CONSUMER RIGHTS - Charge the Senate

This week the credit card industry – which raked in $30 billion in profits last year – storms the Congress in an attempt to squeeze a few more dimes from Americans who are sick or out of work. Starting today the Senate will consider a bill (S. 256) that would amend bankruptcy law to "make it harder for families struck by financial misfortune to get back on track." (Nine out of 10 bankruptcies "are triggered by the loss of a job, high medical bills or divorce.) The bill is supported in Congress by a bipartisan coalition on the credit industry dole. They think they can pass the bill without the American people noticing. Prove them wrong. Write your senators and tell them to reject the legislation in its current form.

MORE UNNECESSARY BUREAUCRACY: The bankruptcy bill is an attempt to prevent people from filing Chapter 7 bankruptcy – which gives people a clean slate – and make them file under Chapter 13, which requires continued payments to the credit card companies. In order to qualify for Chapter 7, Americans would be forced to complete a costly and bureaucratic means test. This additional red tape is almost completely unnecessary. According to a study commissioned by the nonpartisan American Bankruptcy Institute, 96.4 percent of people who file Chapter 7 can't afford to pay anything more. The real intent of the legislation is not to prevent people from abusing the system but to make it so burdensome to become eligible for Chapter 7 that people who would qualify can't afford it.

LIKE TAKING MONEY FROM A BABY: There is seemingly no limit to the depths to which the credit industry will go to seek an extra buck. The bill they are trying to push through Congress threatens the welfare of children by endangering child support. If a custodial parent is owed child support from someone declaring bankruptcy, the parent will be forced to fight with other creditors (like auto lenders) for the debtor's limited income – even after the bankruptcy is completed.

GIVING MILLIONAIRES A PASS: The bill on the Senate floor right now doesn't stop some of the worst abuses of our bankruptcy system. In several states – including the president's home in Texas – a multimillionaire can declare bankruptcy, avoid his debts, and still keep his palatial estate. We've seen it happen time and again: for example, "Marvin Warner, a former ambassador to Switzerland and the owner of a failed Ohio Savings & Loan, who paid off only a fraction of $300 million in bankruptcy claims while keeping his multi-million-dollar horse ranch near Ocala, Florida." Another example: "Dallas developer, Talmadge Wayne Tinsley, who filed under chapter 7 after incurring $60 million in debts. Tinsley objected to the Texas law that permitted him to keep only one acre of his $3.5 million, 3.1-acre magnolia-lined estate. But that acre included a five-bedroom, six-and-a-half-bath mansion with two studies, a pool and a guest house." The 2001 bankruptcy bill at least stopped these abuses by capping the so-called "homestead exemption" at $125,000. This bill has a complicated exemption that will allow "wealthy debtors who are sophisticated enough to plan ahead – and those are, after all, the people we are talking about – can purchase a homestead to shelter their non-exempt assets and simply wait [49 months] before filing their petition." (Share your thoughts about the bankruptcy bill on ThinkProgress.org)

THE WRONG BILL AT THE WRONG TIME: The bill, which would make it harder for people to recover from financial problems, comes at exactly the wrong time. More Americans families are struggling because median income is stagnant, health care costs are skyrocketing, college tuition has exploded and child care costs are up. Once families are hit with big medical bills or family members lose their jobs, bankruptcy is often their only option. (For more on this issue, see this American Progress report.)

UNCHECKED ABUSE BY CREDIT CARD INDUSTRY: The surge in bankruptcies has been brought on, in no small part, by the credit industry's own predatory lending practices. In 2001, credit card companies sent 5 billion solicitations for credit to American homes. Between 1993 and 2000, the industry increased credit extended to the public from $777 billion to almost $3 trillion. Once the consumer accepts, the companies are allowed to change their interest rates at any time for any reason. Many follow a practice of "universal default" which means any drop in your credit score – which can be triggered by missing a single payment on your electric bill – can lead to a significant rate increase.
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http://www.americanprogressaction.org/s ... H&b=100480

If 9 out of 10 bankruptcies are caused by those 3 factors, what does Visa have to do with any of this?

Of COURSE the lenders want their money. Why is it so ridiculous that they would press for harder legislation in order to assure they recieve the money they so eagerly gave?
I have absolutely zero sympathy for anyone in credit card debt. I personally owe almost $8,000 right now and I have no one to blame but myself. A good percentage of that amount (at least 25%) is nothing but interest and fees. Why? Because I was irresponsible. Just like everyone else who runs up their CC bills.

What you fail to understand here is that the CC companies are large corporations, which makes them evil.

this is insane. oh my god, people spend beyond their means, then find a way to not have to pay it back, and when said company wants to ensure theyll get their money back, they all of a sudden are evil?

give me a break, if people didnt use credit cards to buy things they dont need, this wouldnt even be close to an issue. and yes i know, many people do use a credit card responsibly, but this doesnt concern them.

i know several people who have filed bankruptcy for the sole purpose of avoiding having to pay a $5-6K credit card bill.

put yourself in the CC position, if you had several friends who borrowed a few thousand dollars off of you, and then told you, yanno, my work laid me off, so youll never see this money again, youd be fucking pissed off too.

As someone who has never been in credit card debt and always pay off my entire card monthly to avoid paying interest (I reallly only by gas with it) I don't sympathize w/ people in debt. However, there are some shady business practies w/ credit card companies that need to kept in check a little bit.

Frontline did a good piece on it recently. Check it out here:

http://www.pbs.org/wgbh/pages/frontline/shows/credit/

And get rid of your Saudi owned citibank card.

Exactly the wrong time??? Money is as cheap as its going to ever get. What do these people think its going to be like in 6 months when the Feds raise rates again, 1 year from now, 5 years. Who wrote this???

I'd like to begin by saying that in general, I support this reform. 95% of bankruptcies are for legitimate reasons, and this legislation is quite nicely tailored from what I can tell, to target that other 5% without having much impact at all on the people who really need Chapter 7. Another nice thing about this bill is that they reprioritized a few debts making outstanding child support and alimony a high priority and more likely to be paid now, even in Chapter 7.


Well, this is the problem actually, it DOES concern them. Credit card debt is through the roof, and this is as much the fault of the credit card industry as of the consumers. CC companies send an average of 50 solicitations to every household in America every year, with little regard to the relative reponsibility of the individual consumer whom they are soliciting. So you get very irresponsible people running up thousands of dollars of debt for whatever reasons, and then they find themselves unable to pay and file for a bk (these people I just described are in the 5% of bad bk's). The CC companies take a big loss, and then they pass that loss on to the other consumers in the form of higher rates and fees and penalties.

The problem is that it is the responsible people who end up paying for the bk's of teh irresponsible people through the higher rates and fees. This is one reason that I favor some bk reform. HOWEVER, if the creditors are going to get their reform passed, I would like to see a provision in the bill guaranteeing that they will pass on their savings to the responsible consumers in the form of lower rates and fees in the same way we paid higher rates and fees associated with their losses.

That's all. Not a lot to ask IMO.

--PunkDavid

Damn right the CC companies take a big loss. I've invested in a friend's company who buys debt from CC companies for 6 cents on the dollar. That's f---in' cheap.

Can you explain this a little more?

--PunkDavid

Sure. CC companies often sell their clients accounts to outside agencies after 1 or 2 months of trying to recoup their debt. If the CC company feels its not easy money to get out of the debtor, they sell the debt at a reduced price trying to get something out of the account. Investors buy the debt from banks/cc companies at around 6 cents on the dollar. Investors hope to get around 20 cents to the dollar out of the debtor. They does this through the usual means you are familiar with (settlement, court, etc.). Different states have different laws so there are certain states you don't want debt accounts from. After all lawyer fees and collection agency fees are paid, investors hope to get something like 12 to 14 cents to the dollar.

Ahh. Collection and adjustment agencies. I'm familiar with them. I had no idea that they bought the debt THAT cheap though. I figured they were paying more like 25-30% of value hoping to recoup 50%.

--PunkDavid

I'm not quite sure I follow this.

I've always paid my CC on time, and never charged for more than I could pay for. As a result, I haven't paid them anything extra. So even if the rates do go up to offset for losses, I should still be able to avoid those raises. I'm not seeing how this would impact me or anyone else who does what I do.

Penalties do not affect people who are PERFECT in their payments. But very few people, even the responsible people who make their payments and intend to pay back everything they borrow, are perfect. For example, let's say you have a nicce low rate of 7% on your card. You have one late payment (not even a missed payment) and some cards will automatically bump you up to 21% right there, and it is damned near impossible to ever get your initial rate back. These high rates and penalties are supposedly to recoup losses incurred by those who never pay back the companies, but ofcourse, they are in fact paid by those who do pay back the companes (if not on a perfect payment basis).

BTW GH, credit card companies HATE people like you. They make no money off you, and yet they have to give you good marks for your credit score.

--PunkDavid

Fair enough, and no one is perfect. However, being near perfect isn't that tough, and in the long run, I don't see this being a devastating thing.



Oh, I know that.

If more people were smarter and didn't get themselves into debt, then they'd HAVE to charge the good people something to make money. But then we wouldn't have the problems that started this whole thread in the first place.

I just got this in a piece of spam:

"Near perfect" will get nothing with these guys except a 21.99% interest rate. That is bullshit. I heard some excerpts from the hearings yesterday, and Joe Biden was questioning a lady, a Harvard Professor I beleive, about this stuff, and she was going on and on about the unfair lending practices of the credit card companies. Now Biden supports the legislation (he represents Delaware after all), and he was like, "But what does that have to do with bankruptcy laws? It sounds like what you have a problem with is usury laws, not the bankruptcy law," and she agreed.

So do I. I have little problem with the bankruptcy reform, I'd just like to see some usury law reform tied to this legislation which will benefit an industry that is already making money hand over fist.

--PunkDavid

This is a huge problem, and doesn't even go so far as to address the other type of fraud perpetuated by large credit card companies -- applied fees and raises in interest rates. First, with applied fees, what a lot of credit card companies are doing is not immediately applying payments received by mail to the accounts. This results in $30-$50 late fees tacked on to each month's bill. Critics have estimated that companies stand to gain almost $200-$300 million in such instances.

This leads to another problem -- the companies arbitrarily raising interest rates after a certain amount of late charges. People find that they have no choice but to pay the higher rates because they have so much debt they can't possibly pay it off. They can't obtain alternative financing to pay it off because their credit scores are ruined by the late fees. It's an endless cycle.

These fees/rate hikes aren't in the terms the cardholder didn't read before they signed and mailed back?

I remember when banks were doing something similar in the 90's. If you had multiple transactions in one day, they'd do all the withdrawls first, regardless of the order you actually made the transactions. This would make people more likely to overdraw and catch a fine.

It was on TV Nation. The Chicken put a stop to it.