Debra J. Saunders

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Don't bank on it

http://www.NewsAndOpinion.com | 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 payments?

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 responsibility.

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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