By Yael T. Abouhalkah, Kansas City Star Editorial Page columnist
It's a fascinating story: Greedy credit-card companies convinced a complicit Congress to approve new 2005 bankruptcy rules that helped torpedo the U.S. economy.
The report making these allegations rings true; it was prepared by researchers at the Federal Reserve Bank of New York.
It's yet another case where a self-serving industry got its way with Congress, with dire consequences for ordinary Americans.
As for Congress, it's another case where members (who now want a $4,700-a-year raise) made irresponsible decisions to placate big-time donors.
Basically, the new bankruptcy rules promoted by the credit card industry have led to a surge in home foreclosures.
The reason: Before the 2005 bankruptcy act, people could file for Chapter 7 bankruptcy, which erased unsecured debt such as credit card debt. Chapter 7 helped people keep some money to make their mortgage payments.
But the new law has forced more people to file for Chapter 13 bankruptcy. They still have to make payments to lenders such as the credit card companies, reducing the amount of funds available to make mortgage payments.
As The Star's Dan Margolies reported:
The paper’s lead author, Donald P. Morgan, a research officer at the New York Fed, said last week in a phone interview that he was "99 percent confident" that the bankruptcy reform law was a major reason for the foreclosure crisis and the falling housing prices that have affected virtually every homeowner in the country.
Naturally, there's no easy fix, because the credit card companies and banks are affected in different ways and are now fighting over where to go from here.
But keeping people in their homes ought to be a top priority of Congress. And that mandates a change in bankruptcy law that would allow consumers to shield more assets from credit card companies.
In addition, a new law just might encourage the credit card industry to be more responsible in issuing cards in the first place.
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Usury and Credit Card Companies; a Loan by Any Other Name
I would have a good deal more sympathy with the credit cared companies if they would limit their solicitations to me to once a week. Have you noticed how hard it is to figure out what the actual annual percentage rate might actually be?
People, I think, get into debt mainly in the belief that they will (at least might) be able to pay it off soon. Not all, to be sure, but most. They are often wrong about this (as are a great number of businesses that kite their payments in the honest belief that they might be able to make good soon).
Like I said, I’d have more sympathy with the credit card companies it they seemed to be a more or less honest business. They are not. This used to be called usury and it used to be illegal.
Greedy Credit card companies
In response to Sla, Yes many people did do why you accuse them of, but you can't absolve the CC from some respondsibilty also.
FIrst off if the card co's were doing the monitoring they are now they would've denied further credit.
However, after what's been done and past is where the stupidity and greed really starts.
Now we're hearing as an excuse from the CC industry that because of the economic climate they have an increase in risk acct's so in turn they are lowering present card holder's credit limits and raising their interest rates. Now really how stupid is that because now their action even makes for an increase in risk acct's and those that were in that category will have even a tougher time meeting their obligations even in making minimum payments when lowering interest rates will at least get them some money rather then maybe none at all if they default.
The covert strategy here in my opinion is this is a planned strategy. because every action taken above by CC co's causes a hit on people's credit score therefore when the gov't comes asking what are you doing with the bailout money we gave you to loan out why aren't you. They now have a ready made excuse , nobody qualifies and then they can keep the money and do with it as they please, probably more poor investment like they've been doing.
The new CC law going into effect in 2010 doesn't go far enough, these greedy bastards won't work with people or do they care.
Their CEO's just want to keep getting their multi-million dollar compensations and my question is when is enough money enough as another million isn't going to improve your quality of life as your already living to the hilt.
Right.
Somebody goes out and buys more house than they can afford. They then go out and put a bunch of stuff that they neither need nor can afford on the credit cards and keep doing so until the cards are maxed out, then get more cards, store credit, etc. and max it all out too. It suddently occurs to them that they can refinance their house, pay off the credit cards etc., and get an ARM. Repeat the credit card scenario. Refinance again, this time with an ARM with an interest only payment for some period of time. Repeat credit card scenario. Somewhere in here purchase a couple of vehicles you cannot afford. Now everything is maxed out, you can't refinance again, everybody wants their money, and you are in forclosure. File bankruptcy, gee now the rules say you actually have to PAY for all the stuff you bought, you can't just get rid of the debt without paying. And now it's the credit card comapnies and congresses fault because they say you should be expected to PAY for things you buy? NO, it's NOT the credit card companies and congresses fault. It's the fault of the people who bought things they knew they could not afford to pay for. It's called personal responsibility.