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March 06, 2005

BANKRUPTCY "REFORM:" I'm deeply skeptical of the bankruptcy bill in front of Congress now, and this report on credit-card industry practices goes a long way toward explaining why. Credit extended to people who can't handle it, absurd hidden fees, high interest rates, etc.: There's a lot of scamming here. The argument, of course, is that people who sign up for credit card accounts ought to know what they're getting into. But shouldn't the companies that extend credit to people who obviously can't handle it be held to the same standard?

I was pointing out this kind of stuff back when InstaPundit was young -- and it certainly hasn't gotten any better. Is it any coincidence that the companies involved are big campaign contributors? The people behind this aren't all Republicans by any means, but this is a Republican Congress, and if it passes they'll get -- and deserve -- the blame for something that's a pure giveaway to corporate interests.

UPDATE: A reader writes:

You can be a Republican and hate bankruptcy reform. Banks are making incredible profits on credit cards. There will be a lot of downward pressure on profits if this reform is passed. And an increased number of murders and suicides. You can't use a pressure cooker without having an escape valve. You really can't.

As proof of his thesis, the very Republican Jane Meynardie emails:

Amen to your concerns re. the bankruptcy bill. I have no sympathy for credit-card companies and other lenders, including the Federal Housing Authority, who offer easy credit to people who are better off without it and then whine when they default. They price, or can price, the bad debt risk into the interest rate. They are much better equipped to assess that risk than their borrowers are able to assess the risk of doing business with them. (Sorry if that sounds a bit maternalistic.)

I don't think it does. As I say, people should have to face the consequences of their bad decisions -- but that includes their bad lending decisions, especially when the lending is, fundamentally, dishonest.

I assume that the Bush Administration is supporting this legislation, but I really don't see it as consistent with "compassionate conservatism." I see it, in fact, as consistent with the worst stereotypes about corporate-friendly Republicanism.

ANOTHER UPDATE: Reader Joseph Britt emails:

I agree completely with what you have to say about the bankruptcy bill moving through Congress. I am sorry to say it is easier to find Democrats working for the credit card companies (Joe Biden, for example) than it is to find Republicans opposing this bill. Among Senate Republicans I can't find any. Can you?

I don't know of any. Perhaps someone will let me know who I'm missing. Meanwhile, here's a long post by Todd Zywicki on credit card debt suggesting that I'm too hard on the credit card companies. But the constant mailings, such as the one I link above, that I get suggest that there's a lot of abuse here.

ANOTHER UPDATE: The Blue Dog Democrats have endorsed the bill, and Zywicki observes: "In an era of Washington partisanship, one would be hard-pressed to find many major pieces of legislation with such broad-based bipartisan support." Why am I not surprised . . .?

Meanwhile, John Cole is unhappy about the bill, too, showing that this really is an issue that crosses the usual blogospheric lines of disagreement. Meanwhile, here's a letter from law professors opposed to the bill. And there's more here. [LATER: Some readers think the photo on that site looks a lot like this one. Surely not.]

MORE: Ted Janger, visiting lawprof at Penn, emails:

You are right. As the signatures on the letter show, politics of this bill confound the usual party line divisions.

My sense is that many republicans are voting against the interests of their constituents here. If you take a look at this table, and look at which states have the highest bankruptcy filing rates, you'll see that the pain associated with "bankruptcy reform" will be felt most deeply in "red" states.

Hmm. I'm not sure that's to their credit.

MORE STILL: Another "right-of-center" blogger criticizes the bill:

So where does this leave us? I’m very uncomfortable allowing an industry that sends out 4 billion pieces of mail every year that say “You’re pre-approved–borrow from us” to squeeze more money out of people who plainly don’t have it by preventing them from filing for bankruptcy, which it appears will happen if the legislation passes in its current form.

Further, an industry that cynically manipulates the uninformed into getting in over their heads, and then shafts them when they do with $39 late fees, 25%-plus interest rates, and the like should not be permitted to collect their excessive charges from people who don’t have the money by peeling off a large percentage of their future income, which is what it appears the legislation will enable.

Perhaps the real problem isn't bankruptcy as such, but unaddressed abuses by the credit-card industry. And perhaps those should be looked at regardless of what happens with this legislation. I don't actually think that credit card companies are evil -- the expansion of consumer credit is a good thing -- but their marketing practices are dishonest, and their complaints that their loans to poor risks aren't panning out leave me unmoved.