Sunday, December 11, 2005
Why the new bankruptcy law is good
For the banks. The NY Times has a front page story on the banks followup to the large number of newly bankrupt.
"This is the only industry that calls people deadbeats when they pay all their bills every month." Ellen Schloemer, Researcher at the Center for Responsible Lending
If it seems odd to Ms. Fogle that banks would want to lend money to the newly bankrupt, it is no mystery to the financial community, which charges some of the highest interest rates to these newly available customers.But the unspoken corrallary to that is that it makes it easier for banks to abuse the system. But that's OK when you are talking about credit cards.
Under the new law, which the banking industry spent more than $100 million lobbying for, they may be even more attractive because it makes it harder for them to escape new credit card debt and extends to eight years from six the time before which they could liquidate their debts through bankruptcy again.
"The theory is that people who have just declared bankruptcy are a good credit risk because their old debts are clean and now they won't be able to get a new discharge for eight years," said John D. Penn, president of the American Bankruptcy Institute, a nonprofit clearinghouse for information on the subject....
....The banking industry worked in Congress for nearly 10 years to pass the law, and critics say it gave them everything they wanted to increase profits from people prone to debt. Bankers say the law makes it harder for people to abuse the system.
"This is the only industry that calls people deadbeats when they pay all their bills every month." Ellen Schloemer, Researcher at the Center for Responsible Lending
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