Bank Interest: Bankruptcy Reform Looms
After five years on Capitol Hill, the bankruptcy reform bill is one compromise away from passage. But consumer groups claim the bill still fails to address the bad habits of the very lenders that have spent millions to get it passed.
"The bill has progressed in fits and starts over the past five years but appears to be entering the homestretch," says David Butler, spokesman for the Consumers Union, which opposes the bill. "Business interests have poured time and money into pushing this bill."
In March 2001, both the House of Representatives and the Senate passed bankruptcy measures by wide margins, 306 to 108 and 83 to 15, respectively. After much delay and months of private negotiation in committee, the House and Senate have come to terms on every issue except one.
The final debate centers around a provision that would bar those convicted of blocking abortion clinics from using bankruptcy to avoid paying their fines. If that issue can be navigated, Bush is likely to sign the bill into law. "President Bush has indicated that he supports this bill," says Butler.
Signed, Sealed and Almost DeliveredThough the Enron mess gave the bill a political boost, consumer groups argue that lenders such as banks and retailers that support the bill have been instrumental in lobbying it through Congress.
"Congress has been overwhelmed by an industry that has spared no expense to pass this bill," says Travis Plunkett, legislative director for the Consumer Federation of America.
More Money, More ProblemsBut consumer groups claim bankruptcy reform misses a key part of the problem: the lenders themselves. "There is not one check on actually restricting the kind of abusive lending many practice," Plunkett says. "Any time anyone shows up in bankruptcy with 10 credit cards, some lender has made a big mistake. Who gave them that last credit card?" Supporters disagree. "That has nothing to do with it. According to our delinquency bulletin, more than 90% of Americans pay their bills on time," Pulley says. "The vast majority of Americans are responsible with credit." Though delinquencies account for a small percentage of total debt, some banks overextend their credit lines. Problem loans, defined as loans that are 90 days past due, have become an issue for all types of lending. In December 2001, the number of problem real estate loans rose 20.7% from the previous year, according to Veribanc. Problem commercial and industrial loans rose 31%, while problem consumer loans rose 11.1% over the same span.
|Problem Loans on the Rise
Across the board, the number of problem loans has increased in the past year
|Problem loan area||Amount past due as of Dec. 2000||Amount past due as of Dec. 2001||Annual change|
|Real estate||$15.5 billion||$18.7 billion||20.7%|
|Commercial and industrial||19.7 billion||25.8 billion||30.1%|
|Consumer||8.6 billion||9.6 billion||11.1%|
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