The Worst Legislation Money Can Buy

One of my biggest complaints about the current Republican agenda as it relates to economic matters is their complete inability to stick to the facts. After all, this is supposed to be the party of Wall Street, the party of fiscal conservatism. Yet when it comes to any kind of legislation that actually involves the pocketbooks of average Americans, they can never seem to get their story straight.

Case in point: the egregious Bankruptcy Reform Act that went into effect in October of 2005. The hue and cry from Washington Republicans (and bought-off Democrats like the Joes, Biden and Lieberman) was that bankruptcy fraud was just the most awful thing happening to our economy and we really must work to stop those frivolous spenders and their shopping sprees through Spencer's and Hot Topic. No longer shall these suburban money militants be allowed to escape responsibility for charging plasma lights and Atari t-shirts to their Discover card and then going BK to escape payment. In fact, you can almost hear the righteous spittle as it flecks against the walls of the Capitol Building:

"The need for bankruptcy reform is long-overdue and crucial to our Nation's economy and the well-being of our citizens. Every day that goes by without these reforms, more abuse and fraud goes undetected. Every abusive bankruptcy filing adversely affects hardworking Americans in the form of higher interest rates and increased costs for goods and services. America's economy should not suffer any longer from the billions of dollars in losses associated with profligate and abusive bankruptcy filings." [Rep. James Sensenbrenner, Jr. (R-WI)]

Or how about:

"It's time to promote responsible borrowing while also ensuring the safety net offered by bankruptcy. It was not intended to be a convenient financial planning tool where deadbeats can get out of paying their debt scott-free while honest Americans who play by the rules have to foot the bill." [Sen. Charles Grassley (R-OH)]

Can't forget this one either:

"...our goal was to disallow people from filing bankruptcy simply for the sake of taking advantage of a financial opportunity provided by the government. People who can afford to pay all or a part of their debts over a limited period of time should not get off scot free." [Sen. Jeff Sessions (R-AL)]

That much "compassionate conservatism" just brings a tear to your eye, doesn't it? At the time of its passage, liberals like myself were outraged that elected officials such as the gentlemen above could actually believe that the working poor were gaming the bankruptcy system to that extent. Conservatives on both sides of the aisle were adamant that bankruptcy fraud was a pressing problem that needed addressing.

Well, you'll never guess which of us was actually right...

The National Association of Consumer Bankruptcy Attorneys (NACBA) recently released the results of a study surveying six of the largest consumer credit counseling agencies to determine whether or not the views of Rep. Sensenbrenner, Sen. Grassley and Sen. Sessions bear even a passing resemblance to the truth. Not surprisingly, they do not:

Contrary to the claims of proponents that all they intended to do is zero in on "deadbeats" crippling the U.S. economy with "billions of dollars in losses associated with profligate and abusive bankruptcy filings," the sweeping federal bankruptcy law changes that went into effect on October 17, 2005 are doing little more than imposing new costs and paperwork burdens on tens of thousands of already distressed Americans, the vast majority of whom are being forced into bankruptcy due to financial circumstances beyond their control.

Let's take a look at some of the statistics, shall we?

As predicted by opponents of the legislation: Almost none of those seeking bankruptcy protection are able to repay their debts. Fewer than one out of 20 consumers (3.3 percent) were candidates for paying off what they owe under a debt management plan (DMP), with the remaining 96.7 percent requiring the same bankruptcy filing that they would have needed before the new bankruptcy law went into effect. And, many of the 3 percent who may have been candidates for a DMP based on income needed bankruptcy relief (often a chapter 13 payment plan) to forestall immediate harm, such as a home foreclosure that a DMP could not prevent. Thus, the credit counseling requirement under the new law, designed to steer debtors who could repay their debts into a debt management plan, simply imposes new costs and time burdens on individuals who can ill afford either and clearly are not the people for whom a DMP is feasible.

Also as predicted by opponents of the legislation: The vast majority of Americans seeking bankruptcy protection are victims of unfortunate circumstances, not imprudent spenders seeking to cancel their debts. Four out of five consumers (79 percent) seen by credit counseling agencies are suffering from debt "caused by circumstances beyond their control (e.g., loss of a job, medical expenses, death, divorce or other change in marital status, increased minimum payments on credit cards, predatory lending, and so on)". Only about one in five of the respondents (21 percent) were identified as suffering from debt due to "circumstances within their control". The credit counselors included in this group all of those individuals who did not deliberately seek to accumulate excessive debt and, instead, through creditor blandishments and lack of financial sophistication, "got in over their heads" as finance charges and other fees mounted over a period of years. Thus, the masses of expected deadbeats who were supposed to be identified under the new law and forced into debt management plans have not materialized.

At the end of the day, this bill was nothing more than corporate welfare for credit card banks, such as MBNA and Citibank, who donated heavily on both sides of the aisle. It's a punitive bill based, not on facts, but on conservative assumptions about the behavior of the poor. Bankruptcy conflicts with the conservative "belief" in personal responsibility. I put scare quotes on "belief" because there are some pretty big exceptions to it. It's really more "personal responsibility for thee, but not for me", as the laundry list of GOP scandals easily demonstrates. In the end, the Bankruptcy Reform Act was legislation bought and paid for by corporate campaign donations and is a back-breaking burden placed on the working poor. It just goes to further demonstrate the contempt that conservatives, mainly Republicans but a few Democrats as well, have for the majority of Americans.

On a positive note, it's good to remember that Senators Feingold and Kohl of Wisconsin both fought like hell to block or amend this legislation and were beaten back by the Republicans each and every time. They're a nice counter-balance to the fetid tide of conservative muck flowing from the once progressive Dairy State.