What do you guys think of the coming bankruptcy reform/law? (1 Viewer)

[Chuck Anstey]

I am surprised at the coporate defenders. How about personal responsibilty of the corporation to its stockholders to not make bad loans? Responsibility is a two-way street and its time we held the companies to theirs and make them pay for their mistakes.

Loan sharking is illegal but these loan / CC companies are effectively legalized loan sharking. To those who think that just because a person signed a contract they are fully liable: There are plenty of contracts that are totally illegal regardless. You cannot sell yourself into slavery or have slaves even if a person willingly signed a contract. You cannot sell your organs.

Predatory lendors, which many CC are, hope that you will be unable to pay them back so they can take your assets for higher value or worst case (for them) is that you paid back many times the value of the loan. If you believe that these people are just stupid and deserve it then why do we have laws against conning someone? Clearly only someone who is stupid gets conned and therefore deserved it.

On top of all that CC companies like Providian were purposely holding payment until it was late on their lowest credit score customers so there would be late charges and could jack up the rates. They didn't do this to their better customers, only the poorest ones because who is going to believe a "deadbeat" sent a check on time. Yes there are laws against such a practice but they are not well enforced and the penalties are clearly low enough to take the risk.

If CC companies only gave a resonable credit line to people then they would not be complaining "people are taking advanage of us" and using legal loopholes. You can only rack up a 50K debt if you are given 50K worth of loans. And on a 20K/year salary, who is the real idiot here?

If you filed for bankruptcy, within six months you will be getting lots more pre-approved credit cards because the company knows you cannot file again for 7 years. So here we have a known over-spender who is a serious credit risk and the CC companies are falling all over themselves to get them hooked on their card. They know exactly what they are doing and shouldn't be whining to the government to protect them from a situation they got into with total knowledge.


Sure, if the government passed laws that capped interest rates to something relatively low, as I believe they should, some people will be hurt. And I really really hate government telling others what they can and cannot do and prefer free markets by a long shot. However, every restriction or lack of restriction has a compromise and I think right now that the compromise needs to go in favor of the consumer by reigning in corporation lending practices.

 

[AjayM]

That's fine, but think about all of the ramifications of putting in such legislation. If there was a limit of say prime + 2-3% who would then qualify for a credit card? Probably only the top 20% or so of credit scores that meet a specific salary range.

 

[Drew Bethel]

The key word here is c-a-u-g-h-t. I also worked for a sub-prime CC company a few years ago...and I won't even go there!

 

[AjayM]

Again I won't argue that sub prime companies are going to push things right to the limit and beyond, but should we penalize everybody because of a few bad companies? The very nature of sub-prime lending means you have to "take advantage" of somebody through high rates and fees.

Regulating rates to only be VERY low will certainly fix the sub-prime lenders and their ways of doing business (since there will no longer be a need for sub-prime lending), but that's sort of like saying to get rid of drunk drivers we'll outlaw booze. The people hurt most by it in the end are the consumers who are trying to be protected.

Andrew

 

[Carl Miller]

My nephew who graduated college this past May, got his first credit card (Visa) in June. $7,500 limit. Not a reasonable credit limit for a guy who has never held a full time job until a few weeks ago, or entered into any loan agreement of any kind before.

Since then, he has received dozens of card offers and took out two additional credit cards. An Amex, and a Mastercard. The Mastercard gave him a $5,000 limit.

So, you have a 22 year old guy without a pot to piss in, earning $22,000/year in his first job after graduation. He had a total line of credit of $12,000, established in less than two months, and an Amex card on top.

This was clearly a predatory practice. His father had him cancel one card and lower the limit on the other. No coincidence that the credit card offers suddenly stopped coming in his mailbox.

 

[george kaplan]

You are. Vehemently, post after post.

 

[Joe Szott]

You don't happen to work for a bank or a credit company do you Ajay? Just wondering...

 

[DevinJC]

And since they can lobby for free, and have public interest at heart, this law in no way is geared toward helping them. (sarcasm) They've only been pushing for bankruptcy "reform" for what 15 years now? Longer? Thank god they finally got it, cause obviously the country is suffering from all these credit card companies/banks going under because the lower/middle classes have been handing it to big bank by constantly eluding them with these damn bankruptcy laws!

I say throw all the peasants in debtor's prison.

 

[AjayM]

Never seen anything like that before, but yes I would agree that the situation above is out of line.

 

[Jack Briggs]

Gentlemen, let's please keep the temperatures under our collars on the cool side. I am tempted to close the thread.

 

[AjayM]

Since it seems a lot of people are still confused about the law in question, let's summarize some of the key points;

- The need to take a means test, meaning you can not discharge debt if you have the means to pay it. If you are living below the median income of your state, the debt will still be discharged free and clear.

Can somebody please tell me how that effects the "little guy"?

- Putting limits on "popular" loopholes, like moving liquid assets into a home and investigating any home purchases for the past 3.5+ years.

Is this going to effect the "little guys"?

- Require that lawyers actually do their jobs and do a proper "investigation" into their clients assets before filing bankrupt.

The name of the law should be the first clue into the nature of it;
Bankruptcy Abuse Prevention & Consumer Protection Act of 2005

I know it's popular these days to hate anything and everything successful, even more so when it comes to "corporations", but I still fail to see where this is going to hurt the "little guy", but I do see where it has the ability to benefit everybody who actually pays their bills. And yes, the credit card companies actually get a benefit as well, but who are they "stepping on" to do it?

Andrew

 

[DevinJC]

Sadly, that's commonplace these days. When I graduated college in 93, I had 2000 limit. I maxed it, got another card with 2k limit, maxed it, someone gave me another card with a 4k limit... Maxed it. I had no job at any point during that, and the first card was being paid late if at all when I got the 3rd card. Obviously I was an idiot, and fortunately family bailed me out of that.

Now, it's nothing to get 20k worth of cards right out of college with no job. It's predatory lending, and the biggest reason the CC companies have been lobbying so long to change the laws.

temperature back on the cool side.

 

[Mort Corey]

Sheeze...predatory lending? You guys make it sound like these companies are doing something illegal akin to drug dealing. I guess, in some respects, the populace has used credit as a drug to keep spending more than they have....hmmm, wonder where the notion that spending more than your income was an acceptable practice? Certainly not the USG.

I don't see this as a business practices problem but more of a national malady. As a nation, we are constantly bombarded to purchase the latest and greatest whenever the whim arises. Why save to have something tomorrow when you can have it with a signature today? It's a house of cards that's largely been created over the last 30 years and cannot go on perpetually...IMO.

Mort

 

[Joe Szott]

And so how is a law that makes it harder for the consumer to get out of predatory debts while instilling no limits on the CC company's practices going to accomplish that end Mort? It's fine to crack down on deadbeats, but let's even the equation by checking the credit company's reach a bit too.

 

[Mort Corey]

I still don't see these practices as being predatory. Is giving someone a rope that they later hang themselves with evil or predatory?

Anyway, I guess my original point is that the law may go too far in some respects, and if that proves to be true, it'll be adjusted (or reformed in government speak). Since the ramifications are still unknown, we'll just have to wait and see the outcome. I doubt it will be as drastic as the sky falling (from too much CO2 )

Mort

 

[Carl Miller]

It depends IMO. Does the credit card company give people the rope knowing they will hang themselves? If so, it's predatory. If not, then it's not. In some cases, I think they do know that people will hang themselves, and I think in these cases, they're banking on it.

For example, what credit card companies do with college grads, is predatory IMO. Credit card companies know what they're doing. They know the new college grad is part of the demographic that:

Spends most if its income on recreation
Saves very little money
Doesn't have many other financial obligations such as mortgage or rent.
Doesn't often look far into their own financial future
Is more likely to spend beyond their means.
Isn't likely to declare bankruptcy.

When I was a new college grad, such a credit card applicant was a bad risk. A lot of things have changed in the past 18 years, but the spending habits of the 21-29 year old demographic isn't one of them...Their credit worthiness has changed however, as they are now worthy of huge lines of credit.

IMO, the CC company knows the risk involved when they knowingly extend too much credit to consumers. Because of that, I think they bear some responsibility when their lending practices, which are at times predatory, come back to bite them in the arse.

So why is it that we seem to be saying to consumers, "if you spend too much, tough".....But we don't say the same to the lenders when they knowingly lend too much?

 

[Inspector Hammer!]

Man, this one extremely complex issue! I don't really have an opinion, but it is facinating to read, though.

 

[Dick]

Well, isn't it predatory for tobacco companies or beer/liquor companies to target children in their advertising? Spending is an addiction every bit as powerful as drinking and smoking. Way-y-y too many people are vulnerable to the temptations of these things, and the corporations know it and exploit it. That said, each person who drinks/smokes/spends needs to be held accountable for abuses. But it's time the corporations were accountable, too, for their part in the problem.

 

[Drew Bethel]

Ameriquest Mortgage Co., one of the nation's largest subprime mortgage lenders, said Thursday that it has set aside $325 million to cover a potential settlement with regulators in 30 states, including Minnesota.



Yeah, just read your disclosure and you'll be just fine

 

[Drew Bethel]

To further put this bankruptcy issue into perspective:



Source: http://moneycentral.msn.com/content/...4913.asp#msnhp