Bankruptcy Act a ruse
By Richard F. Dawahare
The "Bankruptcy Abuse Prevention and Consumer Protection Act" is a hypocritical sell-out of our greater public interest to the favored few.
Like the "Clear Skies Act" and "Healthy Forest Initiative," its misleading title is geared to sucker our acceptance of poison made to look like honey. After all, who would argue that those who abuse bankruptcy laws should be prevented from doing so?
However, the vast majority of bankruptcies are legitimate cases of financial devastation wrought by catastrophic medical expenses, job loss, death or divorce. In fact, the non-partisan American Bankruptcy Institute estimates that at most only 3 percent of filers "abuse" the system by getting debts discharged that they could actually pay.
Yet Congress and the president demean hard-hit working Americans suffering illness, downsizing or outsourcing by lumping them with the scant few who do abuse the system. And while punishing the innocent, they protect the wealthiest and most flagrant abusers.
The rich, whether an Enron executive or a run-of-the-mill millionaire, can still shield their cash in "asset protection trusts" that are beyond the reach of creditors. But median income earners will be put in a quasi-debtor prison by allowing creditors to snatch future earnings to pay off debts that for over 100 years have been rightfully forgiven.
The new law will deny a "fresh start" to many hapless families by replacing the judge's review of actual income, expenses and circumstances with a rigid formula that ignores reality in favor of standardized assumptions. More ominously, the law ends protection against eviction and makes it harder for one to keep their car.
Worst of all, President Bush and Congress has further legitimized the credit industry's unethical predatory behavior. The law is so bad that 90 of the country's top law professors wrote a letter to the Senate opposing its passage: "In our view, the fundamental change over the last 10 years has been the way that credit is marketed to consumers. Credit card lenders have become more aggressive in marketing their products, and a large, very profitable, market has emerged in sub prime lending."
Profitable indeed. The credit industry pocketed $30 billion in profits last year alone - $30 billion, and most of it from exorbitant interest rates, late fees and penalties on the poorest among us, those just following the president's call to join "the ownership society."
It is unconscionable that our leaders have aided and abetted the credit industry in what amounts to legalized usury. They have sanctioned the onerous practices that have many debtors paying more in interest and fees than their original balances. Why?
Could the $100 million the credit and banking industry gave in campaign contributions since 1999 (according to the Center for Responsive Politics) have played a role in commanding such allegiance? Perhaps that is why they allowed the credit lobbyists to write this law.
Shockingly, the bill's supporters are the most vocal moralizers for biblical values regarding social issues. So why are they not applying the clear and numerous biblical sanctions against usury and abuse of society's most vulnerable citizens? Have they forgotten Jesus' most passionate display of emotion as he chased the moneychangers from the temple?
True and just reform benefiting both the greater public interest and the credit industry would include:
- A limit on interest to a set amount above the fed rate.
- Caps on late fees.
- Elimination of universal default clauses and all other hidden fees.
- Strict guidelines on eligibility and credit limits.
- Elimination of asset protection trusts.
- Prohibition of deceptive teaser ads.
- Secondary school instruction on financial management.
"Personal responsibility" falls most heavily on those with power. Since the laws are so unfairly tailored for the credit industry the average consumer is powerless, especially when beset by tragedy. Yet instead of acting responsibly many creditors do just the opposite by tripping debtors in order to profit from their fall.
Their failure is a clarion call for new senators and representatives who will, at all times and on all issues, make supreme our greater public interest. Anything less will bankrupt our democracy.
Richard F. Dawahare is a Lexington lawyer and businessman.
Copyright 2005, The Kentucky Post
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