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Credit Card Companies Demand Their Pound of Flesh

March 2, 2005

It looks like the credit card companies are about to get their fondest wish: a total revamping of the federal bankrupcty code with some of the most anti-consumer, Draconian provisions ever seen in an American statute. The bankruptcy code does not need reforming. It works just fine, if you talk to anyone who actually knows anything about the subject -- like federal bankruptcy judges, for example. A recent Harvard University study showed that one half of all bankruptcies are filed because of overwhelming medical bills -- not because someone was irresponsible with his money. The study showed that most middle class families with insurance are just one illness away from bankruptcy court.

Bankruptcy is not some fabulous treat, no matter what Rick Santorum says. It's a devastating mark on one's credit record that stays there for ten long years. Now, this new bill will make it almost impossible to file for Chapter 7 (the one where you get a fresh start at a high price on your credit report), will effectively eliminate the homestead exemption, sharply curtail consumers' ability to hire an attorney to represent them, and will force many people into Chapter 13 (the one where you pay and pay over time while a judge decides how much you can spend on your kid's medical bills each month) who have no business being there. This bill has been shot down many times since 1997, but the credit card companies keep pouring money into politicians' coffers -- and now it's payback time. With the threat of bankruptcy effectively removed, look for the credit card companies to raise rates, fees and penalties (already at around 31% for anyone who's lost a job and is behind on any payments) to levels not seen outside of a Mafia movie. The Puritans believed that lending money at interest was a sin; debtor's prison was one institution they left behind in England when they came to America. It looks like debtor's prison is about to make a comeback. And the credit card companies will get their pound of flesh.

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