Open Fire On U.S. Consumers
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U.S. consumers and freed Italian hostage Giuliana Sgrena found themselves in the same position this week: under fire from those put in place to protect them.
For Sgrena, the bloody barrage came from jittery U.S. soldiers. For consumers, it was jaded U.S. senators who pulled the trigger, about to pass a bankruptcy bill so hostile to ordinary American families that it could only have come about in a place as corrupt, cynical and unmoored from reality as Washington, D.C.
In a normal world, those elected to represent the interests of the people would have fought for bankruptcy legislation that would, well, represent the interests of the people. But not in Beltway Bizarroland. Instead of cracking down on predatory lending practices, closing loopholes that favor the wealthy, and strengthening the safety net for working people, single mothers and elderly Americans struggling to recover from a financial setback, the Senate put together a nasty little bill that reads like a credit industry wish list. Rubbing salt in the wound, Sen. Charles Grassley, the bill's chief sponsor, labeled it the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 – even though it does nothing to prevent bankruptcy abuse or protect consumers.
So what does the bill do? It makes it harder for average people to file for bankruptcy protection; it makes it easier for landlords to evict a bankrupt tenant; it endangers child support payments by giving a wider array of creditors a shot at post-bankruptcy income; it allows millionaires to shield an unlimited amount of value in homes and asset protection trusts; it makes it more difficult for small businesses to reorganize, while opening new loopholes for the Enrons of the world; it allows creditors to provide misleading information; and it does nothing to reign in lending abuses that frequently turn manageable debt into unmanageable crises. Even in failure, ordinary Americans do not get a level playing field.
Credit card companies have been feverishly lobbying for this legislation for nearly a decade – and it looks like the $34 million the finance and credit industries have contributed to political campaigns since 1996 is finally about to pay off. On Tuesday, the cloture vote on the bill was 69 to 31. The House passed similar legislation last year and GOP leaders are hoping to bypass the conference committee deadlocks that have derailed similar measures in the past and have the bill on President Bush's desk in short order. The president, well aware that credit card giant MBNA is one of the Republican Party's largest donors, has promised to sign the bill as soon as someone hands him a pen.
Make no mistake, the inequitable nature of the bill – bending over backwards to help the credit card industry while sticking it to American working people who fall on hard times – is no accident. Time and again over the last week, the Senate shot down amendments that would have made the bill a bit less mean-spirited. They denied proposals that would have made it easier for military veterans, the sick and the elderly to qualify for bankruptcy protection. They even rejected an amendment that would have put a 30 percent ceiling on the interest rates credit card companies can charge. Thirty percent – that's more than Paulie Walnuts charges. But 74 U.S. senators – including John Kerry, Harry Reid, Barack Obama and Dick Durbin – clearly thought that wasn't high enough. Quick, somebody send those guys a Bible bookmarked to Deuteronomy 23:19: "Thou shalt not lend upon usury to thy brother."
For years, credit-card companies have been claiming that tougher laws are needed to reign in high-flying customers using bankruptcy to game the system. But the truth is that the vast majority of people who file for bankruptcy are middle-class folks who can't pay their bills because they've lost their jobs or been hit with high medical bills or gone through a divorce.
Indeed, a recent study by Harvard University found that half of last year's 1.6 million bankruptcies were the result of crushing medical bills. Put another way: Every 30 seconds, someone in this country files for bankruptcy in the wake of a serious illness. How's that for a shocking stat? Here's another: Three-quarters of the so-called medically bankrupt had health insurance. It just wasn't enough to cover the dramatic rise in health-care costs.
But instead of adapting to this harsh new reality, where hardworking, college-educated, middle-class folks can be financially destroyed by a sudden illness, the Senate is about to approve a one-size-fits-all law that treats a family man who has sunk into debt because of a heart attack the same as a con artist who maxes out his MasterCard, then refuses to pay up.
Worst of all, the bill does absolutely nothing to protect consumers from the aggressive tactics credit-card companies have devised in recent years – tactics that have proven hugely profitable. Along with sending out over 5 billion solicitations a year, they are constantly developing new ways to stick it to the people they've already lured into the tent. For instance, companies now routinely jack up a cardholder's interest rate when their payment is late – and, presto, a "fixed" 7 percent APR is suddenly transformed into a cash-gobbling 30 percent loan.
There has also been an explosion in the fees that credit card companies charge: late fees, balance transfer fees, cash-advance fees, over-the-limit fees. Such fees bring in billions and are partly responsible for the fact that, even as personal bankruptcies in America have steadily increased, so have the profits of credit card companies – which reached a whopping $30 billion last year.
So tell me again: Just who is gaming the system?
It's one thing for credit card companies to exact their pound of flesh even as their profits soar. But shouldn't we hold our elected officials to a higher standard? The bankruptcy bill is morally bankrupt. And so is any senator who votes for it.