How America became "The Land of the Fee"

Consumers may still harbor the goal of achieving the American dream, but that road is increasingly lined with fees -- for everything from taking out a student loan to opening a banking account. 

How America transformed into a country where consumers' annual spending on loans and fees is as much as the government budgets of Canada and Mexico combined is examined in "Land of the Fee: Hidden Costs and the Decline of the American Middle Class," by Devin Fergus, professor of history, black studies and public affairs at the University of Missouri. 

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Oxford University Press

The book, due out on July 16 from Oxford University Press, comes as lawmakers push for greater financial deregulation and President Donald Trump boasts that his administration has eliminated 22 rules for every new regulation introduced.

"Land of the Fee" investigates how today's fee-heavy economy owes its existence to a deregulatory push that began in the 1970s -- with lawmakers on both sides of the aisle giving green lights to legislation that paved the way for payday lenders, risky mortgages and costly student loan products. 

As Fergus writes, "Fees are no longer merely an annoyance" but "contribute to the systematic transfer of wealth" from the middle class to wealthy corporations and executives. 

In an interview with CBS MoneyWatch, Fergus talked about the impact of these fees and how their growth is changing America's middle class. The interview has been edited for length and clarity.  

Q. You write that middle-class Americans pay more than $1.46 trillion each year for financial products (including principal, interest and fees) such as student loans and auto insurance. How does that affect the typical American household?

It creates barriers of entry into the middle class. The student loan industry is a classic example. It discourages and creates a disincentive to go to college, to stay in college. And for those who do take on the student loans, it increases one's debt-to-income ratio, which makes it more difficult to go out and purchase a home. 

It creates barriers of entry and disincentives in an exact opposite way policy is supposed to work. Policies are designed to create positive incentives, not negative ones. Policies are designed to help build and broaden the middle class and not drain it. 

Q. Do these fees play a role in inequalities, such as between genders, races and income groups?

The point of the book is not that these things originate inequality, but that they exacerbate them. 

In terms of gender, it's almost across the board, whether it's mortgage lending, student loans, auto insurance. Women are more likely to be targeted in these particular spheres and categories, and so they are more likely to pay more. 

Auto insurance is another good example. Auto insurers will argue they take gender into account, so they say women pay less when you look at it on an individual basis, but what they don't consider is the feminization of poverty. The poorer your zip code is, the more likely you are to pay for auto insurance. And who is more likely to live in these poorer zip codes? Women. And so women end up paying more. 

For student loans as well, women earn less money than men [after college]. So quite often, they have a higher debt-to-income ratio, and that impacts black women in particular. That's the only demographic profile that owes more than it earns in the first year out of college. 

Q. You write about a number of financial products like payday loans and subprime mortgages, but some might consider these loans to be the type of products that ill-informed consumers take out. How much burden should be on the individual? 

What we've seen in the last two to three generations is the individual now has less time to read more complicated materials. The average individual today as opposed to two generations ago is commuting farther. They are working longer hours than in the 1970s and 1960s. If you're a parent, you're in the middle of an educational arms race that college is more competitive than at any other time. 

Contracts have gotten exponentially longer than they were a generation or so ago. So here we are with more complicated contracts, more complicated legalese, while the American consumer has less and less time to deal with and read these materials.

It is unfair, but more importantly than unfair, it's unrealistic. 

Q. One of the many fascinating aspects of your book is how the genesis of bipartisan deregulation from the 1970s and onward has led us to this point. I'm curious what you think readers should take away from this history of deregulation. 

The major takeaway I would say is the rise and influence of things like the financial lobby. Conflicts of interest have basically increased costs. 

Elected officials are far more likely to be responsive to a donor or lobbyist than an actual constituent. And that overlay is even more significant if that constituent is a woman or has an ethnic-sounding last name. 

The major takeaway is how do you in part rein in the rise of the financial lobby? That would be the biggest step into stopping this rampant extraction of wealth. 

The Consumer Financial Protection Bureau was an excellent start. To say it's in a holding pattern would give it a very sympathetic read. Things like the CFPB are vitally important, and if that's not possible at the national level, then look at the state level. 

Q. You write about how the 1980s brought about a change of rhetoric that framed student borrowers as "leeches" rather than as future taxpayers. Does that framing affect student borrowers today? 

The ability to perceive students as an extension of those who are on the dole enables a kind of distancing of these students as future taxpaying citizens and contributors. One thing I really want to stress is the early years of student loans were a bipartisan effort. Eisenhower was heavily invested in it, in part because he saw it as a form of future investment. 

This demonization of students as leeches means you don't really care about the outcome for this population. It makes it much easier to have harsher and dismissive policies when you view other Americans and consumers unlike yourself. This was an unintended consequence. 

I suspect when the Reagan administration and [former Secretary of Education] William Bennett in particular were adopting the language of "leeches," they did not necessarily ever imagine that the borrower at the undergraduate level would be middle-class white students. That's also a cautionary tale about being able to view yourself possibly in another's position. 

Q. You also focus on the cuts in higher education investment starting in the 1980s, which you and other researchers have tied to the jump in college costs and student debt. How have those cuts hit the typical household? 

Fear of debt is often considered to be the No. 1 deterrent for students deciding to go to college. 

The argument that's put forth about student debt -- that you take out student loans, and you will make a lot more than someone who doesn't go to college -- is a false argument. Because your peer is no longer that person you left behind in high school, the person who didn't get into college. It's the [college student] who doesn't need to take out a loan. They can do an internship, or an unpaid internship. They have resources and wealth that allows them to build a resume. 

Taking on that debt means you're probably working part-time or even full-time and can't take on the resume-building activities that you see other students taking on. I see it at as professor, the way the students with resources have major advantages with navigating college, matriculating and also managing the job market. 

Out of college, [student loans] result in an increased debt-to-income ratio. And the more money you take out, the lower your credit score goes, and the higher your interest rates will be. What's often missed is the hangover effect of a student loan. They'll say it's a 10-year loan, but it stays with the borrower for a generation, for over 20 years. It has a cascading effect throughout your career. 

Here's a population that's trying to improve their lot in life, not taking out an installment loan to buy furniture, but trying to get a post-secondary education and getting saddled with all kinds of debt.