Senate committee hears testimony on credit card reform

[JURIST] The US Senate Judiciary Committee [official website] held a hearing Tuesday to investigate "abusive credit card practices and bankruptcy" [hearing materials]. The hearing, chaired by Senator Sheldon Whitehouse (D-RI) [official website], was held in conjunction with the proposed Consumer Credit Fairness Act (CCFA) [S. 257 text, PDF], which would disallow bankruptcy claims for consumer credit card debt bearing high interest rates. The Senate committee heard testimony from individuals affected by high credit card interest rates, as well as from experts including law professors Adam Levitin and Mark Scarberry and researcher David John [testimonies, text]. In his opening remarks, Whitehouse said:

I have introduced legislation that would give consumers leverage to negotiate for reasonable rates with their lenders and ban abusive lenders from using the bankruptcy court system to enforce their claims. Under the Consumer Credit Fairness Act, or CCFA, claims in bankruptcy stemming from consumer credit agreements carrying interest above a variable threshold – currently 18.5% – would be disallowed. With the leverage of a bankruptcy threat, a customer struggling under a 30% penalty rate could negotiate for more reasonable terms. In addition, bankruptcy filers with debts carrying effective interest rates above the threshold would be exempt from the so-called means test, a tactic that was enacted in the bank-written 2005 reforms to make it more difficult to enter bankruptcy. In practice, the means test delays relief in bankruptcy, keeping consumers in the "sweat box" of credit card debt.
The increased use of consumer credit cards has lead to an increased number of bankruptcy filings in the US. In April 2008, a federal appeals court reinstated a class action lawsuit [JURIST report] against a group of banks who required credit cardholders to use arbitration to settle disputes. Bankruptcy petitioners who have incurred consumer debt, including credit card debt, have faced increased barriers when attempting to discharge that debt due to the 2005 enactment [JURIST report] of the Bankruptcy Abuse and Consumer Protection Act of 2005 [text, PDF]. The law was prompted by concerns that an increase in personal bankruptcies was adversely affecting retail stores, banks, and credit card companies that had to pick up the tab after consumers became insolvent. The changes make it harder for debtors to cast aside credit card and other debt by filing under Chapter 7 [text], the most common type of personal bankruptcy, which currently allows consumers to wipe out most of their unsecured debts.


 

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