Jewish World Review March 17, 2005 / 6 Adar II 5765
Debra J. Saunders
Don't bank on it
If the Senate were an honest legislative body, it would have
named the Bankruptcy Abuse Prevention and Consumer Protection Act, which
passed by a 74-to-25 vote last week, more succinctly. It should have called
it: Stop the Banks Before they Make More Bad Loans.
"This bill boils down to one point: If you can pay your
bills you should. If you can't pay your bills you are entitled to a
fresh start," the bill's author, Republican Sen. Charles Grassley of Iowa,
boasted in a statement. His bill now heads to the House, where it likely
will pass and then be signed into law by President Bush.
Let me be clear. I am in favor of making deadbeats pay their
bills. But I oppose the federal government tightening the nation's
bankruptcy laws to bail out banks that essentially toss money at people who
can't afford to pay it back.
The Grassley measure would do just that, by making it harder for
people to file for bankruptcy under Chapter 7, which wipes out most of their
financial obligations. Instead, the bill would require debtors earning more
than their state's median income ($67,814 in California) who can afford to
pay back $100 per month, to file for a Chapter 13 bankruptcy reorganization,
which requires some repayment.
Last year, nearly 1.6 million Americans filed for bankruptcy.
Their median income, according to Jeffrey W. Morris, a resident scholar at
the American Bankruptcy Institute, was in the neighborhood of $30,000.
It is true that some debtors scam the bankruptcy system. The
American Bankruptcy Institute estimates that some 3.6 percent of those who
file under Chapter 7 could actually repay some of the debt under Chapter 13.
Banks put that figure as high as 10 percent. I have to question whether it
makes sense to overhaul bankruptcy law for that small percentage, especially
when there is no law stopping banks from lending more responsibly.
Senate Majority Leader Bill Frist hailed the measure as a
victory for "personal responsibility." Bunk.
Bankruptcy is no free pass, whichever chapter it falls under.
"Your credit is destroyed for 10 years," explained Travis Plunkett,
legislative director for the Consumer Federation of America. "That means
that it's not just harder to get a loan, it's harder to get insurance, a
cell phone, employment, an apartment, everything." What debtors don't pay in
dollars owed, they instead pay in lost opportunities.
And who are the banks to be talking about personal
responsibility when they're making bad loans? Why should the government bail
out banks that issue credit cards with high limits to college students? Why
make the law tighter to protect companies that lend money to people in tight
circumstance and then charge exorbitant fees if they're late on their
Sen. Dianne Feinstein, to her credit, voted against the bill in
part because this Senate rejected an amendment that would have capped
interest rates at 30 percent. So the Senate is ready to get tough with poor
families who have borrowed too much, but not with the predatory lenders who
squeeze them with usurious interest rates.
I am ashamed to note that every Republican senator in Washington
voted for this special-interest bonanza. These so-called conservatives
should believe in the market and chastise irresponsible lenders.
In addition, 18 Democratic and one independent senator voted
yes. "Many Democrats and Republicans saw this as what is seen in Washington
as a free vote," Plunkett noted. That is, important interests wanted a "yes"
vote, and there was little opposition. "There's no lobby for future
debtors," Plunkett added.
As it turns out, the negative media attention has turned up the
heat. Yet Plunkett sees a "very, very slim chance" of defeating the bill.
Consider defeating this measure as a matter of personal
The bankruptcy bill requires that those filing for bankruptcy
undergo credit counseling. To be fair, Washington also should require the
lenders to undergo financial counseling. Otherwise, no bill.
In fact, I think that Washington should pass a law to make it
easier to file for bankruptcy.
If the Senate can pull the "personal responsibility" card on families whom they say are buying big-screen televisions on small-screen incomes, surely they can also target companies that lend money to people who can't possibly pay it back. If these lenders can't lend responsibly, they shouldn't expect the government to bail them out. What they need is tough love.
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