According to a New York Times business editorial published on August 5th, when the Federal Reserve recently asked for comments on its proposed rules on abusive credit card practices, it received over 56,000 responses. Most of the responses were from credit card customers who were enraged over practices such as arbitrary interest rate hikes based on factors other than the customer’s payment history, moving up due dates and shortening payment periods, and all manner of exorbitant fees.

The NYT editorial urged the passage of a consumer’s rights bill sponsored by House Financial Services Committee Representative Carol Mahoney, a Democrat from New York. Her bill would prevent credit card companies from arbitrarily raising interest rates on a balance incurred under an old rate and would stop the practice of “universal default,” now common in the business, which allows credit card companies to hike rates on a card if that customer pays a completely unrelated bill to another company late.

The bill is a good start, but of course banks are fighting it ferociously, despite its fairly modest restraints. This resistance by the industry to any oversight or regulation raises the question of whether practices which used to be considered usurious or unethical have become “normal.” Has the financial services industry mainstreamed abusive lending to the point that banking has completely lost whatever moral compass it might once have possessed?

I think the answer is clearly yes. Of course it has. But there are always reasons, and some of them require systemic changes that will not be accomplished without bloodshed.

At the top of the list of factors that motivate abusive lending (besides greed, which you can really only say so much about before you’re out of things to say about it) is the trend towards larger and larger corporations and the selling of debt. In the not-so-olden days, if you wanted a credit card, you went down to your local bank or credit union, where they actually knew you, and you applied. If you had a good history with the bank and a steady job, they would issue you a card with a low limit and a decent interest rate. They’d handle the underwriting and the billing themselves. If you screwed up, you could go down there and talk to a person.

Today, Bank of America, Citigroup, and Chase issue most of the credit cards in the U.S., and they are huge. The banks that they have not yet swallowed up are not small either. Huge financial institutions can take huge credit risks and absorb the damage in the form of fees, increased interest, and the sale of bad debts. Because of this, underwriting standards have become much more lax and usurious fees and rates have developed to offset the risk.

Another factor influencing abusive lending is the outrageous salaries now payed to CEOs and the unrealistic expectations of stockholders who pay them. A CEO should answer to stockholders and customers, not just stockholders. People who buy stock have come to expect ridiculous returns on their investments, and the CEOs they employ are judged and paid according to whether or not they deliver those ridiculous returns. So long as this corporate culture prevails in the financial industry, regulations will be skirted and customers will be fleeced. The money has to come from somewhere, and it’s been trickling upward for some time now.

A third factor influencing abusive lending practices has been the government practice of encouraging spending in the absence of money. I know that sounds stupid. It is stupid. But we hear it all the time. We’re bombarded with, “Are consumers consuming? How much are consumers consuming? What if consumers stop consuming? This is a consumer economy! Consume! Buy stuff! Buy more stuff!”

Most Americans got tax rebate incentives this year in an effort to get them to buy stuff. Many people saved the money, put it in their gas tanks, or fueled up for winter heat in the dead of July, foiling the hopes of economic stimulus through conspicuous consumption.

Last but not least, lower incomes and rising costs encourage abusive lending practices. When people don’t make enough money to meet their basic needs, they will accept terrible lending terms to get by, especially if these terms are easy to get. In effect, Americans have been doing just that with credit cards for the past year, especially since the subprime mortgage crisis hit and many home equity lines dried up as a source of ready cash.

Our healthcare system has become so completely unattached to any kind of sane fee structure that people who spend a day or two in the hospital and who have health insurance can suddenly be deluged with bills from all over, leaving them thousands of dollars in debt before the problem is even successfully treated. All of these bills come with the words “Due in full on receipt.” Put them on a credit card and suddenly you can add as much as 30% interest to that debt. It doesn’t take very many emergencies to sink an ordinary family.

So credit card reform is overdue, yes it certainly is. But the larger issue is, why aren’t we focusing on the underlying problems that lead people to lean so hard on abusive unsecured lending?

If we are to have a consumer economy, it strikes me that what we need first and foremost is a pool of people who make enough money to cover their basic needs with a bit of surplus left over to spend on consumer goods. That means good jobs, a healthcare system that works for everyone with a sane billing system and fees ordinary people can afford, and lenders who take their fiduciary responsibility seriously and don’t promise outrageous returns to stockholders or run up billions with risky schemes while chasing an impossible profit expectation.

Regulation and reform can solve part of this. But without jobs, healthcare, affordable housing and food, and a market that works for everyone, not just the rich, we will just get more of the same old wolves in fluffly new clothing.