Remember that Bankruptcy Bill We Passed…
To bail out those poor, helpless little credit card companies? Well, it’s time to revoke it:
As subprime borrowers began to default on their mortgages in rapidlygrowing numbers this year, credit card issuers increased their effortsto sign up such customers with tarnished financial histories, accordingto a market research firm.
Direct mail credit card offers to subprime customers in the UnitedStates jumped 41 percent in the first half of this year, compared withthe first half in 2006, according to Mintel International Group. Directmail offers targeted at customers with the best credit fell more than13 percent.
Yet, during this same period, defaults on subprimemortgages, which charge higher interest rates because the borrowers’blemished credit makes them bigger risks, rose significantly. In June,nearly 1 in 5 subprime mortgages were at least 60 days past due, andmore than 1 in 20 were in foreclosure, according to First AmericanLoanPerformance, a San Francisco firm that collects and analyzesmortgage data.
These are people already on the verge of bankruptcy. But credit card companies are targeting them selectively, luring them with yet another promise that they can get what they don’t–and can’t–pay for. And the credit card companies claim they’re doing these borrowers a favor, giving the cash to … what? Acquire tens of thousands of more debt?
The bankers running our house of cards economy just keep doubling down, it seems.
It’s not really doubling down.
The credit lines offered to subprimes are a fraction of what is offered to those with better credit. So the investment is miniscule compared to the potential return.
You can give someone a credit line of $250-$500 and stick them with an infinite debt when they can’t pay in full. High interest rates and fees with no easy bankruptcy protection are a recipe for profit. The hope is that people will forfeit the house and car to try to escape the ever increasing debt. Giving up the house and car is relatively painless compared to the endless hassle of credit card bill collectors.
This is predation, protected by congress.
Marcy,
You are absolutely right. I e-mailed Senator Chris Dodd, Chairman of the Senate Banking Committee and suggested repeal of the 2005 Bankruptcy bill. Dodd voted against it, Biden for it – of course, because Delaware is home to the major credit companies, and Hillary was â€not votingâ€. Maybe you could interest your readers and Jane’s to get on this issue. It will be a major issue in the 2008 elections.
The Bankruptcy bill was, in my opinion, the worst piece of legislation to be enacted since the Patriot Act.
Peter
Prmco:
Why didn’t Hillary vote?
All part of the continuing feudalization of America. If these subprime borrowers meet the minimum income test under the bankruptcy law, they will never get rid of any of this debt — mortgage, car loan, credit card — no matter how much property they give up. What’s that going to do to their job mobility, their willingness to join a union under the threat of being fired, their willingness to file complaints about illegal actions by their employers?
If it gets bad enough, we may see a new counterculture develop, with legions of the new debt serfs dropping out and living in the underground economy. Of course all the new information available to the creditors through massive databases may make dropping out and hiding underground all but impossible in the near future…
I’m sorry to see that the rest of the country is starting to experience what it’s like to make less than $100k here in Florida.
This will, of course, be played as progress â€accidentally†leaving â€a few†people behind; while George Will and other elitists will say it’s our own fault.
Bias admission: My engineering department job is going to China on 9/21/07. Gee, what a surprise! I am out of work in Florida again. But it’s easy here: pay is 45th out of 50th state wise, while cost-of-living is 107% the median.
Let’s not forget that in addition to interest rates (and â€service charges†and â€penalties†that can make the rates even more usurious), Visa and Mastercard also take as much as 4% of any credit card transaction from the merchant – who really has no choice but to comply, because his customers probably have no, you know, MONEY to buy the goods and services in the first place. I’d be interested to see what effect that credit markup has on true inflation rates, if they do calculate it, but the feds dreamed up hedonic regression to mask inflation so I’m sure they could find a metric for this type of credit-driven inflation as well. And I’m not surprised that the credit card companies are targeting the subprime market – after foreclosure, they will soon be out of their homes, and therefore will have more â€disposable†income to spend after they end up in their new efficiency apartments next door to the DFH bloggers. drational is right – with low credit limits, the risk is very low and the potential payoff very high, much like the payday loan industry has blossomed with the advent of electronic banking to make collection very, very easy – much more cost effective than running a pawnshop.
But it’s alright Ma – you can always try to get ahead at your local casino!
mamayaga
Oh! With warantless wiretapping and data mining there’ll be nothing the gubmint wont know.
I’ve worked in affordable housing and financial literacy for the last decade. The bankruptcy bill has had serious ramifications on everyone, especially low-moderate income families. While I fully support the provision of the law that requires financial education and counseling as part of the application and discharge process, many bankruptcy lawyers have perverted the original intent of the law. These bad actors push clients to rack up additional debts prior to filing, charge exorbitant rates for simple legal paperwork and attempt to circumvent the educational component at every turn.
If not a repeal of the legislation, then a serious overhaul that requires substantial credit counseling and financial education for a set period prior to filing.
And in the very next election after the BK law, voters allowed a law removing protections from revolving credit against home equities.
I’m not saying this very well, but it used to be illegal to have a credit card secured by your home here in Texas. No so any longer.
Such a thing doesn’t affect me directly as I have enough experience, education, etc. to know better.
It is however yet another way to exploit those with less advantage, and currently the less sophisticated in this nation are being pressed from all sides. Someone has forgotten that those folks are the backbone of america.
Democracy works well when government is the advocate of those who need and advocate, when government becomes the advocate of the rich and powerfull, it all goes to hell in a handbasket.
And the rapidity with which it happens is truely stunning.
Dismayed, there was an article in our Fort Worth Star-Telegram a few days ago about the effects of another new law here in Texas that allows debt to be sold by the original creditor, instead of just turning it over to a collection agency. The impact is that many companies that buy credit are now filing suit in local commissioners’ courts. Many people do not realize the impact that that has, and do not bother to contact an attorney or even show up. As a result, there are lots of new judgments being entered against people — some valid, and some not. Apparently, some of the companies that buy credit are not real accurate in their identifications of people owing the debts, and mistakes are made. But, if a person does not go to the trouble of contacting the company, a judgment can be entered.
I to have heard horror stories about debt being sold to less scrupulous entities, then the reaper come against the innocent creditor. Even many with good credit have been pulled into this sucking hole of what often is simple piracy.
And government has moved toward protection of corporations against citizens.
The real enemy here is corporate america. I’ve long been convinced that the litany of bad symptoms in our society today are all rooted in that cancer.
I’d love to see a candidate that want to defang corporate america, and the only guy I’ve heard come close to ther right message there is John Edwards.
We are moving toward a new sort of aristocracy. What makes a financial kingdom any different than a territorial kingdom? The wealthy and well connected circle up and everyone else is left out. Insurance, toll roads, mortgage crisis, privatization, war for profit, wholesale rape of the planet. It’s all the same monster.
And we’ve let the monster get us way too far past its lips. There in the early stages of trying to close the mouth, and I’m just not sure we can climb back out at this point – And that means we’ll only see light again on the other side of its ass.
We’ve forgotten what our founding fathers really fought to free us from. Same monster, slightly different form.
Pardon me, the reaper comes against the innocent borrower.
Amen… There is a really pernicious disease at work here called â€greed.†It is sucking the entire lifeblood out of our whole country because people are so stuck on profits. I have nothing against people trying to make a dollar, but this is getting obscene!
This week, shareholders are supposed to vote on whether or not to approve TXU’s buyout by KKR. Regardless of whether it is approved or not, ratepayers are stuck with the bill — and particularly the ones who got suckered under the guise of â€locking in†their rates. There are so many con games going by corporate America that the consumer just cannot win.
A partial solution to the subprime problem and the credit card problem is to amend the bankruptcy code to permit debtors to rewrite mortgage debt in Chapter 13. They could get rid of prepayment penalties, cut interest rates to market, and split the debt into two parts, a secured portion limited to the market value of the collateral, and an unsecured portion for the balance. It solves many problems, and it has the satisfactory result of dumping the loss on the greedy investors. Senator Durbin has talked about this, and so has Barney Frank. It is supported by smart bankruptcy professors like the estimable Elizabeth Warren of harvard.
masaccio – that is a boderline brilliant plan. I really like it. I am sure the GOP will fillibuster it and/or Bush would veto it because, you know, its makes complete sense. Absolutely great idea though.
Bush talks about helping people facing foreclosure. Expect nothing. When I lost my home during Reaganomics, nobody gave a shit about ME. American Express just cancelled my last remaining credit account because I refused to be forcibly enrolled in their ridiculous â€Credit Secure†program. Who needs it? You can do what I do: reduce your cost of living, live on practically nothing and do without. It’s a very good life.
Remember!!!!! From the time you leave your house till you come home or go back under the bridge the world not only wants what
you have they want what your going to have for the rest of your life. Then they’ll be waiting at the Grave. Don’t ask nobody for
nothing and you don’t owe nobody nothing! Pete