Credit Card Promises

During the debates over bankruptcy reform, the credit industry launched a public relations campaign claiming that bankruptcy cost every American family $400 every year. The stat was picked up and repeated as fact by both the politicians and the press (more details here). The promise was clear:  pass bankruptcy reform and watch the costs of consumer credit fall. Now the numbers are coming in. Did credit industry losses decline? Did the cost of a credit card go down? A new paper, The Effect of Bankruptcy Reform on Credit Card Prices and Industry Profits, assembles pre- and post-BAPCPA data to answer that question.

First, the answers from the author, Mike Simkovic: 

Yes. No.  Yes, credit industry losses decreased after BAPCPA.  The issuers reduced their bad debt write-offs.  No, the cost of credit card debt did not drop. In fact, post-BAPCPA, the cost of borrowing on a credit card went up.  Where did the money go that was saved from cutting back on bad debt losses?  That money ended up in higher profits for the credit card companies. 

The author's conclusion says it all:  "Although bankruptcy and credit card losses decreased, the cost to consumers of credit card debt actually increased.  In other words the 2005 bankruptcy reforms profited credit card companies at consumers' expense."

The paper is cited Sunday morning's New York Times front page article on consumer debt, Given a Shovel, Digger Deeper into Debt. The Times article gives another lens into the new world of consumer debt looks like.

What happens next? Does anyone hold the companies to account? Do the politicians who said that bankruptcy reform would save money say they were wrong? The advocates of the new law spoke frequently about irresponsible consumers who cost bill-paying customers money.  Will the credit card companies now take responsibility for gobbling up the money earned from squeezing families harder? 

Earlier this month presidential candidate Barack Obama said that he was right to oppose the 2005 bankruptcy amendments, and he laid out some key changes.  As the data come in, there is more to back up Obama's position and more to support legislative change. Perhaps the next Congress will revisit the question of families versus corporate lenders and ask again who has been irresponsible.   

Comments

[AMC]

Obama was right to oppose BAPCPA - but he's wrong not to advocate repealing it.

All anyone is doing is talking about possibly putting a bandaid on a putrid rotting corpse.

Repeal the whole thing, and then pass a bill that was drafted by someone competent.

And yes, if BAPCPA were repealed, the amendments to the old Bankruptcy Code should shift the old Bankruptcy Code balance of power in favor of creditors. In contrast to BAPCPA, which shifted the balance of power to randomness and uncertainty caused by amendments taken from the jibberish school of legislative draftmanship.

[Mike Dillon]

One small problem with Sen. Obama:

A Top Obama Fund-Raiser Had Ties to Failed Bank
http://online.wsj.com/article/SB121660089138069207.html?mod=googlenews_wsj

What would Ms. Pritzker do if she got her hooks into the Treasury? As Sen. Obama's national campaign-finance chair, how would SHE handle bankruptcy reform? If Sen. Obama is listening to HER counsel that may be the more pertinent question. What are HER views on BAPCPA?

FDIC Faces Mortgage Mess After Running Failed Bank
http://online.wsj.com/article/SB121641296022866029.html?mod=googlenews_wsj

[Patches]

Came upon this quote on another blog located here:
http://stevesathersbankruptcynews.blogspot.com/
The blog was talking about “justifiable reliance” issues on non-dischargeability complaints in 7s. Thought it was pertinent to this discussion.

"The Plaintiff's extension of credit to the Defendant in this case was a result of their own negligent lending practices and the industry's negligent use of a faulty FICO score system which has been engineered to create the greatest amount of credit for the greatest number of working people in this country with artificially low monthly repayment requirements so that credit card companies can make the greatest amount of interest and profits possible. Losses such as this are simply a cost of doing business in such a greedy manner".

In re Akins, 235 B.R. 866, 874 (Bankr. W.D. Tex. 1999).

[Patches]

Here is a quote I came upon on another blog locate here: http://stevesathersbankruptcynews.blogspot.com/
This guy is a Texas BK attorney. The blog subject was on “justifiable reliance” in the context of dischargeability complaints in 7s. I think the quote is pertinent to this discussion.

"The Plaintiff's extension of credit to the Defendant in this case was a result of their own negligent lending practices and the industry's negligent use of a faulty FICO score system which has been engineered to create the greatest amount of credit for the greatest number of working people in this country with artificially low monthly repayment requirements so that credit card companies can make the greatest amount of interest and profits possible. Losses such as this are simply a cost of doing business in such a greedy manner".

In re Akins, 235 B.R. 866, 874 (Bankr. W.D. Tex. 1999).

[rubberbandman]

Big Brother is now in your wallet thank to the housing bill

http://www.campaignforliberty.com/blog/?p=232