LEXIS-NEXIS® Congressional Universe-Document

LEXIS-NEXIS® Congressional

March 17, 1999, Wednesday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 748 words

HEADLINE: TESTIMONY March 17, 1999 JEFFREY A. TASSEY HOUSE JUDICIARY COMMERCIAL AND ADMINISTRATIVE LAW BANKRUPTCY REVISION

BODY:
STATEMENT OF THE AMERICAN FINANCIAL SERVICES ASSOCIATION BEFORE THE SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW COMMITTEE ON THE JUDICIARY UNITED STATES HOUSE OF REPRESENTATIVES MARCH 17, 1999 Mr. Chairman and Members of the Subcommittee, my name is Jeffrey A. Tassey and I am presenting this testimony on behalf of The American Financial Services Association (AFSA). AFSA appreciates this opportunity to express our views on H.R. 833, the "Bankruptcy Reform Act of 1999". AFSA is the trade association for a wide variety of non-traditional, market-funded providers of financial services to consumers and small businesses. AFSA members include major providers of secured and unsecured credit. The appropriate role for the bankruptcy code is to deal with failures that occur on all sides of the debtor-creditor relationship without unfairly harming any of the participants. Debtors that can't pay should process through the system as quickly as possible. Those that can pay a meaningful amount of the debt that they voluntarily contracted to take on should do so. Debtors should receive the relief that they need and the bankruptcy system should provide essential fairness, uniformity, certainty and predictability to all parties and to society as a whole. H.R. 833 by and large achieves these objectives and we urge the Subcommittee to move forward with the bill. Opponents of H.R. 833 claim that the industry is responsible for the problem by indiscriminately extending too much credit in the form of credit cards. Nothing is further from the truth on both a statistical and qualitative basis. First of all, if bankruptcy were simply a matter of too much credit, bankruptcy rates would be uniform across the country. In fact, they are not-- they show wild variations across the nation and within the individual states. For example, Shelby County, Tennessee has a bankruptcy rate that is 32 times the national average-- does Shelby County get 32 times the amount of credit that the rest of the country does? No, of course not. Well, then, if not too much credit, what does cause bankruptcy? The causes are very complex and frequently a number of factors are present. Some of the main causative correlations include divorce, lack of health insurance, lack of mandatory automobile insurance laws and so on. Unemployment in and of itself is not a big factor. Urban areas have the highest bankruptcy rates -- they also have the highest divorce rates. Young adults between the ages of 21 and 25 have low rates of bankruptcy filing, as do adults over the age of 41. The age group most likely to file are those in their early 30s, particularly age 32. Poor people and minorities have relatively low rates of overall filing while filings take off as you approach a total annual household income of between $32-36,000 and remain high thereafter. There is no way to really screen for most of these types of events and characteristics during the underwriting Process. Should we not lend to 32 year olds? Should we ask applicants if they are happily married? What about credit cards? Credit cards of all types account for about account for no more than 9 percent of all debt. Is this 9 percent of consumer debt causing all of the problems while the other 91 percent maintains a benign budgetary impact? This is counter-intuitive --, as all of us know, our big obligations are our housing, car, student loans, etc. Do credit cards play any role in bankruptcy? Of course, but they are in no way the principal cause. In general, the role that credit cards play is that they are the last form of credit available for use before filing for bankruptcy. When a debtor gets into financial trouble for whatever reason, they will frequently try to float themselves using their credit cards, or if a debtor is planning to file a bankruptcy of convenience, they will frequently use their cards to acquire certain goods or make certain payments prior to filing. The industry has learned to identify some of this behavior and can sometimes reduce losses, but particularly in case of planned or non-insolvent bankruptcies, this is virtually impossible. In conclusion, where a debtor has no meaningful ability to repay their debts -- regardless of the reason -- they receive protection under H.R. 833. Where a debtor has a meaningful ability to repay, then they must make an effort to do so. That is the kind of bankruptcy system Americans want and we again urge the Subcommittee to move forward.

LOAD-DATE: March 19, 1999