Change in Bankruptcy Law

Part 2 of NEW FEDERAL BANKRUPTCY LAW AND REFORM: DID CONGRESS MEAN TO SHUT DOWN BANKRUPTCY?

THE BACKGROUND:

In the 2000 elections, the voters gave the nation a Republican Congress in both houses plus a Republican president known for favoring the new bankruptcy bill put forward by Big Consumer Finance. The President said the change in bankruptcy law would make credit available to the working poor. It seems that they had not had enough credit at a 26 percent interest rate (42 percent if one counts the initial membership and other fees). The professional bankruptcy establishment braced for passage of what was considered an anti-bankruptcy (and anti-consumer) bill that in its final version seemed as one-sided toward the big- moneyed banks and against the consumer as any legislation in memory had dared. The banks had paid dearly for their anti-bankruptcy campaign embodied in this bill by making massive contributions to GOP political war chests. Says Professor Elizabeth Warren of Harvard, “...it's credit card companies who make big political contributions; it's credit card companies who have been the number one givers in Washington. Not big oil, not big pharmaceutical -- big consumer financial services.” A huge amount had also found its way into the hands of strategically placed Democratic senators. This may

explain why the usual staunch opponents of this bill were not to be heard from at the final vote when the BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) passed. Despite the democratic failure to make a last stand, this project was, however, by far clearly a republican effort as the money piled up and champagne began to flow.

The necessity for all of this effort and change in bankruptcy law remains vague, since the banks had delivered unprecedented and consistently greater profits from their credit card business each year for the past 20 years. There was no crisis caused by bankruptcy discharges gone wild or threat of other banking crises. The smaller card companies made millions of “pre-approved” offers for card accounts in the sub-prime market. It is estimated that banks will mail over 8 Billion credit card offers to consumers this year. Profits remained so high that despite the

appearance of being predatory lenders and imposing previously usurious rates of 30% or more and a fee or penalty at every turn the card companies continued to throw accounts at millions of consumers. They kept the account limits so small that the profits remained exceedingly high despite a three-fold increase in the default rate. Every year more of the stalwart and staid conventional banks followed the bucks into sub-prime territory. Clearly the banks had learned to live with the existing bankruptcy system, treat the discharges as simply a normal cost of business, and still reap phenomenal profits. The situation was clearly not a fight for survival for them, though they all certainly were acting as if it were. It seems that it was all a matter of principle.

Continue on to part 3 of new federal bankruptcy law and reform.

If you missed it, go to part 1 of new federal bankruptcy law and reform.

Bills.com Site Map > Debt Help Index Pages > Debt Help Articles