MARCH 1998 · VOLUME 19· NUMBER 3
Call it the Anti-Child
It is the product of a full-throttled campaign by the credit card companies and financial services industry to rewrite U.S. bankruptcy laws.
Their goal: to make it harder to declare bankruptcy and to impose heavy burdens on debtors who do fall into bankruptcy.
More than one million people in the United States declare bankruptcy each year.
This is the result, in part, of the credit industry sending out 2.5 billion solicitations each year; a consumer culture that encourages extravagant purchases and constantly upgrades the measure of what is an "essential" versus a "convenience;" and stagnation or decline in real wages over the last two and a half decades for 80 percent of the population.
When a person declares bankruptcy, they are required to undertake court-supervised repayment plans. During a period of three to five years, with some money set aside for essential needs like food and rent, the debtor allocates their income to pay off their debts as best they can. At the end of the repayment period, their debts are wiped clean.
For the credit industry, personal bankruptcies mean unpaid accounts. That's why the industry wants to make it harder to declare bankruptcy and more onerous to live through it.
The industry-supported "Responsible Borrower Protection Act" (H.R. 2500) would force debtors to litigate their right to be in bankruptcy, and impose expensive new filing and other bureaucratic requirements -- just to get into bankruptcy. Once in bankruptcy, debtors would be forced to stay in repayment plans for five to seven years. The legislation would place payment obligations for credit card debt on a par with secured debt on critically important items like a home mortgage or a car loan.
It even would place credit card debt on equal footing with child support payment obligations, says Gary Klein of the National Consumer Law Center.
In other words, debtor repayment plans could not prioritize paying off mortgages -- enabling people to keep their homes -- or paying back child support over payments on overdue Visa or Mastercard accounts.
The industry spin on this draconian legislation is that it would crack down on what it calls a growing trend of "bankruptcies of convenience." The American Financial Services Association (AFSA) argues that debtors routinely file for bankruptcy to escape debts even when they have the means to make payments. Bankruptcy is becoming a "financial planning tool," according to the Association.
"The industry's message is simple," says the first point on a list of "AFSA Member Company Talking Points on Bankruptcy Reform." "All we want to do is require people who can afford to pay all or part of their debt to do so, so the rest of us don't have to pay higher prices due to their misuse or abuse of the bankruptcy system."
The AFSA's line ignores some inconvenient facts: Bankruptcy debtors have an income 40 percent below the national average, for example. And the existing bankruptcy system imposes tough oversight provision on debtors, with strong civil and criminal penalties for fraud and dismissal of claims by people who can afford to pay their debts.
But the credit industry doesn't intend for facts to get in its way. It has launched a massive PR and lobbying blitz to generate public support for the Anti-Child Support Act.
Financial interests have banded together to form the National Consumer Bankruptcy Coalition. Members of the coalition poured more than $700,000 into federal candidate campaign coffers in the first half of 1997 alone.
The AFSA has hired a Dream Team of lobbyists and consultants to push the Anti-Child Support Act. Among its mouthpieces: Verner Liipfert, a law firm-lobby shop that is the current home of Bob Dole and Lloyd Bentsen, former Treasury Secretary; Timmons & Co., which is run by William Timmons, a top White House official in the Nixon and Ford administrations; and the law firm of former Republican National Committee Chair Haley Barbour.
The AFSA's strategy is to run a steady campaign on behalf of the Anti-Child Support Act, slowly building congressional support, rather than trying to rush the radical measure through at once.
In its November/December newsletter, the association reports that this strategy, and member companies' substantial investment in big-time lobbyists, is paying off.
"With strategic guidance and hard work from a team of top-notch government affairs consultants, through the implementation of an aggressive legislative and communications strategy and working in close coordination with allies like the National Retail Federation," the newsletter informs AFSA members, "AFSA has helped put the issue on this Congress's radar screen."
More than 150 members of the House of Representatives -- most but by
no means all Republican -- had co-sponsored H.R. 2500 by early December.