With personal bankruptcy rates growing, Visa International convened a roundtable on the issue Wednesday in San Francisco .
The 16 people who attended the Visa Consumer Bankruptcy Exchange included bankruptcy lawyers, judges, creditors, professors, trustees, and vendors. The overlying theme was that debtors are too quick to file for bankruptcy, and when they do, credit card accounts are among the first written off.
"What we're trying to do is identify why consumers rush into it," said Kenneth R. Crone, Visa's vice president for issuer risk management. - "We've found that when consumers file for bankruptcy and later learn about other alternatives, the overwhelming majority say they would have used other means had they been aware of them."
Personal bankruptcies are estimated to have reached more than 900,000 last year, up from 832,829 in 1994. Visa predicts the trend will continue this year.
"We want to gather a mosaic of information to get a clearer picture of bankruptcy, and this way, understand the early warning signs of bankruptcy," said Mr. Crone.
Among the topics discussed were alternatives for debtors, creating a prediction model, identifying early warning signs, and suggestions for legislative changes.
Mr. Crone suggested that consumers are too quick to file for bankruptcy. The villain, he implied, is a media and legal culture that points them in that direction.
But how much blame lies with the issuers? More than they are likely to acknowledge, analysts say.
"For starters, they could issue fewer cards," said Moshe Orenbuch, an analyst with Sanford C. Bernstein & Co. "Obviously, bankruptcies are a cost of doing business, but there are a chunk of them, if you're good on (checking) credit, that you can't miss."
Ken McEldowney, executive director of Consumer Action, a San Francisco-based advocacy group, indicated that if issuers really wanted to reduce bankruptcies, they could "stop sending out multiple preapproved credit cards" to consumers.
"They could definitely make a contribution just by being far more cautious," he added.
What about some more drastic steps? "Let's get radical," said Mr. Orenbuch. "Don't issue secured cards to people that have filed for bankruptcy. Cut off their access to payment systems. Of course, you and I know they don't have the guts to do that. They're too greedy."
But Mr. Orenbuch's approach might dissuade borderline cases from declaring bankruptcy. "They would take extra time at least," said Mr. Orenbuch, knowing if they declared bankruptcy and lost their credit cards, they couldn't rent a car, for instance. "At least a lawyer couldn't say there's no cost."
Mr. Crone noted that while the number of bankruptcies has risen, the primary causes have remained the same. "In the last couple of years, we've found that the traditional predictors - unemployment, divorce - are still valid factors," he said.
"We know the volume of bankruptcies and how they will transpire," continued Mr. Crone, "but we need to get beyond that."
Mr. McEldowney seems to doubt whether bank card issuers and the card associations are committed to fighting the problem.
"Part of me is very skeptical," he said. "I've long been critical of the credit card industry sending out guaranteed credit cards to consumers. In that sense, the companies that are trying to get the fifth, sixth, or 10th credit card into somebody's wallet, with a $3,000 to $5,000 credit line, well, I put a lot of responsibility for people filing for bankruptcy at their feet.
"If in fact people had the resources to pay off debt, I would counsel them to do it," said Mr. McEldowney. "But some people are in so far over their heads and they can no longer make payments. In those circumstances, bankruptcy is their only alternative. They just have to know it will affect their credit for the next 10 years."