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The House Judiciary Committee is likely to pass bankruptcy legislation this
afternoon. As currently drafted, the bill institutes dozens of anti-consumer
practices while rewarding the credit industry's risky behavior, finds Consumers
Union, publisher of Consumer Reports magazine. While the bill does much to
protect and promote the bottomline for creditors, it puts consumers at an even
greater disadvantage when dealing with the industry.
"Nothing has been done to this bill to protect consumers," said Frank Torres,
legislative counsel for the Washington, DC, office of Consumers Union.
"Unfortunately, this bill allows the credit industry to kick people even harder
when they're down." Efforts by Congressmen Watt (D-NC), Delahunt (D-MA), Nadler
(D-NY) and others to help consumers were voted down. The President has said he
would veto the bill unless it contained consumer protections.
"Even Congressman Hyde, Chair of the Judiciary Committee, has said that this
bill is not balanced," Torres said. "It is telling that the Chairman has
prepared a list of ways the bill favors creditors over debtors." Hyde's attempts
to make the bill more balanced, including getting rid of using flawed IRS
standards in the means test and giving bankruptcy judges more discretion were
defeated during the Judiciary Committee's mark-up of the bill.
"Many hard-working American families are living month-to-month and are
struggling to make ends meet. When they are hit by illness, they have parent who
needs extra help or they get laid off from work, people need some protection
from losing everything," Torres said. "Bankruptcy experts have found that only a
small percentage of debtors have income sufficient to repay any portion of their
unsecured debts," Torres said, citing studies by the American Bankruptcy
Institute and the U.S. Trustees. "This data directly contradicts earlier
industry funded studies that alleged more people filing for bankruptcy can
pay."
A glaring flaw of the legislation drafted by Rep. George Gekas (R-PA) is that
it does nothing to prevent the industry from its aggressive marketing practices
that, in many cases, contribute to the need for a consumer to file for
bankruptcy.
Credit card companies often target those who can least afford their
high-interest rate cards and lure them in with low introductory "teaser" rates.
The industry also tries to squeeze money from responsible consumers by
penalizing those who pay off their bills on time or who stop using a credit card
while trying to pay down the balance.
"Forget about telling consumers about how much it really costs to carry a
balance because the credit industry has convinced Congress to continue keep
consumers in the dark. The credit industry doesn't want people to know how much
they pay in interest," said Torres. "Most people would be appalled at how long
it would take to pay off their balance when only making the minimum
payment."
"The credit industry wants it both ways," said Torres. "Creditors work hard
to lure consumers who can't pay their bill in full every month because these
interest-accruing loans are profitable. But, when catastrophe strikes creditors
can be inflexible, and they don't want to take responsibility for taking the
risk in the first place."
"Many consumers are fed up with the practices of the credit industry," said
Torres. Consumers Union is working to add the basic consumer protections
contained in H.R. 900, legislation introduced by Congressman LaFalce (D-NY) to
the bankruptcy bill. Those protections, which could be offered as an amendment
to the bankruptcy bill when it goes to the House floor, include:
· Clear disclosure when a short-term low-interest "teaser" rate is used to entice a consumer to sign up for the credit card.· Requiring credit card companies to give consumers information on how long it would take, and how much it would cost, to pay off a current balance by making only the minimum payments.
· Protections for consumers who pay off their balance in full every month.
· Sanctions for overly aggressive collection efforts that force people into bankruptcy, such as a creditor refusing a responsible debt management plan.
· Assurances that any profits generated by tightening the bankruptcy law are passed on to consumers.
· Protections for minors who are targeted by the credit industry.
Meanwhile the Senate Judiciary Committee passed the Senate bankruptcy bill
S.625. Little was done to fix the major shortcomings of the proposed bill in
committee. "The real work on this bill will likely take place on the Senate
floor," said Torres. "It is evident from what occurred in committee that the
bill needs to be amended to make it more balanced."
NOTE: To receive the two page letter sent to the full House, please dial our fax back on 202/238-9258 and request document # 3509.