Consumer advocates and bankers don't often get together and agree on an issue - especially bankruptcy reform.
But a group of them have put aside their differences to form the Coalition for Consumer Bankruptcy Debtor Education. The nonprofit has been meeting informally for two years and is just now presenting an educational program to lawmakers debating bankruptcy reform.
The coalition includes officials of Visa U.S.A., FleetBoston Financial Corp.'s credit card services, state governments, universities, and consumer groups.
These constituencies usually argue ferociously about what obligations should be imposed on debtors, but they do agree that bankruptcy filers need to be taught how to avoid financial problems and, further, predatory lenders.
Pending House and Senate bankruptcy reform bills would require that debtors meet educational criteria as a condition for having their debts discharged.
The coalition hopes to supply a model for this education and has tested its program in bankruptcy courts in New York and Atlanta. About three dozen debtors completed three-hour seminars on basic money management, various scams, payday loans, rent-to-own arrangements, and other topics.
"Debtors may not be able to avoid scams and abusive practices," said Karen Gross, president of the coalition. "I think there is a recognition by lenders that there are abusive practices and that not all lenders are the same."
Coalition member Kathleen Keest, assistant attorney general in Iowa and deputy administrator of the state's Consumer Credit Code, said bankruptcy filers "have a big, red bull's-eye on them. They will be targeted by lenders."
In a speech last week, Federal Reserve Chairman Alan Greenspan said he is concerned about "abusive lending practices" and announced that an interagency group has been formed to define such practices.
Ms. Gross, a professor at New York Law School, spearheaded formation of the coalition shortly after testifying before the Bankruptcy Review Commission in August 1997. The commission had asked Ms. Gross - the author of "Failure and Forgiveness: Rebalancing the Bankruptcy System" (Yale University Press, 1997) - to flesh out her ideas on debtor education.
That led her to invite other bankruptcy experts to brainstorm with her, and the group of 24 began meeting twice a year in New York and Washington.
Outsiders asked why the coalition was gearing itself up to help people in the bankruptcy system rather than those in danger of entering it.
"There was a general sense out there that we were focusing on the wrong group," Ms. Gross said. "It's like saying, 'Abandon an emergency room and focus on preventative medicine.' Education can have a ripple effect. It can help successive generations."
Skeptics say there are no hard statistics on bankruptcy recidivism.
"There are over 10 million Americans who have filed since 1980, and no one has agreed to find out how they are doing," said Raymond P. Bell Jr., manager of bankruptcy/probate at Fleet Credit Card Services in Horsham, Pa. Mr. Bell, a member of the coalition, said anecdotal evidence indicates that about 6% of people who declare bankruptcy are repeat filers.
Mr. Bell's views about how people wind up in bankruptcy court often clash with those of other coalition members, such as Gary Klein, staff attorney of the National Consumer Law Center, or Henry J. Sommer, supervising attorney at the Consumer Bankruptcy Assistance Project.
"I don't always agree with what those two have to say," Mr. Bell said, but he and other members believe the coalition's success depends on its diversity.
Money is the next big issue for the group, which wants to raise $175,000 for a one-year, one-city test it hopes will shed light on what sort of educational materials are effective in preventing repeat filings. In an attempt to raise money, the coalition recently hired the National Service Executive Corp., a group of retired executives who donate their time or charge a small fee for their services.
Though banks have spent millions of dollars lobbying Congress to pass bankruptcy legislation favorable to their industry, they have shown little enthusiasm for contributing to the coalition.
Ms. Gross said it has been difficult to secure grants because the coalition has emphasized that "money is not buying control of the product."
In 1998, research sponsored by the lending industry came under fire because it was presented as objective - the authors were academics - but was paid for by private industry.
The research was meant to show that some consumers are abusing the bankruptcy system because they have the means to pay back a portion of their debts.
"We have made it clear that [our research] is not an industry-bought product," Ms. Gross said.
Another reason funding has been scarce is that the coalition serves people who do not engender sympathy.
"People think negatively toward debtors," Ms. Gross said. "They are not a glamorous group to whom to give money."
If its efforts succeed, coalition members say, fewer people will file for bankruptcy, and lenders will benefit.
"Bankruptcy captures a moment in time like a photograph, but it doesn't tell the whole story," Ms. Gross said. "The idea of the coalition is to create a better picture to move from a still-life to a movie."
- Bankruptcy Reform Act of 1999 (HR 833 - Source: Thomas)
- Bankruptcy Reform Act of 1999 (S. 625 - Source: Thomas)
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