Proposed Bankruptcy Reform Bill Would Protect Credit Card Customers
Lenders looking to collect on high-interest credit card debt from bankrupt consumers could soon be forced to negotiate better repayment terms with these consumers if key democratic senators are successful in pushing new bankruptcy reform legislation through Congress.
A bill proposed by Sen. Sheldon Whitehouse, D-R.I., would prevent lenders from making claims on a customer’s credit card debt during bankruptcy proceedings if the customer’s debt carried an interest rate that exceeded a certain threshold, the Associated Press reports (“Dems Seek Bankruptcy Changes on Credit Card Debt,” March 24, 2009).
The proposal, known as the Consumer Credit Fairness Act, would restrict lenders from pursuing debt in bankruptcy court that exceeds the sum of a set 15-percent base rate and the current yield on the 30-year Treasury bond. If the bill were to pass today, lenders couldn’t pursue credit card debt carrying more than an 18.5-percent interest rate. To prevent lenders from applying any “back-door” rates, the new set rate would also account for all possible penalty fees and charges lenders could demand, Reuters reports (“U.S. Bill Offers Bankruptcy Relief From Card Lenders,” March 24, 2009).
While Democrats believe their proposed legislation would help protect consumers from being squeezed by credit card companies while undergoing bankruptcy proceedings, Kenneth Clayton, senior vice president and general counsel for the American Bankers Association, warns that this type of bankruptcy reform could prompt lenders to restrict credit or further raise interest rates and fees.
Clayton says, “It’s absolutely the worst time to exacerbate our financial problems by enacting changes to the bankruptcy laws that would further contract credit.”
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