Congress Is on Wrong Track on Bankruptcy

Banks and other lending institutions spend $40 million a year buying Congress. A bankruptcy bill that has passed the House and is expected to sail through the Senate proves the money-changers get what they pay for.

Once again, they’ve defiled the temple. The new law for the first time would give the usurious lenders of credit cards an equal claim to the remaining funds of those declaring personal bankruptcy, jostling with women seeking alimony and child care. The creditors want it both ways. They justify loan-shark type interest rates that now quickly rise to more than 20% by claiming that unsecured credit card debt is so risky. But rather than bear the consequence of that risk, they want the government to act as the enforcer of last resort exacting payment.

The booming and highly profitable credit card industry sends out 3.5 billion solicitations a year, selling consumers on the ease of obtaining unsecured debt. A blizzard of such proposals offering low teaser rates on pre-approved credit lines arrives at the addresses of the under-aged, underfinanced and sometimes the deceased. No wonder so many unqualified borrowers go broke, accounting for most of the astounding 1.4 million personal bankruptcies last year, representing $40 billion of debt. On average, those in bankruptcy earn less than $18,000 a year after taxes; they are simply working people who got in over their heads.

Some losses to poor credit risks should be the expected cost of doing business this way. The banks knew the statistics on those risks when they made loans to people without the means to repay. And it’s a highly profitable business, even with deadbeats, which is why so many solicitations continue to arrive in the mail. Yet now, in an excess of greed, they want the government to fatten their already-huge profit margins by allowing them to cut into the line in bankruptcy court.

The new legislation would allow bankers to drag families deeper into debt, then compete with widows, divorcees and children for the remaining assets or wages of a bankrupt spouse. This is a family values issue--mounting debt can tear a family apart--and, admirably, Hillary Rodham Clinton has been leading the fight against this shameful display of corporate avarice. It was her outspoken opposition to this bill last year--and the threat of her husband’s veto--that doomed what she called “legislation that could fail to protect the poor, elderly and unwary from unscrupulous credit practices.” But this year, the banks are back, and their 313-108 bipartisan House victory is large enough to overcome a presidential veto.

There’s nothing in the legislation that forces banks to act more responsibly in making loans. Even House Judiciary Chairman Henry J. Hyde (R-Ill.), who voted for the bill, pointed out it “contains 75 enhancements here for the creditors” and nothing for the consumer, attesting to what he termed the power of the “awesome creditor lobby.” There’s no restraint on the schemes of banks and other lenders to cajole, seduce and otherwise entrap the young and gullible into sinking deeper into debt. Nor are there limits on the skyrocketing increases that follow low introductory teaser rates; some rates have climbed to 25%. This same Congress that wants states to post the Ten Commandments in government buildings and schools allows banks to practice the act of usury that is condemned in the sacred Scripture of the world’s major religions--Christian, Jewish and Muslim.

The legislation, representing the most sweeping change in bankruptcy law in a century, would continue to protect businessmen who incur debts while going after the hapless consumer. In an example provided by bankruptcy expert Douglas Baird, a businessman with $200,000 in business debt would get to write it off as well as keep his $500,000 homesteaded house from the hands of creditors. But if a working widow renter, saddled with her late husband’s credit card and medical debts, declares bankruptcy, her life savings or her garnished wages would go to creditor banks. She wouldn’t get the fresh start that bankruptcy law intended.

As Baird summarized the legislation: “A new bankruptcy law that provides a fresh start to our businessman but denies it to our widow is indecent.”

The National Conference of Bankruptcy Judges and many consumer groups oppose this bill, which will be debated by the Senate July 12. But it will pass unless consumers flood their senators with e-mail (https://www.senate.gov/contacting), letters and calls complaining about this perversion of the fairness of bankruptcy law.