitionist approach.

But for it's not to say that we'll never have debt, ever.

Right.

So we need, to, to have a reparative approach to opportunity debt.

Now, redistribution is really crucial for abolishing survival debt and extractive debt, because as long as people need to turn to debt to meet their basic needs, we will never get rid of these things.

So, we have resources.

We are a wealthy country.

Many other countries do this where, you know, we tax the wealthy and that provides enough funding for basic medical care, transportation, education.

Right.

It's very simple, when it comes.

But that's not enough because, that was just, that's fine.

It's helpful, but we still have this problem where historically many resources were given to white communities, and black communities and other marginalized communities were excluded.

So this cannot be, we cannot have full equality, without reparations.

That was government policies that created those, exclusions.

And so it will require government policies, to, to create, a more just an equal society Badrinath Rao: Prof. Ondersma , your book offers a masterful exposition of this whole question of household debt in just 30s.

What would you say to someone who is currently in a great deal of debt and what would your advice be to someone contemplating household debt?

Very briefly, please.

Prof. Ondersma : It's not your fault.

It's you don't have to be ashamed.

There's relief available.

Don't be afraid of of seeking bankruptcy relief.

And please file under chapter seven.

Don't, file under chapter 13.

And, you know, my family filed for bankruptcy, and, they were ashamed.

But with that, they were able to have a fresh start.

And, although the system is flawed, that is a relief.

That's that's there for you.

Badrinath: On that encouraging note, professor, on this month, thank you so much for sharing your insight with us.

It was a pleasure talking to you today.

Thank you.

Prof. Ondersma :Thank you so much, Badri.

That's it for today.

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Until then, good bye.

I.