Published on Tuesday, March 13, 2001 in the New York Times
It's Pay Back Time
Lobbying Campaign Led by Credit Card Companies and Banks Nears Bankruptcy Bill Goal
by Philip Shenon
WASHINGTON - A lobbying campaign led by credit card companies and banks that gave millions of dollars in political donations to members of Congress and contributed generously to President Bush's 2000 campaign is close to its long- sought goal of overhauling the nation's bankruptcy system.
Legislation that would make it harder for people to wipe out their debts could be passed by the Senate as early as this week. The bill has already been approved by the House, and Mr. Bush has pledged to sign it.
Sponsors of the bill acknowledge that lawyers and lobbyists for the banks and credit card companies were involved in drafting it. The bill gives those industries most of what they have wanted since they began lobbying in earnest in the late 1990's, when the number of personal bankruptcies rose to record levels.
In his final weeks in office, President Bill Clinton vetoed an identical bill, describing it as too tough on debtors. But with the election of Mr. Bush and other candidates who received their financial support, the banks and credit card industries saw an opportunity to quickly resurrect the measure.
In recent weeks, their lawyers and lobbyists have jammed Congressional hearing rooms to overflowing as the bill was redebated and reapproved. During breaks, there was a common, almost comical pattern. The pinstriped lobbyists ran into the hallway, grabbed tiny cell phones from their pockets or briefcases and reported back to their clients, almost always with the news they wanted to hear.
"Where money goes, sometimes you see results," acknowledged Representative George W. Gekas, a Pennsylvania Republican who was a sponsor of the bill in the House. But Mr. Gekas said that political contributions did not explain why most members of Congress and Mr. Bush appeared ready to overhaul the bankruptcy system.
"People are gaming this system," Mr. Gekas said, describing the bill as an effort to end abuses by people who are declaring bankruptcy to wipe out their debts even though they have the money to pay them. "We need bankruptcy reform."
Among the biggest beneficiaries of the measure would be MBNA Corporation
MBNA's employees and their families contributed about $240,000 to Mr. Bush, and the chairman of the company's bank unit, Charles M. Cawley, was a significant fund-raiser for Mr. Bush and gave a $1,000-a- plate dinner in his honor, the center said. After Mr. Bush's election, MBNA pledged $100,000 to help pay for inaugural festivities.
MBNA was obviously less enthusiastic about the candidacy of former Vice President Al Gore, Mr. Bush's Democratic rival; according to the center, only three of the company's employees gave money to the Gore campaign, and their donations totaled $1,500.
The center found that of MBNA's overall political contributions of $3.5 million in the last election, 86 percent went to Republicans, 14 percent to Democrats. The company, which did not return phone calls for comment, made large donations to the Senate campaign committees of both political parties — $310,000 to the Republicans, $200,000 to the Democrats.
MBNA's donations were part of a larger trend within the finance and credit card industries, which have widely expanded their contributions to federal candidates as they stepped up their lobbying efforts for a bankruptcy overhaul.
According to the Center for Responsive Politics, the industries' political donations more than quadrupled over the last eight years, rising from $1.9 million in 1992 to $9.2 million last year, two-thirds of it to Republicans.
Kenneth A. Posner, an analyst for Morgan Stanley Dean Witter
The bill's most important provision would bar many people from getting a fresh start from credit card bills and other forms of debt when they enter bankruptcy. Depending on their income, it would bar them from filing under Chapter 7 of the bankruptcy code, which forgives most debts.
Under the legislation, they would have to file under Chapter 13, which would require repayment, even if that meant balancing overdue credit card bills with alimony and child- support payments.
Consumer groups describe the bill as a gift to credit card companies and banks in exchange for their political largess, and they complain that the bill does nothing to stop abuses by creditors who flood the mail with solicitations for high-interest credit cards and loans, which in turn help drive many vulnerable people into bankruptcy.
"This bill is the credit card industry's wish list," said Elizabeth Warren, a Harvard law professor who is a bankruptcy specialist. "They've hired every lobbying firm in Washington. They've decided that it's time to lock the doors to the bankruptcy courthouse."
The bill's passage would be evidence of the heightened power of corporate lobbyists in Washington in the aftermath of last year's elections, which left the White House and both houses of Congress in the hands of business-friendly Republicans.
Last week, corporate lobbyists had another important victory when both the Senate and the House voted to overturn regulations imposed during the Clinton administration to protect workers from repetitive-stress injuries.
Credit card companies and banks would not be the only interests served by the bankruptcy bill. Wealthy American investors in Lloyd's of London, the insurance concern, have managed through their lobbyists to insert a provision in the bill that would block Lloyd's from collecting millions of dollars that the company says it is owed by the Americans.
Lloyd's has hired its own powerful lobbyist, Bob Dole, to help plead its case on Capitol Hill. Last week, the chief executive of Lloyd's was in Washington to plot strategy.
The issue involves liabilities incurred by Lloyd's in the 1980's and 1990's when it was forced to pay off claims on several disasters, like the Exxon Valdez oil spill. Investors in Lloyd's are expected to share both its profits and its losses, but the Americans have refused to settle the debts, claiming they were misled by Lloyd's.
As he watched consumer-protection amendments to the bankruptcy bill fail by lopsided margins last week, Senator Patrick J. Leahy of Vermont, the ranking Democrat on the Judiciary Committee and a leading critic of the bill, said that colleagues had told him privately that they were "committed to the banks and credit card companies — and they are not going to change.
"Some of them do this because they think it's the right thing to do," Mr. Leahy said.
But he said other senators were voting for the bill because they know that the banks and credit card companies "are a very good source" of political contributions. "I always assume senators are doing things for the purest of motives," he added, his voice thick with sarcasm. "But I have never had credit card companies show up at my fund-raisers, and I don't think they ever will."
Mr. Gekas said the implication that money was buying support for the bankruptcy bill was insulting, and that the bill did most consumers a favor by ending practices by some debtors that had forced up interest rates for everybody else. "Bankruptcies are costly to all of us who don't go bankrupt," Mr. Gekas said.
In the late 1990's, banks, credit card industries and others with an interest in overhauling the bankruptcy system formed a lobbying group, the National Consumer Bankruptcy Coalition, for the purpose of pushing a bankruptcy-overhaul bill through Congress.
They said they needed to act to deal with what was then a record number of personal bankruptcy filings. According to court records, the number of personal bankruptcies hit nearly 1.4 million in 1998, a record, up from 718,000 in 1990. The number fell to just under 1.3 million last year, although it is expected to rise again if the economy continues to sour.
The coalition's founders included Visa and Mastercard, as well as the American Financial Services Association, which represents the credit card industry, and the American Bankers Association.
The Center for Responsive Politics found that the coalition's members contributed more than $5 million to federal parties and candidates during the 1999-2000 election campaign, a 40 percent increase over the last presidential election.
Copyright 2001 The New York Times Company