The Two-Income Trap - Elizabeth Warren [79]
Three years later, the commission delivered its report to Congress. The 1,100-page document detailed why so many families were in trouble (job losses, medical problems, and divorce) and identified certain lending practices that put families at particular risk. More important, it reaffirmed that the bankruptcy laws were, for the most part, working as Congress had originally intended: to offer families a fresh start in the wake of financial and personal disaster. It concluded with recommendations for modest legislative changes that were designed to curb abuses by both borrowers and lenders.90
But the Congressional bankruptcy commission was not to have the final world. While the commission was busy gathering facts, holding hearings, and analyzing current practices, another group also went to work, advancing a very different perspective. The “National Consumer Bankruptcy Coalition” (NCBC), the clever moniker of the banking industry lobby, was pushing its own agenda.91 The major banks had hit on a new strategy to reduce their bankruptcy losses. Rather than stop lending to families in financial trouble (as Elizabeth had counseled Citibank), they had a simpler and more profitable solution—restrict the rights of consumers to file for bankruptcy.
If fewer people could turn to bankruptcy for relief, more families would be subject to collection efforts from banks—and every other creditor—forever. Those families might never pay off their bills in full, but they would continue to rack up the interest and penalties, and at least a few would make some small payment every month, effectively becoming lifelong profit wells for their creditors. For the rest—those who simply could not come up with the money, no matter how hard they were squeezed—the lenders might eventually write off some of those loans voluntarily. (Although one wouldn’t guess it from all the fiery rhetoric, bankruptcy filings account for just a fraction of lending industry losses; in the large majority of cases, the bank simply gets tired of trying to collect.92) But if a family were not permitted to file for bankruptcy, it would be the lender, not the family in trouble, that would decide when the collection calls should stop.93
And so the banking lobby drafted a new bankruptcy law. To get all the lenders on board, the coalition added changes that would give better deals for car lenders, mortgage lenders, education loan servicers, landlords, credit unions—in short, better deals for everyone except families in trouble. The credit industry moved fast, persuading two friendly congressmen to introduce their bill in September 1997, a month before the official Bankruptcy Commission was scheduled to release its report.94 From then on, all eyes were on what Hillary Clinton would eventually dub “that awful bill.”
The “awful bill” was long and complex, couched in virtually unreadable prose.95 But to a trained bankruptcy lawyer, the intent was unmistakable: to undercut virtually every protection in the bankruptcy laws. Under the proposed legislation, child support payments would no longer take precedence over all credit card debt. As a result, more single mothers would be forced to compete with professional collection agents when they needed money from their bankrupt ex-husbands. Homeowners who had fallen behind on their mortgages would be prevented from catching up on past-due house payments until they had also paid off their credit card debts, increasing the likelihood of foreclosure. Families would no longer be able to free themselves from certain unsecured debts, so they would be required to make payments (plus penalties, late fees, and interest) on some of those bills for the rest of their natural lives—even if those payments took up 100 percent of their paychecks.
To win over legislators, credit industry executives lobbied extensively and donated more than $60 million in political contributions.96 This was followed by a public relations strategy that would make any spin doctor