3/04/2005

Going for broke...

Courtney Mabeus of Capital Eye talks about what's behind the bankruptcy legislation before Congress:
Fresh from their successful effort to pass class action reform, Senate Republicans are hoping they have enough momentum to push through legislation that would make it more difficult for consumers to escape from debt by filing for bankruptcy.
Financial interests, which have led a years-long effort to toughen bankruptcy laws, scored a small victory last month when the Senate Judiciary Committee approved bankruptcy legislation on a 12-5 vote. But as the Senate debates the bill this week, a coalition of consumer advocates, labor unions and others is working to ensure that the measure’s passage is far from certain.
Bankruptcy legislation has failed twice in the past seven years. In 2002, Democrats doomed the bill by inserting language to prohibit abortion clinic protesters from filing for bankruptcy to escape court-imposed fines. Sen. Charles Schumer (D-N.Y.) has vowed that he will try to include the abortion provision again. Democrats also may try to attach an amendment to raise the minimum wage by $2.10 over the next 26 months, a move that Republicans say they will resist. With its expanded majority in the House and Senate following the 2004 elections, the GOP may finally get its way.
The bill’s backers include some of the biggest contributors in politics. Finance, insurance and real estate interests combined for more than $306 million in individual and political action committee contributions during the 2004 election cycle, 59 percent to Republicans. President Bush raised $33.5 million from these interests, which contributed $13.9 million to the Democratic nominee, Sen. John Kerry (D-Mass.).
Credit companies and commercial banks arguably have the most at stake in the bankruptcy debate. The credit card industry has contributed $24.8 million to federal candidates and political parties, 65 percent to Republicans, since 1999. MBNA, the nation’s No. 1 issuer of credit cards, has accounted for $6.7 million of the total over that time period. The company’s employees and PAC are among President Bush’s top contributors, having given a total of $594,000 for his two presidential campaigns. MBNA spent a little more than $17 million lobbying Congress from January 1999 through June 2004.
Commercial banks have contributed $76.2 million to federal candidates since 1999. Of that, 64 percent has gone to Republicans. The American Bankers Association, the leading trade group for commercial banks, has strongly supported bankruptcy reform for years. It has contributed more than $5.8 million in individual and PAC donations to federal candidates, 57 percent to Republicans, since 1999. It spent about $22 million on federal lobbying between 1999 and mid-year 2004.
A number of other business interests, including retailers and car dealers, have supported the bankruptcy bill in years past. Credit unions, whose representatives met in Washington this week, also back the legislation.
Patrick Keefe, executive vice president of communications for the Credit Union National Association, said as many as 3,000 of the group’s members would meet with lawmakers on Capitol Hill to urge their support for the bill. Abuse of bankruptcy laws accounts for $90 million, or 40 percent, of credit union losses annually, he said. Keefe said CUNA is not interested in restricting people from declaring bankruptcy for justifiable means. Rather the organization wants to end the use of bankruptcy "as a personal financial planning tool," he said.
In past years, the lobbying battle in support of bankruptcy legislation was led by the Coalition for Responsible Bankruptcy Laws. Its members included MBNA, the ABA and the American Financial Services Association, the leading trade group for financial services firms. The coalition’s executive director, Jeffrey Tassey, has been urging Congress to pass the bill this year.
"The vast majority of Americans say that bankruptcy's more socially acceptable than it was years ago," Tassey told the Dallas Morning News in January. "Most Americans have seen somebody down the street with two cars, where they go bankrupt and there are no consequences to that, and it really upsets them."
However, the extent of the coalition’s role in this year’s debate is unclear. ABA spokeswoman Laura Fisher said there is no longer a "formalized" coalition of business or financial interests lobbying for the legislation. "What we’re doing is our own work," Fisher said. She said the ABA was trying to build opposition to Democratic-sponsored amendments, but could not give specific details. Tassey did not return phone messages.
The bankruptcy bill would apply a means test to determine how much money a debtor should be forced to repay. That would shift more debtors from Chapter 7 bankruptcy status, which usually results in the cancellation of most debts, to Chapter 13 status, which more often results in the debtor being assigned a repayment plan. Debtors whose incomes fall below their states' median income level would not be affected by the legislation.
Consumer advocates complain that the bill ignores the factors that contributed to an individual’s bankruptcy filing. They argue that many of the 1.5 million people who file for bankruptcy each year do so as a result of job loss, divorce or health problems and are not wasteful spenders.
The Consumer Federation of America, which is leading the opposition to the bankruptcy bill, and its allies also blame credit card companies for aggressive marketing and inadequate disclosure of penalties and interest rates. The groups want bankruptcy laws that would shield the poor from what they view as predatory practices.
Travis Plunkett, a CFA lobbyist, said the political climate has changed considerably in the years since Congress first considered bankruptcy reform. "The last time the Senate considered this bill was before September 11," Plunkett said. "The rhetoric in the late 1990s was go-go. We had a booming economy." But now, he added, the "other thing that’s booming is consumer debt. We’ve had a recession, we’ve had scandals."
CFA has spent more than $660,000 on federal lobbying since 1999, according to Senate filings.
Not all finance companies are supporting the current bill. This week, ING Direct CEO Arkadi Kuhlmann appeared at a Capitol Hill news conference with leading Senate Democrats to announce his company’s opposition to the bankruptcy legislation.
ING spokesperson Ashlee Stokes said the current bill could be harmful for consumers. The company, a subsidiary of Dutch financial giant ING Group, had plans to run ads in national newspapers this month. ING’s employees and PAC have contributed more than $818,000 to federal candidates and political parties since 1999, 61 percent to Republicans. The company spent $400,000 on federal lobbying in 2003 and the first half of last year.

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