March 1, 2005
We at Consumers Union, the non-profit publisher of Consumer Reports ®, strongly urge you to reject the bankruptcy legislation currently pending on the Senate floor. Contrary to the claims of its sponsors, the legislation is not narrowly focused on bankruptcy abuses. Rather, it makes sweeping changes to bankruptcy law that could severely alter the protections currently afforded hard-working Americans who encounter legitimate financial problems.
Much evidence suggests that rising consumer bankruptcies are tied to abusive lending practices by creditors. Yet this bill does nothing to address this fundamental problem. Instead, the bill protects predatory lenders who offer credit, with abusive repayment terms, to high-risk consumers. It also provides creditors with additional opportunities to employ strong-arm collection tactics, threatening debtors with new, costly litigation. Furthermore, the bill protects credit card companies who fail to disclose the true cost of credit they provide to college students and others, who may quickly find themselves trapped in serious debt, ruining their credit ratings for years to come.
At a time when the economy has been weakened by terrorist attacks, the recession and corporate wrongdoing, ordinary Americans are increasingly finding themselves in precarious financial positions. When personal disaster strikes, usually in the form of a divorce, loss of a job, or high medical bills, bankruptcy is often the only relief for struggling families. But provisions in the bill, such as the means test, would deprive these families of this final safety net. For example, the means test would set up an inflexible formula to determine if an individual debtor is eligible to declare chapter 7 bankruptcy. In addition, the bill would endanger the welfare of children by diverting money that could be used for child support payments to other creditors.
The bill would have a particularly harmful effect on certain populations of Americans. For instance, women currently represent the single largest group in bankruptcy. African American and Latino homeowners are 500 percent more likely to be forced to declare bankruptcy than are white homeowners. Laid-off workers are also particularly vulnerable, and the elderly are now the fastest growing age group in bankruptcy.
Consumers Union does not oppose bankruptcy reform – we oppose unfair and unbalanced bankruptcy reform. As an organization committed to the protection of vulnerable consumers who would be harmed by the bill, we urge you to reject its punitive bankruptcy restrictions.
Esther Peterson Fellow