October 23, 2002

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Credit scam
Why is Congress so intent on helping lenders – and hurting millions of consumers?

By Ralph Nader

WHEN THE CURRENT Congress convened last year there were lots of promises to curb predatory lenders that peddle credit on outrageous terms to poor, elderly, and unsophisticated borrowers.

Not only is Congress reneging on its promises, but it is also rushing to reward the lenders, whose scams have devastated low-, moderate-, and middle-income families and forced many into foreclosures and bankruptcies.

Congress's gift to the predatory lenders is a scam artist's dream under the guise of "bankruptcy reform." The sponsors hope this "lenders relief" bill can be shoved through Congress in the last days of the session – before the American public realizes its elected representatives are rewarding the banks, credit card companies, finance companies, and other financial corporations that have provided the Congress nearly $30 million in campaign contributions to promote bankruptcy reform in recent years.

The financial industry – along with allies like gambling casinos and car dealers – are attempting to convert the nation's consumer bankruptcy law, which has served consumers and business well for decades, into a punitive debt-collection enterprise that will keep hard-pressed consumers in what amounts to debtors' prisons for years.

The lobbyists for the credit merchants have consistently resorted to the tactics of the big lie, with claims that the long-standing consumer bankruptcy protections are being abused by deadbeats attempting to escape their debts. The hard facts gathered from surveys of bankruptcy filings show that 90 percent of all bankruptcies are triggered by the loss of a job, high medical bills, and divorce.

Bankruptcy law always has been based on the principle that debtors facing impossible financial situations be given an opportunity for a new start – a second chance to regain their role as productive citizens rather than being thrown on a human trash heap to satisfy the demands of the creditors.

Not only is this sensible and humane for the family trapped in unforeseen financial troubles, but it also makes the utmost economic sense for local communities and the nation as a whole. Crushing families through a harsh bankruptcy law means more people on welfare rolls, off tax rolls, and dependent on already hard-pressed local charities.

Congressional supporters of the repeal of bankruptcy protections know quite well that many of the money problems faced by families today are the result of runaway credit card schemes of the past decade, which have duped so many unsuspecting consumers. Credit card offers have filled mailboxes with come-ons of easy credit. Introductory offers of a low interest rate are quickly converted into double-digit charges plus a mounting list of fees. As the cardholder falls deeper into debt, the card companies continue to up the ante by offering bigger and bigger credit limits. Ultimately, the consumer is sucked into cascading debt multiplied by high interest rates and hidden and deceptive charges and fees.

And Congress – now so anxious to enact a punitive consumer bankruptcy law – has consistently rejected efforts to reign in credit card abuses.

Instead, Congress wants to punish the poor to bail out the credit pushers. Congress's timing adds an extra note of cruelty to the conversion of bankruptcy into a punitive anticonsumer device. Thousands of workers are losing their jobs, savings, and pensions as a result of fraudulent management at Enron, WorldCom, and other large corporations. Many of those workers are left with only a few hundred dollars in the bank, with no jobs, and facing outlays for mortgages, education, transportation, and other necessities in an economy where unemployment is at 6 percent and rising.

Members of Congress have turned out reams of news releases and uttered thousands of words of lament about the workers caught in the whirlwind of massive corporate fraud. But now many of these same representatives are ready and willing – and anxious – to enact a bankruptcy law that will truly clobber these same workers. Next time you hear your senators and representatives express sympathy for the victims of corporate fraud, ask how they voted on the repeal of consumer bankruptcy protections.

And you might ask them how they justify shredding consumer bankruptcy protections while leaving corporations free to continue to avail themselves of an easy route through bankruptcy, shedding investor equity and reorganizing as viable companies. A soft, easy landing for corporate bankruptcy versus a harsh punitive rocky route for consumer bankruptcy – an atrocious double standard.

How serious is Congress about protecting citizens against corporate excesses and unfair, unscrupulous, and deceptive lending practices? The vote on wiping out consumer bankruptcy protections will come up in the Senate and in the House of Representatives in September. It will be a major test of Congress's ability to summon the courage to stand up to the massed lobbying forces of corporations. Forget the well-honed news releases and speeches – watch for the actual vote of your senators and representatives for or against repealing protections for consumers on bankruptcy. This will be the hard, telling evidence of who your elected representatives really represent in Washington.

For more information, please visit (www.consumerfed.org)