The “Drive More People Into Bankruptcy Act of 2005″?
By Karen Oakes, Southern Oregon Bankruptcy Attorney on Jan 27, 2008 in Bankruptcy Practice and Procedure, Benefits of Bankruptcy, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Consumer Protection, General Bankruptcy Information, Lawyer to Lawyer, Predatory Lending
Recently, on MSN.com, columnist Liz Pulliam Weston, wrote an opinion piece entitled, “Let’s Punish Lenders Of Easy Credit.” Ms. Weston points out that in the year following its implementation, revolving debt rose at a sharply increased level than previous years (despite nearly 2 million folks rushing to file before the law changed on October 17, 2005). Ms. Weston pointed to researcher Michelle J. White’s working paper for the National Bureau of Economic Research as the basis for her article. (digest version here) Ms. Weston points out that bankruptcy filings are increasing due to the increase in targeting the subprime borrower for both credit cards and mortgages and agrees with White’s proposal that one way to fix the problem is by punishing the lenders who “push credit on the weakest borrowers.” Ms. White recommends three options: (1) penalizing creditors who take advantage of consumers who tend to over-borrow; (2) forcing lenders to do away with rewards for credit card use (such as points, miles, percentages back), or (3) change how debt is treated in bankruptcy with an expedited discharge process for debts created when borrowers were more than 30% debt-to-income ratio and get rid of the newest ones first (those lenders were well aware of the risk).
Law professor, Elizabeth Warren, in her blog over at TPM Cafe entitled, “Burning The Consumer, agrees with Ms. Weston and Ms. White. Professor Warren insightfully says: “Teaser mortgages are creating a mess, but if the consumer starts to melt, it will be widely held credit card debt that are fueling the fires.”
My experience with bankruptcy debtors validates Ms. White’s, Weston’s, and Ms. Warren’s views: that predatory companies pounce and prey on the weakest link. Those who need credit the most are the ones who pay the highest rates and get the most offers. I have several senior citizens whose only income is social security of approximately $750 a month who have credit limits of $16,000 on a single card. What possible motive could a credit card company have for extending credit of that amount to a 82 year old? A missed payment or a late payment could zoom the rate up to 24.99%, and the payment is more than the monthly income. Those clients did not use their credit cards to go to Hawaii or to buy luxury goods: they are using their cards to pay for medication.
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