Credit card companies came under fire Tuesday as some lawmakers and experts blamed them for the tidal wave of consumer bankruptcy filings.
"I don't think we can deal intelligently and fairly with the issue of bankruptcy reform unless we also deal with the difficulties posed by the practices of credit card issuers," Rep. John J. LaFalce, D-N.Y., testified before a House Judiciary subcommittee.
Rep. LaFalce, the ranking Democrat on the House Banking Committee, accused the industry of numerous predatory activities that included increasing solicitations of known debtors and students who cannot afford to repay debt, luring consumers with low-interest "teaser rates" and then hiking interest rates above 25%, as well as charging fees to customers who pay their balance in full each month.
"These are only a few of the practices employed by too many credit card companies to entrap consumers into escalating debt" and to "add unnecessarily to credit costs," he said. "These practices are unfair. They are costly to consumers. In many instances, they simply should not be allowed to continue."
Rep. LaFalce asked that his bill to bar many of these practices and expand disclosure requirements be incorporated in bankruptcy reform legislation, but Rep. George W. Gekas, chairman of the House Judiciary Committee's administrative law subcommittee, made no promise.
Rep. Gekas, who Tuesday opened three days of hearings on bankruptcy reform, did say that his "needs-based" bill included some protections for credit card customers. The Gekas bill would require creditors to disclose the costs of paying only the minimum balance and to offer explanations on monthly statements.
A panel of seven legal scholars, lawyers, and judges disagreed whether the Gekas bill would reduce annual bankruptcy filings-which reached a record 1.4 million in 1998-or reduce consumer debt.
Subprime and other risky lending has prompted an explosion of consumer debt among poorer Americans, testified Ralph R. Mabey, a Salt Lake City lawyer and former bankruptcy judge. "If we tighten (bankruptcy laws) by making more credit card debt nondischargeable ... we will make credit card lending more profitable, resulting in more consumer debt and more problems for Americans."
Several Republicans and Democrats praised the Gekas bill, saying it would make people who can afford it repay unsecured debts instead of eliminating them in Chapter 7. Otherwise, they argued, costs would continue to be passed on to other customers.
The subcommittee is scheduled to vote on the bill March 24 and 25.
Sen. Chuck Grassley, R-Iowa, introduced his version of bankruptcy reform Tuesday. Sens. Joe Biden, D-Del., and Robert Toricelli, D-N.J., are co- sponsors.
