Re: New bankruptcy law

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

I'm having trouble improving on Bill Waller's comments since they were right
to the point. Let me just point out a couple of things about the legislative
history of this bill. Opponents have attempted to ammend the bill to provide
some protections for consumers and to address some of the lending practices
of credit card companies. Credit Card and Bank Lobbyists have steadfastly
refused to consider these ammendments. I say credit card companies and bank
lobbyists because they are the ones who are truly writing this bill-not the
House and Senate. Representatives and Senators openly acknowledge (according
to TIME) that they cannot oppose the credit card companies on this.
Simultaneously, Lloyd's of London investors from the U.S. have sought and
attained special protection from their contractual obligations to Lloyds.

This bill stinks. There are no two ways about it.

-----Original Message-----
From: William F. Hummel [mailto:wfhummel@xxxxxxxxxxxx]
Sent: Wednesday, March 14, 2001 7:32 PM
To: pkt@xxxxxxxxxxxxxxxx
Subject: Re: New bankruptcy law


Clifford,

I think I do understand the point, but I see another side of the
issue that no one on this list appears to have addressed.  I
don't deny that there is misleading advertising going on by
credit card companies.  I too get the kind of propositions you
describe.  If the truth-in-advertising laws do not adequately
cover the case of credit card promotions, then by all means let's
correct that.  But I don't buy the notion that bankruptcy laws
may not be changed on the grounds that they are an integral part
of existing debt contracts.  There may be problems with the
proposed changes, but the contractual issue is not one of them.
A grandfather clause that could be invoked in court if
circumstances justified it could handle inequities in existing
cases.

We all agree there should be adequate protection against
impoverishment due to a default on debt.  Unfortunately the 100
year-old bankruptcy law is no longer working very well.
According to the NY Times today, "about 1.3 million Americans
declared bankruptcy last year, an increase of 75 percent since
1990."   No doubt a lot of that increase is related to over-use
of credit card debt, but we don't know how much can fairly be
ascribed to false or misleading claims of credit card companies.
I think the debtor needs to show how he was misled before simply
wiping out credit card debt in bankruptcy court.

I know that the credit card companies are pushing for changes in
the bankruptcy law.  The changes they propose would no doubt
create a windfall for them -- unless they are guilty of violating
truth-in-advertising laws.  The mutual fund industry was forced
to clean up its act regarding promotional claims.  I don't see
why the credit card companies can't be forced to do the same.
But that is a different issue from the arguments against changes
to the bankruptcy law.

I think one of the strengths of the US economy relates to the
high rate of tax collections in what amounts to an honor system.
Equally important is the "puritanical" view of debt by most
citizens.  I would be alarmed if there were a serious erosion in
the attitude that debts must be repaid.   Credit is the lifeblood
of the economy.  The amount and quality of credit market debt is
a measure of the size and vitality of a nation's economy.
Imagine the impact on aggregate demand if credit became
increasingly scarce as more and more borrowers learned the art of
finance by means of bankruptcy.

William

>William,
>
>I think you miss the point. Of course there is irresponsible borrowing out
>there but this irresponsible borrowing is encouraged by the massive
>bombardment of credit card companies with misleading advertising. I receive
>several credit card offers a month-a substantial number of them risable wrt
>interest rates. I have on occasion even received checks, made out to me
>personally, that I never requested, that if I cash, carry interest rates
>upwards of 20%. Every night on TV Master Card, Visa and Amex sell their
>product as a way to increase purchasing power and enjoy the good things in
>life. Consumers wind up with 18% and more interest rates while credit card
>companies send consumers statements with minimum payments that will result
>in an amortization period of 30 plus years for balances of $10,000.
>
>At the same time, consumers are saddled with high debt balances and
>extremely vulnerable to an economic downturn. This law will result in more
>bankruptcies, not less, and make working out bankruptcies more problematic.
>
>True-there are many things that can be done for consumers such as better
>credit counseling and more judicious use of debt. I agree, consumers should
>educate themselves. But this does not change the fact that credit card
>companies share in the blame and have steadfastly refused to address or
>examine their lending practices at all. Thus credit card companies persist
>in encouraging moral hazards while trying to transfer the risk entirely to
>consumers.
>
>-----Original Message-----
>From: William F. Hummel [mailto:wfhummel@xxxxxxxxxxxx]
>Sent: Wednesday, March 14, 2001 1:23 PM
>To: pkt@xxxxxxxxxxxxxxxx
>Subject: Re: New bankruptcy law
>
>
>Doesn't a contract require a meeting of the minds?  There may be
>a few incurring debt who do so fully aware of the bankruptcy
>laws, but I'll bet the number is trivial.  And those who do so
>with malice aforethought are hardly the ones deserving of the
>protection.
>
>If changes in the bankruptcy law is a breach of contract with
>debtors, how about increases in FICA taxes in 1983 or income
>taxes in 1993?
>
>I haven't seen the details of the proposed changes in the
>bankruptcy law.  But I do believe there is a need to correct a
>real problem in the US arising from our litigious society.  There
>are just too many lawyers, the highest per capita by far in the
>world.  Hungry as locusts, they now openly make pitches on TV to
>"help" people file for bankruptcy, at a fee of course.  That has
>greatly watered down the stigma of bankruptcy.  Those who are in
>over their heads from ignorance or misguidance deserve protection
>against impoverishment, but not in playing the game at expense of
>others.
>
>William F Hummel
>
>>Bankruptcy protection is an integral part of any debt contract, just as
>much
>>as interest rates, collateral and payment schedules. When the contract is
>>written up, both creditor and debtor are both aware of the possibility of
>>default and bankruptcy and of the legal protection that applies in such
>>cases.  Furthermore, the probability of bankruptcy is (or should be)
>>computed and already accounted for in the interest rate anyway.
>>
>>If credit card companies realize now that the bankruptcy rate was higher
>>than they had calculated, then it should not fall upon the debtors to pay
>>for that mistake. Furthermore, it is doubtful it was really a mistake to
>>begin with.  By pushing credit cards onto all and sundry, you're begging
>for
>>a rise in bankruptcy rates!  Creditors should have adjusted for this
higher
>>risk by raising interest rates or cutting back their rate of credit
>>expansion.  Of course, in a competitive environment, no profit-minded
>>credit-card company wants to be the first to do either of these things.
>>Consequently the only profitable option left is to reduce bankruptcy rates
>>by convincing Congress to change bankruptcy laws.
>>
>>Whatever difficulties the credit industry may be having due to a
>>misalignment of bankruptcy rates and interest rates is wholly due to the
>>actions (deliberate and otherwise) of creditors and not debtors.
>>
>>As a coda, perhaps it is worthwhile reflecting on the historical factoid
>>that bankruptcy laws are in place largely because they were pushed for by
>>creditors, not debtors.  Before the English Bankruptcy Acts of 1706 and
>>1732,  if a borrower could not or simply refused to pay his debts,  the
>>creditor's only option was to (personally) send the debtor to prison until
>>he paid up or died.  But it was not the government's responsibility to
>>liquidate him. His personal estate was not confiscated -- and so the
debtor
>>could actually still use his estates' revenues to set up a comfortable
>>prison life.  Whatever the case, the loss stayed with the creditor.  If he
>>tried to expropriate as much as one cow from the debtor's estate in
>>compensation, the creditor would find himself hung as a thief (at worst)
or
>>involved in a blood feud (at best).
>>
>>It was only after the Bankruptcy Acts, pushed by creditors, that
government
>>got involved.  An individual creditor could now petition the Lord
>Chancellor
>>to start bankruptcy proceedings (he would also have to post a bond, to
>>discourage spurious claims).  If the government commission found the
debtor
>>to be insolvent, then his personal property would be expropriated to
>satisfy
>>the creditors.  If the borrower cooperated fully with the investigations,
>he
>>would not be sent to prison and could keep up to 5% of his estate -- even
>if
>>the remaining 95% was not enough to cover his debts.
>>
>>Somehow, in the interim, bankruptcy laws became regarded in the popular
>mind
>>as a "favor" that was granted by government to debtors, and "inimical" to
>>the interests of creditors.  They are not.  They are part of the terms on
>>the debt contract, a financial innovation invented and pushed for by
>>creditors.
>>
>>Goncalo Fonseca
>>
>>
>>----- Original Message -----
>>From: "Clifford Poirot" <cpoirot@xxxxxxxxxxx>
>>To: <pkt@xxxxxxxxxxxxxxxx>
>>Sent: Tuesday, March 13, 2001 10:34 AM
>>Subject: Re: New bankruptcy law
>>
>>
>>> I've attached today's NYT article on this law. The article pretty much
>>> speaks for itself. It is a disgusting spectacle of credit card companies
>>> buying Congress and Congresspeople and Senators being entirely unwilling
>>to
>>> look at the merits of the issue. American credit card companies bombard
>>> consumers with advertisements and mass mailing promising them an
increase
>>in
>>> their purchasing power (along with family happiness, romance and
>vacations
>>> to exotic locations).
>>>
>>> The price of borrowing money on your credit card: 12-18%.
>>> Buying a Congressional representative: Priceless.
>>>
>>