WASHINGTON - Millions of Americans could be plunged into financial ruin if a bill giving credit card companies long-sought relief from unpaid loans gets final Congressional approval, a broad array of consumer protection, economic justice, and civil rights groups warned.
Did Your Senators Vote?
Roll Call 44: On Passage of the Bill (S. 256 As Amended )Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Voting 1 Clinton (D-NY)
Senators on Thursday passed the bankruptcy reform bill, which political observers said was largely crafted by the credit card industry more than eight years ago, sending it to the House of Representatives. Lawmakers there said they could vote on final passage next month.
Every year, some 1.6 million Americans file for personal bankruptcy protection--more than five times as many as in 1980. The process, which in many respects mirrors corporate bankruptcy, allows them to come up with a creditor-reviewed and court-approved plan to write off some of their debts, pay off others, and reorganize their personal finances so they can make a fresh start.
Opponents of the first revamp of the nation's personal bankruptcy laws in more than a quarter-century said the legislation would deal a ruinous blow to the overwhelming majority of those forced to declare personal bankruptcy: moderate- and low-income families, many of them black or migrant or with only one parent; and individuals of modest means hit with large divorce losses or medical expenses.
''Families are borrowing to make ends meet, and they're one missed paycheck away from collapse,'' said Tamara Draut, director of the economic opportunity program at Demos, a think tank. ''The Congress members of both parties who are embracing these punitive measures for working families are dangerously out of touch with the grim economic realities faced by ordinary families.''
Credit card issuers said they need the new law because well-off consumers took advantage of loopholes in the old rules to rack up and walk away from unpaid loans, saddling the industry with losses of $3-4 billion per year.
Credit card issuers including MBNA Corp., JPMorgan Chase & Co. and the finance units of General Motors Corp. and Ford Motor Co., in lobbying for the bill, said unpaid loans ended up costing every non-defaulting cardholder, for example through higher late payment fees, higher interest rates, and stiffer repayment conditions on car loans.
''This is a common-sense solution that's long overdue,'' said Edward L. Yingling, executive vice president of the American Bankers Association, the trade group for the credit card industry.
In Draut's view, however, the bill ''rewards a $30 billion industry for egregious behavior.'' The legislation would do nothing to rein in credit card solicitations or put caps on interest rates or late fees, over-the-limit fees and other penalties, she said, yet these were among the reasons people were forced to declare bankruptcy in the first place.
The legislation is considered likely to garner House approval and Bush's final signature because it was stripped of clauses that appeared in earlier versions and that would have applied to controversial constituencies such as anti-abortion groups. Previous bills won lopsided majorities in the Senate only to stall in the House.
The measure would make more people file under Chapter 13 of the bankruptcy code, which requires consumers to pay back most debts over five years. Currently, most debtors file under Chapter 7, which allows many to keep some protected assets while discharging some debts and walking away from most unsecured debts such as credit card bills.
At its heart is the creation of a means test to sift out those who can afford to pay back at least a portion of such debts and those who cannot. Individuals with incomes above the median for their state would have to plead their case before a bankruptcy court.
Those deemed able to repay a lump sum of $10,000 would be forced into Chapter 13. Those who could pay 25 percent of what they owe or $6,000 in monthly payments would also be barred from writing off their unsecured debts.
Credit card companies estimated that about 20 percent of all bankruptcy filers have some assets or means to pay off their debts.
The Senate rejected more than 25 Democratic amendments to soften the bill's impact on bankrupt Americans. Including one that would have helped people keep their homes when they are driven into bankruptcy by medical expenses.
They approved, 99-0, one change that exempts from the bill's means test disabled veterans who went bankrupt while in combat or on homeland security duty.
Bankruptcy reform has been a top priority of banks, credit-card companies, and retailers for the past decade. The credit card industry has given $25 million to federal candidates and the political parties since 1999 and commercial banks have given $76.2 million, according to the Center for Responsive Politics, a Washington, D.C.-based watchdog group. More than 60 percent of the donations went to Republicans.
That, according to consumer protection groups including the National Consumer Law Center and Consumer Federation of America, has resulted in a package that tilts the balance of power in individual bankruptcy heavily in favor of the financial industry, at the expense of consumer protection.
Civil rights groups also have rallied to oppose the new law, formally called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
''Disadvantaged groups in our society disproportionately find themselves in bankruptcy courts as a result of economic discrimination in its many forms,'' said the Leadership Conference on Civil Rights (LCCR) in an e-mail urging members nationwide to lobby their Representatives to reject the bill.
According to LCCR, divorced women are 300 percent more likely than single or married women to find themselves in bankruptcy court because of the combined effects of lower wages, reduced access to health insurance, and the financial strain of rearing children alone.
''The proposed bill would harm hundreds of thousands of women and children who are owed child support or alimony by forcing them to compete with credit card issuers and therefore making it less likely that support payments will be made to those in need,'' the group said.
African American and Latino home owners are 500 percent more likely than white homeowners to find themselves in bankruptcy court, it added, largely due to discrimination in home mortgage lending and housing purchases and to inequalities in hiring opportunities, wages, and health insurance coverage.
According to a recent Harvard study, around half of all personal bankruptcies are the result of illness or medical bills.
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