Several days ago, we linked to a post on the Center for American Progress blog that raised an important question for the 18 senators that voted for a 1991 amendment offered by former Senator Alfonse D'Amato (R-NY) to limit the interest rate credit companies can charge to 14 percent only to vote against an amendment offered by Senator Mark Dayton (D-MN) to the current bankruptcy bill that would have limited that rate to 30 percent.

Thinkprogress asked:

Why would 18 Senators, including co-sponsors of the original measure, vote for a tougher pro-consumer measure in 1991, and then vote against a weaker measure in 2005? Could it be that the more than $2 million these Senators took from the credit card/banking industry in the interim made them change their mind?

We offer the following list of those senators in case our readers wish to get an answer for themselves:

Sen. Max Baucus (D-MT)
1991-1996 contributions from commercial banks: $88,900
1997-2002 contributions from commercial banks: $170,777

Sen. Joe Biden (D-DE)
1991-1996 contributions from commercial banks: $73,575
1997-2002 contributions from commercial banks: $33,675

Sen. Thad Cochran (R-MO)
1991-1996 Commercial Banks: $24,750
1997-2002 Commercial Banks: $40,100

Sen. Pete Domenici (R-NM)
Spoke in favor of D'Amato Amendment during floor debate
1991-1996 Commercial Banks: $89,120
1997-2002 Commercial Banks: $66,290

Sen. Chuck Grassley (R-IA)
1997-2002 Commercial Banks: $123,300

Sen. John Kerry (D-MA)
1997-2002 Commercial Banks: $183,102

Sen. Trent Lott (R-MS)
1991-1996 Commercial Banks: $70,575
1997-2002 Commercial Banks: $80,800

Sen. John McCain (R-AZ)
1997-2002 Commercial Banks: $235,228

Sen. Paul Sarbanes (D-MD)
1991-1996 Commercial Banks: $84,800
1997-2002 Commercial Banks: $55,800

Sen. Richard Shelby (R-AL)
1991-1996 Commercial Banks: $246,533
1997-2002 Commercial Banks: $215,600

Sen. Arlen Specter(R-PA)
Co-sponsored the 1991 D'Amato amendment
1997-2002 Commercial Banks: $105,225

Sen. John Warner (R-VA)
1997-2002 Commercial Banks: $43,800

Other Senators who voted for the D'Amato amendment, but against the Dayton bill (data on contributions from commercial banks unavailable):

Sen. Ted Stevens (R-AK)
Co-sponsored the 1991 D'Amato amendment

Sen. Conrad Burns (R-MT)

Sen. Herb Kohl(D-WI)

Sen. Pat Leahy(D-VT)

Sen. Harry Reid (D-NV)

Sen. Larry Craig (R-ID)

Hundreds of bankruptcy experts, including bankruptcy judges from across the country, are warning that the House bill is severely flawed and may have disastrous unintended consequences.

The bottom line: "The nation's bankruptcy laws must strike a balance that is both fundamentally fair and practically sound for all parties involved...Unfortunately, the [Bankruptcy Abuse Prevention and Consumer Protection] Act is neither and, worse still, the act fails to fulfill its oft-stated purpose of eliminating abuse."

From the front page of The L.A. Times:

[W]eeks before Congress is likely to approve the long-sought overhaul [of bankruptcy laws], bankruptcy judges across the country warn that the measure would undermine the very section of the law under which debtors are now repaying more than $3 billion annually to their creditors.

...

The result, the judges said, would be the collapse of more repayment plans, forcing debtors out of bankruptcy court protection. Creditors then could try to force debtors to pay the full amount owed — not the reduced amount a judge had ordered — by moving to repossess their belongings or bringing legal actions. Many people would have to pay creditors far into the future, the critics said, and thus be unable to restart their economic lives, a long-held aim of bankruptcy.

Here's how bankruptcy judge Keith Lundin of Tennessee sums it up:

"The advocates [of the bankruptcy bill] aren't trying to fix the bankruptcy law; they're trying to mess it up so much that nobody can use it."

The credit card industry responded to the story with its usual tact and aplomb:

"[Bankruptcy judges] are part of the … problem," declared Jeff Tassey, a Washington lobbyist who heads the coalition of credit card companies, banks and others that has spearheaded the overhaul drive.

"They're not real judges, not Article 3 judges," Tassey said. He was referring to Article 3 of the U.S. Constitution, under which judges in the regular federal court system are appointed for life. Bankruptcy judges are appointed under Article 1 to 14-year renewable terms.

This post on the Center for American Progress's blog poses a question. Feel free to ask your Senators.

PLAUSIBLE DENIABILITY

As usual, the credit card companies want it both ways.

Like their supporters in Congress, credit card companies like to point out that consumers are not forced to sign up for credit cards—they sign contracts of their own free will. It is only fair, goes this argument, to hold consumers to the deals they make by forcing them to repay their debts.

This “free contract” argument is seductive and dishonest. Why? Because while credit card companies insist that consumers “meet their obligations,” they steadfastly refuse to tell us just what those obligations are.

Exhibit A: disclosure of information. For years, consumer groups and bankruptcy experts have asked credit card companies to help consumers understand what they’re getting into. For example, advocates have suggested adding a line on statements which reads “If you make the minimum monthly payment on your balance, you will take X years and X months to pay off this bill and you will pay X dollars in interest.”

Creditors have this information—and it would cost them virtually nothing to reveal it—but they don’t want to tell. In fact, when California passed a law requiring such disclosure, creditors took the state to court and got the law overturned.

Supporters of bankruptcy “reform” (like Bill Nelson, D-FL, and Blanche Lincoln, D-AR) have been telling constituents that the new bill does include consumer-friendly disclosure requirements. They’re wrong. There are some new provisions, but none of them add up to real consumer protection. For example:

(1) Some statements will have to include examples showing how long it would take to pay off a balance making minimum payments. But the examples will be based on balances of $300 and $1000. Unfortunately, these examples are more likely to be misleading than helpful, because the average family with any credit card debt has about $8000 in debt.

(2) Creditors may have to provide a new telephone number debtors can call to find out how long it will take to pay off their balance. But callers will probably have to provide complex information (like amortization rates) that does not appear on their card statements in order to get meaningful estimates.

In other words, the new provisions allow credit card companies to write plenty of self-congratulatory press releases. But the provisions will not protect you and me.

I wonder, why don’t creditors want us to know what we’re buying? Are they that ashamed of their products?

A MUST READ: Read this essay in today's New York Times Magazine. Wow.

Last week Professor Todd Zywicki claimed on national television that S.256 would add protections for people who were the victims of identity theft (“This is a bill that is about people actually stealing social security numbers and then using it to get people to file bankruptcy”). Someone should send him a copy of the bill and tell him to read it.

The only reference in the bill to identity theft (Section 234) permits the bankruptcy court to refrain from disclosing certain information if it is likely to create an undue risk of identity theft. It says nothing about protecting American families whose bankruptcy filings are the result of identity theft.

If readers know of stories – from the press or personal experience – of identity theft victims being forced to file for bankruptcy, send us an email. We’d like to hear about them.

Beginning next month, Bank of America will charge its customers an interest rate of 29.49% if they miss two payments or go over the credit line twice in a twelve month period and it will raise the cash advance interest rate to 21.49%. The bottom line: Bank of American customers pay some of the highest rates and fees in the country.

On March 1, Bank of America announced to those same customers that it had lost personal financial data for over one million consumers. That’s one million people who, through no fault of their own, are now extremely vulnerable to the 21st century threat of identity theft. And the threat is genuine. The Federal Trade Commission estimates that 10 million people are victimized by identity theft each year. Identity theft costs the US economy billions of dollars annually.

But by all indications, Bank of America and other supporters of S.256 simply don’t care. When Senator Bill Nelson (D-FL) introduced an amendment “to exempt debtors from means testing if their financial problems were caused by identity theft,” Bank of America’s lobbyists ensured that it didn’t pass.

Search the full text of S.256 for the phrase “identity theft.” You’ll find one reference in Section 234, a reference that has nothing to do with protecting American families from the dangers of identity theft.

Nobody – Democrats, Republicans or otherwise – denies that the bankruptcy code could be improved. At the very least, it should be updated to reflect new financial realities which have emerged in the last 25 years. But with amendment after amendment, this bill’s supporters rejected common sense improvements and preserved a bill that eliminates protections so as to maximize revenues.

If you’ve been trying to figure out why so many Democratic lawmakers support the bankruptcy bill, you’re not alone. Alert reader FT was so confused he wrote his Senator, Ken Salazar (D-CO), and asked the Senator why he let the bill glide through the Senate.

Here’s the revealing portion of Salazar’s response:

I voted for this legislation because I believe that people who have the ability pay back some of their debts should be prevented from discharging those debts completely in bankruptcy, as they are able to do under current law.

In fact, under current law, judges do require anyone with the ability to pay back their debts to do so. [11 U.S.C. 707(b)] The bill merely eliminates a judge’s ability to evaluate each filer individually, and substitutes an inflexible “means test” which assumes everyone went broke for the same reason: a lack of personal responsibility.

Salazar’s fundamental misunderstanding of the bill shows how thoroughly the credit card industry has obscured the real issues. For example:

1) Is bankruptcy abuse a “crisis?”

No. The non-partisan American Bankruptcy Institute estimates that at most 3 percent of filers—and almost certainly less—are able to discharge debts they could actually pay. In other words, the system already does a good job of preventing abuse. The credit card companies are the real abusers; their predatory lending practices pumped up their profits even as personal bankruptcies skyrocketed.

2) Does this bill prevent abuse of the system?

No. The infamous “millionaire’s loopholes”—which allow rich filers to hide their wealth by buying mansions or special trust funds—were carefully preserved. At the same time, the bill raises the price of filing even for the lowest income earners and eliminates a judge’s discretion to discharge debts if people go bankrupt due to medical emergencies, job loss, or divorce.

3) Is the heart of the bill the new “means test?”

No. The bill is about 500 pages long; only 6 pages are about the means test. The remainder of the bill is an unseemly combination of gifts to the rich and attacks on working families.

Let us know if you hear any other interesting justifications from your representatives.

My coauthors and I have been doing research on families in bankruptcy for more than twenty years. I never really wanted a role in politics, but like many things in life, when the bankruptcy bill came thundering down the tracks, there wasn’t really much choice. Supporters of the bankruptcy bill railed on about irresponsibility and fraud. Our research was one of the few pieces of hard data about what was going on. It offered a very different picture of families in desperate financial trouble.

In a remarkable piece of timing (the article had been submitted for publication more than a year earlier, but academic journals are very slow), our recent study on medical bankruptcies was published in Health Affairs, the premier health policy journal, just a week before the Senate took up the bankruptcy bill again. As a result, people committed on the political question took after the study. So here’s a quick Q&A with my students that might be useful:

1) What is the study you report on in Health Affairs?

The overall project involves five law professors, the dean of a law school, two medical school professors, two sociologists and a finance professor. Their areas of expertise include law, medicine, demography and housing. The universities represented are University of California at Los Angeles, Harvard University Medical School, Harvard University Law School, University of Iowa, University of Las Vegas at Nevada, Ohio University, University of Pennsylvania, and the University of Texas. The Ford Foundation and the Robert Wood Johnson Foundation did most of the funding. The study has gone through various forms of peer review and human subjects approval, and the medical study was blind review (the gold standard for academic research). The medical bankruptcy portion was the work of two Harvard doctors, an Ohio U. sociologist and me.

2) What did you say in the study?

There were many ways to measure medical bankruptcy, from the family that was crushed by massive medical bills (medical debt) to the person whose bills were picked up by insurance but who was flatted by eight weeks with no income (job loss) to the family that paid off huge medical bills by putting a second mortgage on the house and who now can’t manage the mortgage and all their other bills (migrating debt). We said that reasonable people could make the count different ways, but that the data suggested that about 44.2%-54.5% of the families filing bankruptcy could fairly be classified as medical bankrupts. We extrapolated those numbers, which would mean about 750,000 households filing for bankruptcy, or about 1 million people (counting husbands and wives who file together). Once the children, the elderly dependent parents, and the non-filing spouses are counted, the total rises to about 2 million.

These families were mostly middle class, with good educations and decent jobs. About three-quarters of them had health insurance at the onset of the illness or accident that eventually bankrupted them.

3) Is it true that you included drug addiction and gambling in the definition of medical bankruptcy?

Yes, we reported data on addition and gambling—but it made very little difference on the overall numbers. About 2.5% families described the costs of dealing with addiction and 1.2% reported uncontrolled gambling. Many of those families had other medical problems—children with serious illnesses, car accidents, a terminal illness in the family, etc. If all of these families were somehow disqualified from consideration as medical bankruptcies, then the top range of the estimate of medical bankruptcies would drop from 54.5% to 50.8%.

4) Why include these people at all? Isn’t this their own fault?

My physician coauthors felt strongly that a family driven to bankruptcy to pay for drug rehab treatments for a teen-aged son should be included in medical bankruptcies. They also thought that a family that lost everything when an out-of-control husband ran up hundreds of thousands of dollars in debts at casinos should be included. If a family described their reason for filing as addiction or uncontrolled gambling we reported it, but we also gave the exact percentages so that anyone who wanted to exclude these people could do so—and could see that it wouldn’t change the overall finding.

5) What about everyone who had more than $1000 in out-of-pocket medical costs?

We reported on those people, and we noted that the median out-of-pocket medical costs were $11,854.

6) Why include these people?

Most of them had much higher debts, and they were included because they also described medical problems had pushed them into bankruptcy. But even the lowest possible number—$1000 in out-of-pocket costs—was a real burden for these people. The average income when they filed for Chapter 7 bankruptcy was $19,188, which means that even the minimum out-of-pocket medical cost was more than 5% of their annual income.

7) What would change if you left them out?

Again, the difference would be modest. In the published report, we didn’t have the room to run every possible permutation, but if we exclude as a medical bankruptcy anyone who was classified only because they put a second mortgage on the house to pay medical bills AND anyone who lost more than two weeks of income because of an illness or accident AND anyone who had medical bills at the $1000 or higher level, we would still be left with 47.3% of the sample describing their medically-related bankruptcies. In other words, even if several criteria are taken out, there are still nearly 1 million people filing for bankruptcy in the aftermath of a medical problem.

8) Is yours the only study that finds medical bankruptcies?

No. A month before our study was published, the Salt Lake City Tribune (go here, here, here, here, here, and here) analyzed 1,053 randomly selected cases filed in 2003-04 in Utah. They found 60% of the cases involved medical debts, a point they discussed at length. Another academic study in which I participated [link] pointed in that same direction based on 1999 data. A new study in progress from the Commonwealth Fund is reported to find that 29 million Americans—14% of all adults—are in serious medical debt, which means they have put large medical bills on their credit cards, taken out second mortgages on their homes or are in a payment plan with their hospital or other provider.

9) So what’s the bottom line?

Over the past decade, millions of Americans families have turned to the bankruptcy system to deal with the financial fallout from serious health problem. Some of them have come forward to tell their stories. The bankruptcy bill speeding through Congress treats every one of them exactly the same way it treats a person who took expensive vacations or who went to the mall too many times.
Several amendments were introduced to the bankruptcy bill to cut a break for the families laid low by medical problems, but each one was voted down. According to this bill, they are all deadbeats who need to be squeezed harder.

Some conservatives would have people believe that only the far left is opposed to the current bankruptcy reform. That simply isn't true. Take a look here and here for well-articulated opposition to the bill from conservative law students.

Here's a great quote: "These credit card companies know about the information costs that consumers face and not only that, it is evident from the design of their websites and their billing strategies that they actively seek to increase information costs so as to extract supracompetitive profits from their customers. Needless to say, I have little sympathy for their pleas concerning consumer bankruptcy...I do not support the means test in the current bill, especially in light of opposition to credit card dislosure from the proponents of the bill, along with their refusal to end some of the mechanisms that those with more significant wealth facing bankruptcy can use to shield their assets."

Click here to watch Professor Warren discuss bankruptcy reform on CNN.

HYPOCRISY UPDATE: Both Republican Senators Snowe and Collins of Maine voted against an amendment from Consumer Champ Senator Russ Feingold that would have set a federal homestead floor of $75K for the elderly. This amendment would have allowed seniors to get homestead exemptions allowing them to hold onto their homes when they file for bankruptcy. Homestead exemptions are currently decided by the states, and some are as low as $5,000. That means that seniors who have worked a lifetime to pay off their homes and seen the value of those homes appreciate substantially in the past several years cannot shield them from their creditors in bankruptcy. This amendment would have softened the blow this bill will deal to millions of seniors by setting a federal homestead floor for every state. During the floor debate for this amendment, Senator Feingold said, "Seniors are the people who need the exemption most." I guess Senators Snowe and Collins disagree.

It turns out that these two not only disagree with Senator Feingold, but they also disagree with their own constituents. Today, seniors in Maine are offered a special homestead floor of $70K. The two Republican Maine Senators voted against giving seniors across the country the same protection that the Maine legislature has decided they deserve in Maine.

In today’s Sun Journal (Maine), Senators Olympia Snowe (R-ME) and Susan Collins (R-ME) write that “the bill provides additional protection for disabled veterans, service members called to active duty and debtors with severe health problems.”

If Maine’s senators were genuinely interested in these protections, they wouldn’t have voted against these amendments to protect debtors with severe health problems. And they wouldn’t have fought against Senator Durbin's effort to provide broad protection to active duty service members and their families. The truth is that Snowe and Collins voted for a weak amendment that provides rhetorical cover to senators instead of providing financial cover to distressed middle class families. These same families would be better off under current law; the bill, even as amended, just makes things worse.

Snowe and Collins are engaging in the politics of deception. Mainers: don’t fall for it. Write letters to the editor to the Sun Journal and let people know that Maine's senators are lying to their constituents.

Don’t forget: Maine has voted for a Democrat for president in every election since 1992 and Olympia Snowe is up for reelection. Her campaign coffers are filled with finance industry donations. To compete, the grass roots fight has to begin now.

The bloggers over at mainepolitics have been doing a nice job covering Snowe and Collins on bankruptcy.

You can watch a webcast of the S.256 markup here (RealPlayer required).

Here are some of the amendments rejected by the House Judiciary Committee at yesterday’s markup of S.256:

- An amendment by John Conyers (D-MI) protecting military personnel from predatory payday lenders;
- An amendment by Mel Watt (D-NC) exempting tuition costs from the expense calculation in the means test;
- An amendment by Adam Schiff (D-CA) protecting people whose bankruptcy is due to identity theft;
- An amendment by Howard Berman (D-CA) protecting bankruptcy filers who file due to medical crises;
- An amendment by Jerry Nadler (D-NY) which would make debts arising from civil rights violations non-dischargable in bankruptcy.

The House Republicans – just like their Senate counterparts – have no interest in protecting service members, families with children, the infirm or victims of crime. Who do they want to protect? Credit card companies and civil rights violators.

This is all on the record, folks. When these people run for reelection in your district in 2006, make sure your neighbors know about it. Write letters to the editor of the local paper. Post about it on your blog. Get the word out and make the Republicans publicly defend their votes. They won’t be able to. And hopefully they won’t win.

THE FIX IS IN

Yesterday, the House Judiciary Committee rejected several Democratic amendments and voted along party lines to send the bankruptcy bill to the House for a vote.

Committee Democrats said the bill would turn the federal government into a collection agency for credit card issuers, retailers and other creditors.

...

"The fix is in," said Rep. Sheila Jackson Lee, D-Texas. "This is a prime example of class warfare."

I will be on Lou Dobbs Tonight on CNN at 6pm ET to discuss the bankruptcy bill. Be sure to tune in!

WEDNESDAY ACTION ITEM

Politology, another blog opposing the bill, has posted its Wednesday action item: targeting the House. If you're wondering which Representatives deserve an earful, see the lists of co-sponsors, the Judiciary Committee, and the devious Democrats who wrote to Bush and promised to support the bill.

Robert Scheer calls the bankruptcy bill a tutorial in greed...courtesy of the "family values" bunch.

Thanks MT.

On the lighter side. This week's "What do you think?" feature in The Onion is about the bankruptcy bill.

My favorite: "If this doesn't teach Americans not to have medical emergencies or get laid off, I don't know what will."

Thanks Dave.

Great article from the Center for Responsive Politics on how the credit card industry bought the bankruptcy bill--one Senator at a time.

An analysis of the contributions shows that senators who voted to pass the bill raised an average of nearly twice as much between 1999 and 2004 from the finance and credit industry as those who voted against the bill.

Money talks. Loudly.

Conservative financial guru and radio show host Dave Ramsey absolutely trashes the bankruptcy bill in this video.

Money quote: "I think this bankruptcy legislation is absolutely horrible...I generally vote Republican and I'm ashamed of the Republicans on this."

Thanks to reader TJ.

An interesting comparison. The Republican platform contains only one passing reference to the middle class. I'm not surprised...

Blogging about the bankruptcy bill has led me to think about party platforms. I’ve never believed that an officeholder should be bound by the letter of her party’s platform, but the documents do convey the core values of the respective parties – and should, at least, provide guidance to party members.

Consider this remarkable passage from the Democratic platform:

“The heart of the American promise has always been the middle class, the greatest engine of economic growth the world has ever known. When the middle class grows in size and security, our country gets stronger. And when more American families save and invest in their children's future, America grows stronger still…Today, the average American family is earning $1,500 less than in 2000. At the same time, health care costs are up by nearly one-half, college tuition has increased by more than one-third, gas and oil prices have gone through the roof, and housing costs have soared. Life literally costs more than ever before – and our families have less money to pay for it. Three million more Americans have fallen into poverty since 2000. Average family debt is higher than ever. And as they lose the struggle to make ends meet, one out of every seven middle class families may be bankrupt by the end of the decade.”

I find it unthinkable that anyone can reconcile those words with a vote for the bankruptcy bill. It simply doesn’t work. Maybe the Senate Democrats who voted for the bill (and those in the House who plan to) just don’t believe in the American middle class. Maybe they’re triangulating in order to secure campaign contributions. In the wake of the November election, Democrats have openly criticized the party for failing to develop a coherent message. When I read that portion of the platform, the message is loud and clear – and it’s right. What’s wrong is that elected Democrats are so willing to violate the spirit of the platform in the name of corporate welfare and selfish campaign finance.

In the coming weeks before the bankruptcy bill becomes law, this site will sharpen its focus on several issues that the fight helped bring to the fore. First, we will examine aspects of the bill that need to be highlighted, like section 414 (see here, here, and here). Also, we will look at office holders defeated in elections for their support for past versions of this bill. Finally, we will spotlight abuses by the credit and lending industry. The bankruptcy bill fight was part of a larger struggle over the health and security of the middle class, and its a struggle that we will continue.

Please offer feedback and suggestions on this new direction.

More bankruptcy cartoons here, here and here.

Thanks to readers FP and JI for the tips.

Pulitzer Prize-winning cartoonist David Horsey has this great cartoon in the March 11 Seattle Post-Intelligencer.

If you've seen other political cartoons on point, let us know.

Maybe Jacko should put whatever he's got left in an asset protection trust since the "millionaire's loophole" has been preserved intact by the Credit Card Corps.

The Bankruptcy Rolls have been updated to reflect the votes on the bankruptcy bill. We haven't moved Lieberman over to the Consumer Champs because of the inexplicable nature of his votes. At least "yea" votes like those of Reid and Bayh followed "nay" votes on cloture, so one could argue that these Senators, once they knew the die had been cast for the bill's passage, chose to appease big contributors after taking on the more important fight against cloture. This is reasonable cynicism. But voting with the credit card companies on cloture, and then, once the outcome was assured, turning around and voting against the industry's bill... that just seems crass.

Senator Lieberman (D-CT) announces his vote against the bankruptcy bill here. Doesn't it seem like the important vote should have been against cloture? Why would he vote to quickly end debate on the bill if he was only going to end up supporting it?

Outrage about the bankruptcy bill is growing, and not just among progressives. Tunesmith has proposed a “cross-blogosphere” coalition of progressives and conservatives opposed to the bill (and we’re thrilled to sign on). Instapundit and Redstate are on board as well.

The Democrats on the Credit Card Corps have come in for a lot of well-deserved abuse on this site. Their desertion of the middle class, the poor and the elderly was disgraceful. But I can see why conservatives are worried too: Republicans have at least as much to lose on this issue, and maybe more. Why?

First of all, pretty much everyone who doesn’t work in the Senate agrees that this bill is terrible (even if they don’t agree with Professor Warren’s description of the problem). Second, many Democrats are on record as opposing the bill, or at least trying to soften its harshest features. Republicans, on the other hand, have been in lock-step with the credit industry all the way. Third, the bill’s effects will fall disproportionately on red states; the ten states with the highest levels of bankruptcy all went for President Bush last year.

Still, Republican Senators seem hell-bent on punishing the decent, hard-working people who put them (and President Bush) in office. Exhibit A: Sen. Orrin Hatch (R-UT). He just won’t shut up about all the “deadbeats” using the bankruptcy system to avoid paying their debts.

Folks, Hatch’s very own Utah has the highest rate of bankruptcy in the nation—bankruptcies caused predominantly by illness, job loss and divorce. Hatch slanders his own constituents by implying that bankruptcy is the refuge of the dishonest, the immoral and the irresponsible.

Opposition to this bill is not a Democratic issue. Anyone who believes in free enterprise should oppose this bill. Anyone who wants to strengthen families should oppose this bill. And anyone who is disgusted by the corruption of our legislative process by special interests should oppose this bill.

I hope progressives, conservatives and everyone else will seize this opportunity to tell Congress that, partisan differences aside, we ALL want our representatives to represent us—not the narrow interests of their campaign donors.

On Thursday, Georgia Senators Saxby Chambliss and Johnny Isakson voted for a bill that prohibits ordinary Georgian families from restructuring and discharging their debts following medical emergencies and job losses. I wonder whether they’ll do the same for Atlanta-based Delta Airlines if and when it declares bankruptcy because of its own ineffective management. Not likely. In fact, the authors and sponsors of this bill went out of their way to ensure that only people and businesses with debts under $2 million are affected.

When Enron declared bankruptcy, it completely wiped out employees’ pension benefits. We’ve seen similar stories in nearly a dozen high-profile corporate bankruptcy filings. But rather than focus the spotlight on the sharp practices of their corporate contributors, Senators like Chambliss and Isakson are more comfortable attacking financially-vulnerable middle class families.

Tierney's WeblAG/Weblog references a Wall Street Journal article that speculates that the White House may attempt to "streamline" predatory lending standards in a push for a more business-friendly regulatory environment.

Politicians in Washington are practically stepping over each other to advance finance industry interests at the expense of American taxpayers. Stay tuned for more details on the White House proposal. When details emerge, be sure to make some noise.

While this link is not directly related to the bankruptcy bill, this is is a diary entry from one our most stalwart Consumer Champs: Senator Russ Feingold (D-WI).

The Financial Times has this story on the passage of the bankruptcy bill. Congressman James Sensenbrenner, Chairman of the House Judiciary Committee, while pleased with passage of the Senate version, cautioned the credit card industry:

"The responsible thing for credit-card issuers to do would be to reduce interest rates because there is less risk,” he said. “If they don't, they will play into the hands of the opponents of the bill it would reduce their credibility."

Make no mistake: it isn't just progressives and liberals who are opposed to the bankruptcy bill. Conservative blogger Glenn Reynolds isn't a fan. Nor are the conservatives posting at redstate.org.

If the Senators and Representatives supporting the bill aren't appealing to liberals and aren't appealing to conservatives, whose support are they seeking?

Noam Scheiber at The New Republic Online has a great post about the long list of House (New) Democrats lining up to sell out American families.

Money quote: "The bill in question is a truly contemptible piece of legislation. Worse, there is no plausible political rationale for supporting it other than to appease credit card companies."

As we get ready for the next step, we should keep in mind that the last go around, the bankruptcy bill (with the abortion amendment) received the votes of 17 of the 31 Democratic Senators who voted against cloture yesterday. These senators: Akaka (D-HI), Baucus (D-MT), Bayh (D-IN), Bingaman (D-NM), Cantwell (D-WA), Clinton (D-NY), Dorgan (D-ND), Feinstein (D-CA), Inouye (D-HI), Jeffords (I-VT), Leahy (D-VT), Levin (D-MI), Mikulski (D-MD), Murray (D-WA), Reid (D-NV), Schumer (D-NY), and Wyden (D-OR). Concerned constituents may wish to express concern of a repeat performance.

I’m going to be standing by my mailbox, waiting for my $400 back from the credit card industry. Industry representatives told me, in the news and in testimony before Congress, that the cost of bankruptcies filed by people who can afford to pay their debts, was $400 for every man, woman and child in America.

Now that they’ve obtained passage of the Bankruptcy Reform Act, I know that I’m going to be getting that money back!

Okay, maybe they won’t send me a check. But surely the interest rate on my credit card will be going down. After all, I am a very good credit risk. Since 9% is about the lowest rate right I can find now, I bet I’m going to get a bunch of offers for credit cards at 6%.

If the Fed Funds rate is 2.5%, and expected inflation is about the same, then credit card companies need to make 5% to come out even. Add 1% for operational costs, and that means I should pay 6% on my card. Seven percent, tops. After all, there isn’t much risk in lending to me now.

Since I make above the median income in my area, under the new bill, I won’t be able to discharge my debts. Instead, I will be required to pay them back over time, in a bankruptcy proceeding called a Chapter 13. That means that credit card losses due to non-payment should be going down dramatically.

So, if I don’t get my $400 back, and my cost of credit doesn’t go down to account for the lower risk, I’ll know . . . .

Gee, is it possible the credit card companies are going to keep that money?

I’ll be standing by the mailbox, waiting to find out.

Corinne Cooper is a professor emerita of law, and a consultant in Tucson, Arizona.

THE DAY AFTER

Lots of stories about the bankruptcy bill in newspapers and around the blogosphere today.

The New York Times looks beyond the phony rhetoric of “personal responsibility” to what is really driving this bill toward passage:

The main lobbying forces for the bill - a coalition that included Visa, MasterCard, the American Bankers Association, MBNA America, Capital One, Citicorp, the Ford Motor Credit Company and the General Motors Acceptance Corporation - spent more than $40 million in political fund-raising efforts and many millions more on lobbying efforts since 1989…

The LA Times says the Senate battle highlighted the strategic importance of the four seats Republicans gained in the last election. It also has Sen. Mitch McConnell (R-KY) crowing over the victory:

“It's quite exciting,” said Senate Majority Whip Mitch McConnell (R-Ky.). “It's been a very good day.”

Let’s hope Kentucky voters remember that quote when creditors start squeezing working-class families.

My favorite is from that paragon of objectivity, the Washington Times. The story focuses almost entirely on the defeat of Schumer’s amendment which would have banned violent anti-abortion protesters from declaring bankruptcy to avoid paying court-ordered fines. Best quote:

“Senator Schumer's amendment was a blatant attempt to criminalize pro-life advocates who peacefully protest outside abortion clinics — with full legal protection — by insinuating that their intent is to commit violent acts,” said Lanier Swann, director of government relations for Concerned Women for America.

First of all, the amendment had nothing to do with peaceful protesters: it prevented violent protesters from escaping fines for violent protesting.

And maybe I’m missing something, but if a court has ordered a protester to pay fines, then haven’t their actions already been declared unlawful?

Meanwhile, conservative blogger Glenn Reynolds of Instapundit still refuses to believe the hype; he knows this is a bad bill.

More to come...

The Bankruptcy Rolls have been updated. The Credit Card Corps roll lists those Democrats that voted for cloture, and the Consumer Champs roll lists the Democrats that voted against. Thanks for all the feedback, it keeps us going. We've got some time left to stir the pot a little...

So the bankruptcy bill moves forward, speeding toward inevitable passage in the Senate and the House. That’s good news for credit card companies, particularly those that are loading their cards up with surprise interest rate jumps and a dozen other tricks and traps. Good news for payday lenders, for banks raking in profits on overdraft accounts, and for car lenders that focus on no-credit-check lending. Good news for all of those who squeeze the American family when someone loses a job, gets sick, or otherwise falls behind in a tough economy.

But there is good news on other fronts too. This bankruptcy bill was largely written by a credit industry lobbyist and, as he put it, shopped to a friendly Congressman. From the outset, the bill was supposed to be an easy push, “assured of passage,” something that would stay below the radar screen.

But you changed all that.

And that is good news. This isn’t the first time that special interests have gone to Congress with a complex, hard-to-understand bill that would profit them while it increased costs or risks for all the rest of us. But you pushed up the cost. You made it obvious that Joe Biden isn’t there for working families. You highlighted the fact that Dick Durbin fought like a tiger for military families. You exposed how Tom Carper cares more about credit card companies than families. You cheered when Russ Feingold, Patrick Leahy and Mark Dayton tried to make things better. You watched Senator Feinstein speak with courage. You highlighted how Ted Kennedy, once again, forced a tough fight that others wanted to duck.

Because of this fight, there will be no quiet, smooth passage for this bill. Instead, folks are now on record: 58 voted against giving just a little protection for military families set upon by predatory lenders. 74 voted against a 30% usury cap, saying the credit card companies are free to take whatever they can get. 58 voted against treating families beset by cancer and diabetes differently from those that run up bills on fancy vacations and over-priced nonsense.

We’ve got two or three more days on this bill. Let’s show them what we can do: more facts, more discussion, more debate, more amendments. And let’s drown them in emails, faxes, phone calls and letters. There is no point in going quietly now.

And while we’re at it, let’s plot our next strategy. Families don’t have to cower before credit card companies and second mortgage lenders. They can fight back right where it hurts—in the company profits.

I have never blogged before, and once the votes are final on bankruptcy, I may never do it again. But in the meantime, I know I have been blessed. My Harvard Law students (Michael Negron, Jason Spitalnick and Ryan Spear) have been great teammates; I’d be proud to fight alongside them anytime. Josh Marshall introduced me to a new form of participatory democracy that is starting to transform the world. But most important of all is what I learned from you: I am not alone with this fearsome anger; there are thousands of people who want to change things as much as I do. You give me hope.

Folks, it is a pleasure to blog with you.

The vote on cloture was not close. The motion passed by a vote of 69-31, meaning the end of debate on substantive amendments. There will be 30 more hours of debate, then a final vote in two days or so.

Make no mistake about it, today's vote was a cynical surrender to monied interests, and those who voted “Yea” hope nobody will remember come election time. If this bill ultimately passes--and it probably will--sick people will be squeezed, elderly people will lose their homes and military members will go from fighting in Iraq to fighting creditors at home. Oh, and violent anti-abortion protesters will be able to declare bankruptcy to avoid paying fines.

But campaign coffers will swell.

Speaking of which, the Credit Card Corps certainly earned their money today: Senators Tom Carper (D-Delaware), Joe Biden (D-Delaware), Ben Nelson (D-Nebraska) and Tim Johnson (D-South Dakota) all voted for cloture. Long-time fence-sitters Senators Mary Landrieu (D-Louisiana) and Blanche Lincoln (D-Arkansas) also got in the act, as did someone we thought was a Consumer Champion: Sen. Bill Nelson (D-FL).

Not a single Republican voted against cloture.

None of this means we're done fighting. Stay tuned.

Lieberman also signs up for the War on the Poor with his vote for cloture.

Remember this in 2008: Joe Biden votes for cloture.

The cloture vote has begun. Be sure to watch, or check back here for updates.

The credit industry lobby wrote this bill and is doing everything in its power to see that it passes. And it has a lot of power.

Since 1989, the industry has contributed more than $40 million to candidates and parties that promise to toe the industry line. The senator who has raised the most in her career from the industry is Olympia Snowe (R-ME). Snowe has brought in over $316,000 from the credit industry, most of it from the political action committee of MBNA, the nation's top credit card issuer. To make matters worse, Snowe's husband, former Maine Governor John McKernan, has worked as a paid consultant for MBNA. For more info on the political power of the industry, visit this site.

Olympia Snowe is a moderate Republican who has, during her career, won victories for middle class women. Today she plans to sell them out for a measly $316,000.

Let her know that that's wrong - and that it's a political mistake. Encourage her to vote NO on cloture and to represent Maine residents and American families, not MBNA.

The Schumer Amendment fails 46-53. Cloture amendment is at 2:15pm EST. Caucus lunch is coming up, see the posts below on taking action.

Hmph, Senator Nelson (D-NE) votes NO on the Schumer Amendment. What happened to law and order?

We've moved Senator Lautenberg back to the Consumer Champs after learning today that he wavers no more. An excerpt from an e-mail from one of our friends working this issue:

Lautenberg is fine. He was wavering a bit last week but we met with him and he is fine. I confirmed that with his staff today. Will vote NO on cloture.

This is good news. Voting on the Schumer Amendment going on right now.

Senator Feinstein just announced on the floor that she can't support the bill in its current form. Perhaps this bodes well for her vote on cloture...

A good source of state-specific banking industry info is available here. It may serve you well when calling/faxing your senators. Special thanks to reader CH for the tip.

Several new names have been added to the bankruptcy rolls on the Credit Card Corps page. We've also moved Senator Lautenberg from Consumer Champs to Under Recruitment, as he is now wavering in his opposition to the bankruptcy bill.

The average American debtor is a 41 year old middle class woman with children and at least some college education. Middle class women have more at stake in this fight than anybody else. Today, the stakes will get even higher.

In 2001, when the bankruptcy bill was last considered by the Senate, Senator Schumer (D-NY) successfully introduced a brilliant progressive amendment. There is a law on the books that subjects to civil damages anyone who interferes with access to reproductive health services. Radical anti-choice activists who were sued under the law quickly learned that they could declare bankruptcy in order to avoid paying damages to clinics. These are people who violently intimidate and harm health care providers and patients. If you believe in law and order, then these folks should not be able to escape their debts. The current bill gives them an escape hatch.

Senator Schumer’s amendment in 2001 prohibited these people from using bankruptcy protection to do an end run around the law. The anti-choice forces in Congress – particularly in the House – couldn’t bring themselves to vote for the amended bill, which died.

Senator Schumer is set to reintroduce his amendment today. If the Democrats maintain party discipline and win a handful of votes from moderate, pro-choice republicans, the amendment just may pass. Senate Judiciary Chairman Arlen Specter (R-PA) has expressed support for the amendment’s principle. Lincoln Chafee (R-RI), Susan Collins (R-ME) and Olympia Snowe (R-ME) have strong pro-choice voting records. This amendment may be the only real possibility of stopping this bill dead in its tracks.

NARAL has set up convenient action-item website so that you can contact Senators to urge them to support the Schumer amendment. Check back here throughout the day for up-to-date information on the amendment’s progress. My action item entry also features links that you can use to fax key Senators.

URGENT ACTION ITEM. Senate sources are telling us that the most important Senators to contact this morning are the following:

- Maria Cantwell (D-WA)
- Patty Murray (D-WA)
- Mary Landrieu (D-LA)
- Blanche Lincoln (D-AR)
- Hillary Clinton (D-NY)
- Barbara Mikulski (D-MD)
- Max Baucus (D-MT)
- Evan Bayh (D-IN)

The Republicans promised the Democrats a fair debate on all amendments. Instead, they're trying to end the debate early so that they don't have to go on record voting against good amendments that support sick people, service members, etc. Call, fax or email your Senator to tell him or her to vote NO on cutting off debate on the bankruptcy bill (and copy Senator Kennedy and Senator Feingold on your faxes and emails). Mark those faxes with the the following: URGENT--FOR TODAY'S LUNCH

Check out this on-point editorial in today's New York Times. More to come on the Schumer Amendment. Check back shortly.

Paul Krugman's latest New York Times column is on today's cloture vote and a must read.

A kabuki dance concerning two minimum wage amendments took place in the Senate today, with both amendments ultimately falling short of the 60 votes needed for passage. It looks like this floor fight over the competing amendments may have served as a smoke screen for .S256's defenders to keep eyes off this ghastly bill. Consider that last week, the Republicans and their buddies in the Credit Card Corps squashed amendment after amendment that would have soften the harder edges of this bill.

Democrats on the Judiciary Committee sought to introduce and debate amendments while the bill was in committee, but in a typical bait-and-switch maneuver the Republicans peeled off enough Democrats with promises of floor time for amendment debate to get the bill out of committee quickly. Key Democratic votes in getting the bill out of the Judiciary Committee were those of Senators Biden (D-DE), Kohl (D-WA), and Feinstein (D-CA). A week of amendment debate ensued in which, as our own Ryan Spear puts it:

[T]he Senate...beat back common sense proposals to exempt military service members and veterans from a harsh means test; give relief to people forced into bankruptcy by medical bills; discourage predatory lending practices by credit companies; and allow elderly people to protect their homes from seizure.

Friday evening, the promise of a floor debate on the many amendments designed to improve the bill proved empty as Senator Mitch McConnell (R-KY) and the Republicans moved for a cloture vote on Tuesday. The vote takes place at 2:15pm EST Tuesday. Senator Schumer (D-NY) has an amendment that still needs to be considered tomorrow as well, we will have more on this later.

We are entering crunch time on this bill. Key Senators listed under the bankruptcy rolls should be flooded with calls and letters. There will be a caucus lunch tomorrow for the Democrats. If Senator Harry Reid (D-NV) lets Senator Kennedy (D-MA) pound the podium about the cloture vote, he may rally the troops and line can hold to continue debate over this important bill.

Therefore, we encourage all visitors to contact Senator Reid's DC office via fax and phone to push for preventing premature cloture. You should include Senators Kennedy and Feingold in your faxes and e-mails, they will be leading the fight against the cloture and will need all support. Remember to mark all letters "Urgent: For Today's Lunch" to ensure that the Kennedy, Feingold, staffers bring the letters with them and drop them at Reid's feet.

The debate over this bill has to continue.

I will be on the Al Franken Show on Tuesday from 12:30-1pm EST. Be sure to catch it, Al will be rallying us to push against a vote for cloture and keep this important debate going. Find your local station here.

Amen. This should be sent to all those who voted against Senator Durbin's (D-IL) amendment to exempt servicemembers from the bankruptcy bill's harsh means test.

For his unwillingness to share his position with curious constituents and his colleagues, Senator Lieberman (D-CT) has been added to those being recruited by the Credit Card Corps.

As we’ve observed, this bankruptcy bill has looked like a War on the Middle Class from day one. Today it looked like a War on the Poor too.

Both Democrats and Republicans introduced amendments to increase the minimum wage; both were voted down. The Democratic proposal would have raised the minimum wage from $5.15 (where it’s been since 1996) to $7.25 an hour, affecting over 7 million workers.

Republicans proposed a much smaller increase: $1.10 an hour, affecting about 1.8 million people. But as usual, the devil was in the details. The Republican amendment also included some $42 million in tax breaks for the restaurant industry and some nasty surprises for workers, including:

(1) Loosened regulations on small businesses that would have stripped the right to a federal minimum wage from about 6.8 million workers. If you’re counting, that’s more than three times the number of people who could have seen a wage increase.

(2) A “flex-time” provision, which would have allowed “employees to work 80 hours over two weeks without qualifying for overtime pay.” In other words, the 40 hour work week would have been abolished. For example, under this system, an employer could avoid paying 10 hours of overtime by making a worker put in 50 hours one week, then 30 hours the next week. Employees would have had no say in the matter.

(3) Various restrictions that would have made it harder for states to raise the minimum wage for restaurant workers. (Federalism schmederalism.)

That’s right: poor people actually dodged a bullet when this “wage increase” was voted down! That’s not policy-making. That’s farce.

More than one half of one percent of Rhode Islanders live in medically bankrupt families. These aren’t people who are gaming the system. These are folks whose health care costs spiraled out of control to the point where they couldn’t meet a mortgage payment. These are two-income families where mom had to take an unpaid leave from her job to take care of dad while he recovered from heart surgery. These are families where mom, who is the sole source of income, got breast cancer. They are a diverse bunch united by only two facts: first, that bankruptcy was the last resort and the only hope for getting back on track; and second, that their Senator, Lincoln Chafee, is turning his back on them.

Chafee is a moderate Republican who has flirted publicly with the idea of switching parties. In 2004, he refused to endorse President Bush’s reelection and, in 2006, he faces a tough reelection battle himself. He is being targeted from the right by conservatives testing the primary waters. And Matt Brown, the popular Democratic Secretary of State, is running against him. Chafee’s solution? Support S.256, which guts bankruptcy protection for middle class Rhode Islanders. Just as Senator Biden and Senator Carper are supporting the bill to curry favor with Delaware credit industry interests like MBNA, Chafee’s wealthy backers also have a horse in this race.

Rhode Island is one of five states that permits the creation of asset protection trusts, which let rich bankruptcy filers shield high-value assets from creditors. States like Rhode Island and Delaware are engaged in a race to the bottom – rolling back protections in an effort to increase credit industry profits. It doesn’t take much to connect the dots between Chafee’s support for S.256 and the large contributions he’s received from the following political action committees:

o Bank of America Corporation PAC
o Citizens Financial Croup Inc. PAC
o Independent Community Bankers of America PAC
o Massachusetts Bankers PAC
o Mortgage Insurance Companies of America PAC
o National Association of Federal Credit Unions PAC
o National Association of Real Estate Investment Trusts, Inc. PAC
o State Street Bank and Trust Company Voluntary PAC

Sick Rhode Islanders aren’t gaming the system. Lincoln Chafee is.

Some thoughts on credit card fraud from a fellow academic, Corinne Cooper:

Interest rates are made up of three things:

1. The cost of money (interest goes up and down based, in part, on the supply of and demand for money, just like any commodity.)
2. The expected inflation rate (so the lender gets back its money in constant dollars)
3. A risk premium.

If I apply for a credit card (and I get an average of 5 solicitations a week), the rate that I qualify for is around 9%. Given a fed funds rate of 2.5% (the "cost" of money) and relatively low inflation projections (let's assume 2%), the difference is . . . (drum roll) THE RISK PREMIUM. For the best borrowers, the credit card companies collect over 4% to account for the risk of non-payment.

For riskier borrowers, the credit card interest rate is much higher, often as high as 29%: that's a 24% risk premium.

Think of it as the premium that you pay to insure the bank against your non-payment.

Here's what' so strange: The credit card companies collect this risk premium, year in and year out. But when the risk actually happens and the borrower cannot pay, the lenders want the Federal government to intervene to force the debtor to pay, by passing a law prohibiting them from filing bankruptcy and discharging the debts. It's as if a life insurance company took premium payments for years and then asked the government to pass a law prohibiting death! Bankruptcy is credit death, and if this bill passes, the courts will be clogged with credit "zombies": consumers who can never pay back their debt, and never get rid of it.

Why, then, shouldn't the debtor be able to recover all that extra interest paid to cover risk??

There is massive credit card fraud, but it's by the credit card issuers, not the users.

Corinne Cooper is a retired law professor and communication consultant in Tucson, Arizona.

Rhetoric can tell you a lot about what senators really stand for—maybe even more than their actual votes. If you listen closely, you quickly realize that the bankruptcy debate is not just between supporters and opponents, but also between two distinct visions of the world: one which corresponds to reality, and one which does not.

Supporters of the bill are determined to ignore the empirical data that shows about 50% of bankruptcies are traceable to medical emergencies (and about 90% stem from illness, divorce, job loss or deaths in the family) and that this bill would disproportionately harm those who go broke through no fault of their own. Instead, they mouth empty platitudes about “morality” and “responsibility,” as if it was immoral and irresponsible to have a heart attack or get laid off. Exhibit A, B and C:

“I think everybody knows when they take those credit cards and they accrue debt, they are supposed to repay that debt. Frankly, we have far too many people taking advantage of credit cards and not paying their debt.”(Senator Orrin Hatch, R-UT)

“Instead of falling back on bankruptcy as an option of last resort, more Americans misuse it as a financial tool to wipe away their debts altogether.” (Senator Charles Grassley, R-IA)

“We are drifting a bit to suggest there is no real obligation to pay the debts we incur. If we get to that point, then we have eroded some very important fundamental moral principles about commerce in America.” (Senator Jeff Sessions, R-AL)

Sessions is indeed drifting to suggest anyone wants to eliminate that obligation. Opponents of the bill want no such thing; they too want to fight fraud, but not by punishing moral and responsible people who have simply fallen on hard times. In their own words:

Isn't it interesting at a time when health care in America is so hard to come by and so expensive, when the Government is talking about cutting back on Medicaid … that we come up with a bill that is going to make it tougher for those who cannot pay their medical bills? It tells you about this Congress and its priorities. (Senator Dick Durbin, D-IL)

This legislation … rewrites the bankruptcy laws in a way that kicks average families while they're down, in order to pad the already high profits of the credit card industry and other lenders. It is greed, pure and simple. (Senator Ted Kennedy, D-MA)

Senator Bill Frist (R-TN) has been boasting to business groups that Republicans “can deliver on issues that in the last Congress were tough.” Dr. Frist, we’d welcome your efforts. But how about working on the “tough issues” that benefit ordinary Americans, rather than your big campaign donors in the credit industry?

Blanche Lincoln (D-AR) isn’t a full member of the Credit Card Corps just yet, but she’s highly vulnerable to recruitment. Four years ago in the 107th Congress, she voted for this bill’s equally bad predecessor. She also receives strong support from the US Chamber of Commerce, which backs S.256. It doesn’t bode well that the finance industry is Lincoln’s chief source of campaign contributions; in her 2004 reelection bid, the sector contributed nearly $1 million. Her list of top contributors includes Hartford Financial Services, Goldman Sachs, JP Morgan Chase and the American Bankers Association. Finally, Lincoln is a generally pro-choice senator from a strongly anti-choice state; she can’t necessarily be counted on to filibuster for Schumer’s free access to clinics amendment. If you’re a constituent, ask Senator Lincoln to pursue the principled, courageous path and stay strong against S.256.

For more on the bill, check out these sites. John Podesta has posted a strategy memo on opposing the bill which provides more detail on what we've discussed on this page. There's an excellent entry on Daily Kos that covers the bill in some detail. Also, special thanks to reader JN for this link to a 1996 Federal Reserve Open Market Committee meeting in which the recently departed Bush White House Chief Economic Advisor Larry Lindsey describes the bankruptcy reform bill then being written by the banking industry lobby as one of the "worst ideas." A particularly pertinent quote as Democrats have fought to amend this bill:

If we actually ask lenders what they are doing, we find that they are turning around and making loans to people who just declared bankruptcy. The easiest solution to this problem in my mind is for banks and other lenders just to say that they will not lend to anyone who has declared bankruptcy within the last three years. The lenders are not ready to do that. Instead, they are going to push for new bankruptcy laws. That will create the illusion that something is being done when that really is not the case.

Politics is often a cynic’s game. This uncontroversial observation is neatly confirmed in the support of many Democrats for the bankruptcy bill. Unprecedented unity over the highly visible fight to protect Social Security, despite the well-documented faint-heartedness of a few officials, also makes it easier to score points with contributors on other bills. Thus it appears the price we may pay for stopping the President’s phase out plan for Social Security may be the secreting in of bills almost as bad for average Americans.

Bankruptcy is not a sexy issue. Supporters of the bill can utter a few paeans to personal responsibility, maybe even refer to filers as "deadbeats." In the end, officials have been able to support these sorts of lobbyist bills without consequences because they believe people just aren’t paying attention. Thus, Joe Biden can continue to entertain his champagne wishes and White House caviar dreams while supporting a bill that is a clear giveaway to credit card companies. Others, like Tom Carper, Mary Landrieu and Ben Nelson can sate key contributors and avoid a headache at minimal political cost.

While all politicians certainly engage is such cynical maneuvering, in recent years it appears that Democrats have appeared more willing to take this approach, at the price of looking like they stand for less. This is the wrong bill with which to play this game.

The story of bankruptcy today is the story of modern America. As tough as it is for many to accept, Americans are not in a frenzy of overconsumption. The research of Professor Warren and others has revealed that we actually spend less on non-necessities, thanks to falling prices for clothing, restaurant dining, and other purchases. Americans today have less disposable income than they had a generation ago, as more of our income is spent on housing, health care, and transportation.

Americans spend more money on their homes than a generation ago because house-shopping for families is as much about the school district as it is about the home itself. Our failure to provide equal access to quality schools has produced a bidding war between middle class families for homes in good school districts, which in turn results in working families buying more expensive houses than their incomes would have allowed a generation ago. In turn, as families move away from cities in search for better school districts, they end up spending more on their car and gasoline.

We all know about the state of health care costs in this country. Insurance has become more costly and out-of-pocket expenses great as more people join plans with coverage gaps. Too often, families in medical emergency are forced to start paying medical bills with credit cards just to pay for necessary procedures. We have already noted that over half of bankruptcies are due to medical emergency, and when combined with job loss, death, and divorce, the proportion of bankruptcies due to emergency rises to nearly 90 percent.

In short, people are being driven into bankruptcy at the rate of 1.5 million a year because, already financially squeezed by rising home, health car, and car costs, unforeseen emergency pushes them over the precipice. This is a compelling story, and one that Democrats like Joe Biden, Tom Carper, Mary Landrieu, and Ben Nelson ignore at their peril. The grass roots of the party proved more tolerant of such cynicism in the past, but if the contributions of MBNA, American Express, and others continue to be valued above the welfare of working families, they may discover that this formula for victory has a short shelf life.

There’s another loophole for millionaires: in a handful of states, including Texas and Florida, the wealthy take advantage of unlimited homestead exemptions. The exemptions were created to help depression-era farmers hold on to their properties during lean harvests. Today, middle class American families use the exemption to ensure that they aren't out on the street before they have an opportunity to restructure their debt and remedy their financial troubles. But wealthy Americans with exorbitant properties can, and do, declare bankruptcy and shield the full value of these properties from creditors. Picture an Enron executive laying out at his personal pool at his $20 million mansion in Houston.

As currently constituted, S.256 does nothing to prevent these egregious abuses. When confronted with the situation, Senator Grassley's press secretary said "The senator is always open to suggestions for closing these loopholes." But when it came time to vote on a straightforward amendment to close the asset protection loophole, Grassley, a cosponsor of the bill, voted nay. The ultimate irony is that this bill, which purports to close loopholes and hold debtors accountable, opens the door to manifest manipulation by a small but wealthy group of bankruptcy filers.

At the Judiciary Committee hearings a few weeks ago, GOP senators and their witnesses alleged that the purpose of S.256 is to eliminate "the abuses of the bankruptcy law that we have witnessed in recent years." Their underlying assumption, of course, is that bankruptcy filings are on the rise because more Americans are gaming the system. No doubt there is a small number of bad apples, but nobody, including Volokh blogger Todd Zywicki, has pointed to any empirical evidence suggesting that the barrel is rotten.

There is, however, one class of bankruptcy abuse that's both highly visible and well-documented: that perpetrated by the wealthiest filers.

Since 1997, five states have allowed for the creation of asset protection trusts, where the trust settlor is often both the trustee and the beneficiary. S.256 will further enable the use of these trust instruments by rich Americans seeking to protect high-value assets from creditors after declaring bankruptcy. What type of assets are being protected? Several months ago, professional football player - and multi-millionaire - Ricky Williams considered filing for bankruptcy in order to protect his $8.6 million signing bonus. According to a recent Times article, asset protection trusts have gained great favor among physicians and corporate executives. This sort of exploitation simply isn't an option for the vast majority of bankruptcy filers: the average filer couldn't afford the legal fees to create an asset protection trust. It's worth noting that the existence of these trusts generates big business in the states that allow them. That's why the two Delaware Democrats are supporting the bill. If Senator Biden wants to be a viable candidate for president in 2008, he ought to vote to support the American middle class rather local corporate interests.

Supporters of the bankruptcy bill are spinning it as a necessary crackdown on "deadbeats” who use bankruptcy as a “convenient financial planning tool” to escape their obligations.

Here are some examples of the kind of “deadbeats” the bill targets:

• Deborah Heinrichs (scroll down) had to file for bankruptcy because cancer suddenly took her husband’s life. Now she is struggling to keep her family housed and fed.

• Leanna and Eric Brunner (scroll down) were forced to file after they paid $28,000 for surgery to save their baby’s life. (Young Emma swallowed a shard of plastic that punctured her lungs.) The episode broke them financially and maritally; the couple is now divorced.

• Larry Herman suffered a heart attack two years ago and now takes seven medications daily—all paid for out-of-pocket. He lost his medical insurance when his employer shut down. He has accumulated $40,000 in medical bills.

In other words, this bill makes life harder for all filers—especially those who go broke through no fault of their own. These are some concrete examples of people that'll be affected by this bill. The bill treats everyone like deadbeats, regardless of their reason for filing. The fact that 90% of bankruptcies are filed following divorce, job loss, death in the family, and illness seems to have made little difference with bill supporters.

You’d expect Democrats to be offended by such a naked attack on the sick and the poor. Some are. But others are actually cheerleading for the bill and helping slap down amendments to protect military members, the elderly and the chronically ill. Are Democrats really this confused about what they stand for?

The bankruptcy rolls are up. These lists are similar to the Social Security rolls on the main site. The Credit Card Corps consists of those Democrats that are playing good soldiers for the banking industry while the Consumer Champions are those senators who have been strongest in their opposition to this bill. The Being Recruited faction consists of Democrats and a few Republicans that are still open to pressure to amend or vote against the present bill, but are in danger of joining the Corps.

Even some conservatives can see how bad this bill will be for ordinary Americans. Visit here, here, and here.

It’s easy enough to pick on the bad guys – and we’ll do plenty of that. After all, dozens of senators (including several Democrats) are planning to vote on Tuesday for a bill that attacks the most vulnerable families in the American middle class and, in any case, doesn’t accomplish meaningful bankruptcy reform. But it’s important not to lose sight of the folks that have really stepped up to the plate on behalf of American families.

Ted Kennedy has been a real leader in the effort to oppose this bill. He’s working hard on the floor and in the cloak room to win votes and pass amendments. He personally introduced an amendment to exempt from means testing families whose bankruptcies are due to medical crises (more on that later).

Charles Schumer has been a leader on the bankruptcy issue since the last time the bill was introduced in the Senate. Schumer added an amendment to S.256’s predecessor which would have prevented anti-choice reproductive clinic protestors from filing for bankruptcy in order to avoid paying civil damages to the clinics. Anti-choice members of the House refused to vote for the amended bill, which effectively killed it. Some insiders think the only way to stop S.256 is to get the amendment added to the bill once again. It’s an uphill battle, but Schumer is working on it. He also introduced an amendment to close the asset protection trusts loophole, which benefits millionaires at the expense of financially vulnerable middle class families.

Dick Durbin has also been a leader on the Judiciary Committee. Take a look at his testimony at the Committee’s hearing last month. Durbin has introduced a bunch of amendments to improve the bill (to make it less bad, I suppose) and win votes. One of these amendments sought to create protections for American service members, veterans and their families. The Republican majority, killed the amendment.

Mark Dayton also introduced a key amendment that the GOP majority struck down. He proposed a 30% cap on credit card interest rates. But 30% apparently isn’t high enough for the credit industry lobby.

Stay tuned for more amendments as the cloture vote approaches...

I’ve been doing research on families in financial trouble for more than twenty years to learn how many people were abusing the bankruptcy system. My colleagues and I did a really extensive analysis and learned that families turn to bankruptcy not because they want to find a way not to pay, but because they are desperate. More disturbing, we released a study earlier this year that revealed that over half of bankruptcies are in the aftermath of medical emergencies.

I never wanted to get involved in politics, but the bankruptcy bill now moving on a fast-track through Congress isn’t fair. It beats up the average family already staggering under the weight of bad luck and huge debts, while it lets real abusers go free. That appears to have been the idea from the start.

In 1997, financial services lobbyists wrote the bankruptcy bill and shopped it to “friendly” Congressmen. Since then, the bill has been introduced and re-introduced. Despite the very public bankruptcies of Enron, Worldcom, Adelphia, Polaroid, United Airlines, US Airways and TWA, there are no new provisions to rein in corporations that are paying millions to insiders while they cancel employee health benefits and wipe out retirement plans. Instead, this bill focuses on families, clamping down on people who have been driven to bankruptcy by job losses, by medical problems and by family break ups.

Why?

Because those are the people who owe credit card bills, and the credit card companies are the driving force behind this legislation. Some in the Senate recognize this.

The bill is more than 500 pages long, all in highly technical language. But the overall thrust is pretty clear:

• Make debtors pay more to creditors, both in bankruptcy and after bankruptcy, so that a bankruptcy filing will leave a family with more credit card debt, higher car loans, more owed to their banks and to payday lenders.

• Make it more expensive to file for bankruptcy by driving up lawyers’ fees with new paperwork, new affidavits, and new liability for lawyers, so that the people in the most trouble can’t afford to file.

• Make more hurdles and traps, with deadlines that a judge cannot waive even if someone has a heart attack or an ex-husband who won’t give up a copy of the tax returns, so that more people will get pushed out of bankruptcy with no discharge.

• Make it harder to repay debts in Chapter 13 by increasing the payments necessary to confirm in a repayment plan, so that more people will be pushed out of bankruptcy without ever getting a discharge of debt.

There are people who abuse the system, but this bill lets them off. Millionaires will still be welcome to use the unlimited homestead exemption. And if they don’t want to buy a home there, they can just tuck their millions of dollars into a trust, a “millionaire’s loophole” that lets them keep everything—if they can afford a smart, high-priced lawyer.

I don’t get paid by anybody on any side of this fight. I just think it isn’t fair.