WASHINGTON, Aug. 15 (UPI) -- With fears of the economy weakening further, and the job market looking far from rosy while wages have remained flat, personal bankruptcies are anticipated to continue rising in coming months.
Yet, the U.S. bankruptcy reform bill that is widely expected to become law by year-end will make it all the more difficult for people to clear up their debts and get back on their feet financially, the Consumer Federation of America warned Thursday.
At the same time, it has never been easier for those of limited means to get a credit card, and their credit levels seem to rise all the time. It seems like anyone with a social security number, from college students with no income to pensioners and single mothers on welfare, is bombarded with direct mailings from credit card issuers urging them to sign up for yet another card.
The average household receives nearly 50 solicitations a year, and a typical family has access to $30,000 in credit from a private company, usually at a relatively high interest rate.
"Credit card issuers are shamelessly escalating their marketing and available credit to stratospheric levels while demanding that Congress give them relief by making it harder for consumers to declare bankruptcy," Travis Plunkett, the CFA's legislative director, told reporters Thursday.
Personal bankruptcy filings reached record levels in the second quarter of 2002 at 390,991 cases, rising for a sixth consecutive quarter.
The bankruptcy reform bill, however, "benefits issuers, not the consumer," Plunkett said. He added that the consumer federation proposes that the bill be scrapped altogether.
That, however, seems unlikely.
Credit card companies, banks, retailers, car dealers and a slew of other interest groups have banded together to lobby Congress for the bill.
If passed, the legislation would make it more difficult for people to pay their debts and start afresh, particularly as it would give creditors easier access to debtors' assets. It will also be more difficult for consumers to qualify for Chapter 7 bankruptcy.
Creditors point out that the increasing number of bankruptcies, together with the fact that they have had to cut lending rates considerably in recent years to remain competitive, have made it even more necessary for them to be able to recover their money.
Consumer groups argue that while the Federal Reserve repeatedly slashed interest rates last year, credit card companies have not followed suit.
Moreover, they said, credit-card issuers are far too aggressive in marketing their cards, burdening consumers with even more debt.
But Plunkett said that over-spending was not the biggest reason that people filed for bankruptcy. Instead, he said, a sudden job loss, rising medical costs and divorces were the three top events that sent people into Chapter 7 status.
Certainly, the proposal raised by the credit card lobby, The Coalition for Responsible Bankruptcy Laws, would severely lower the chances that those in the medium or low income brackets can set their finances straight quickly. Meanwhile, it gives an advantage to higher-income households, which have more assets and a better cushion to protect them from creditors.
But it is necessary to recall that while credit card issuers are extremely aggressive in their marketing, nobody is forced to sign up for a card.
Key government officials, including Federal Reserve Board Chairman Alan Greenspan, have often criticized the low level of economic literacy among U.S. consumers. Clearly, the nation's overall understanding of debt and the implications of spending above one's means could be improved.
Meanwhile, some high-ranking officials -- including President George W. Bush -- are encouraging consumers to spend more. They have suggested that having credit card debt was actually a patriotic act that boosts the economy and creates jobs.
Ironically, though, the bankruptcy legislation could stall, not because of opposition to the bill itself, but because of efforts to link the bill to the abortion-rights dispute.
Sen. Chuck Schumer, D-N.Y., wants to prevent abortion opponents from declaring bankruptcy to avoid paying fines imposed after violent protests at abortion clinics. Anti-abortion Republicans led by Rep. Henry Hyde of Illinois contend that such an amendment is unfair.
Whatever the fate of the bankruptcy bill, consumer groups need to work harder to educate credit card users -- the vast majority of the U.S. population -- about how paying interest on credit cards and generally being in debt takes a big bite out of their potential earnings.
