Consumer Payment Card News


VISA and MasterCard’s Bankruptcy Issues Council took off the gloves yesterday by attacking the National Bankruptcy Review Commission’s bankruptcy reform proposals. BIC said the BRC is bitterly divided on consumer bankruptcy issues as four of nine commissioners have signed a 70-page, sharply-worded dissent. BIC said the BRC has wasted nearly $2 million of taxpayer dollars over three years and has yet to agree on a consensus framework for overhauling bankruptcy laws. BIC says the BRC has produced nothing but a mishmash of smaller measures, mostly on 5-4 votes. BIC has said it’s up to Congress to develop meaningful reform.

A federal commission charged with recommending ways to improve the nation’s flawed bankruptcy laws has failed miserably, the Bankruptcy Issues Council (BIC) said today, adding that it is now up to Congress to devise a meaningful way to overhaul the system.

The BIC, a coalition of MasterCard, Visa and their member banks, made the comment in response to the release today of the final report of the National Bankruptcy Review Commission, which has been struggling with bankruptcy reform for three years. The BIC statement noted that the commission was bitterly divided on consumer bankruptcy issues and that four of the nine commissioners signed a sharply-worded dissent of more than 70 pages.

“Clearly, the Commission was unable to agree on a consensus framework and instead adopted proposals that would make our bankruptcy system even worse,” the BIC statement said. “American families already are bearing the cost of the current flawed system, which will cost each of them about $400 this year in higher prices for goods and services that result from bankruptcy losses.

“We now look to Congress to craft sensible bankruptcy reform, and we urge lawmakers to look seriously at creating a system that will prevent people from walking away from debts they could repay while allowing a fresh start for those truly in need.”

The BIC noted that it strongly supports H.R. 2500, which was introduced in the House last month by Reps. Bill McCollum, R-Fla., and Rich Boucher, D-Va., and which incorporates a “needs-based” program to establish fairness in the bankruptcy system.

The NBRC was created by Congress in 1994 to investigate and recommend ways to improve the Bankruptcy Code in the wake of an explosion of personal bankruptcy filings that has continued unabated. Nearly 675,000 personal bankruptcy petitions were filed in the first half of 1997, a pace that apparently will shatter last year’s all-time record of 1.16 million filings. But after three years of work and the expenditure of nearly $2 million taxpayer dollars, the commission could not agree on a consumer bankruptcy framework and adopted instead a mishmash of smaller measures, many on 5-4 votes.

“A significant problem with the NBRC’s work was that several commissioners failed to understand the benefits of a system based on need,” said Richard Jones, vice president of MasterCard International. “The most serious flaw in the current law is that it allows individuals to walk away from their debts even if they have the ability to repay a portion of those debts.

“Research shows that as much as $40 billion in consumer debt will be erased this year through bankruptcy. Those losses are passed on to all consumers in the form of higher interest rates and higher prices for goods and services. Research also shows that a significant number of people who receive complete relief from their debts under Chapter 7 of the Bankruptcy Code actually could repay some of what they owe.”

“We had hoped that the National Bankruptcy Review Commission would propose some promising and thoughtful consumer bankruptcy reforms,” said Thomas A. Layman, senior vice president of Visa U.S.A. “Unfortunately, the Commission’s stubborn refusal to consider any plan based on need has made the resulting proposal unworkable. We are hopeful that Congress will reject it and move ahead with sensible reforms that will make the system equitable for debtors, creditors and consumers.”

The BIC criticized other aspects of the commission report, such as a provision that would allow students to wipe out education loans by declaring bankruptcy.

The BIC pointed out that students who received four years of undergraduate loans and additional loans for graduate school could have them all erased under the Commission’s proposal. “The federal government stands to lose billions of dollars a year from this proposal alone,” said the BIC statement.

The council also criticized another commission proposal to weaken a provision in existing law governing what debts can be discharged. Under current law, certain debts incurred within 60 days of filing bankruptcy generally cannot be erased. The commission recommended cutting that period to 30 days.

BIC members pointed to the needs-based system in the McCollum-Boucher bill as a logical alternative. The legislation uses a simple formula, based on a debtor’s income and obligations, to determine how much he or she could repay. The formula ensures that debtors in the most serious financial difficulty would still be able to get the complete relief and fresh start they need. Other key provisions of the bill provide debtors with information about alternatives to bankruptcy and employ a number of administrative reforms to streamline the system.

“In stark contrast to the Commission report, Representatives McCollum and Boucher have taken an approach that will restore fairness to the bankruptcy system,” said Layman. “Their legislation will ensure that a debtor receives the amount of debt relief he or she needs, no more and no less. And it includes an important education component to make sure that debtors are aware that bankruptcy should be a last resort, not their first option.”

“With more than 1.3 million personal bankruptcy filings expected this year, every American consumer has a stake in seeing this legislation move ahead,” said Jones. “More than 4,000 bankruptcy petitions are filed every day and we cannot afford to delay.”

Leave A Reply