Bankruptcy

Obama on Credit Cards and Bankruptcy

By Angie Littwin

This is quick post about Obama's speech on the economy in Raleigh, N.C. He spent two and a half "paragraphs" of it discussing credit cards and bankruptcy. (The link is to the whole speech. I've also excerpted the relevant passage in the "continue reading" part of this post.)  I'm intrigued by his five-star risk rating idea for credit cards because I have a particular interest in meaningful disclosures, ones that can actually help real people make decisions about financial products. But I am a little disappointed by the limited way he discussed bankruptcy reform. Yes, letting people prove medical bankruptcy would be a good start.  But as many of us look more closely at the post-BAPCPA data, I'm becoming more convinced that it's the procedural barriers and the expenses they entail keeping people out of bankruptcy, not the means test itself. If that's correct, a small improvement to the substance of the law might not make much of a difference, especially if it were accompanied by additional procedure (i.e., the process by which people would "demonstrate" that they filed because of medical bills).

Here is the relevant text from the speech:

"Finally, we need to help those Americans who find themselves in a debt spiral climb out. Since so many who are struggling to keep up with their mortgages are now shifting their debt to credit cards, we have to make sure that credit cards don?t become the next stage in the housing crisis. To make sure that Americans know what they?re signing up for, I?ll institute a five-star rating system to inform consumers about the level of risk involved in every credit card. And we?ll establish a Credit Card Bill of Rights that will ban unilateral changes to credit card agreements; ban rate hikes on debt you already had; and ban interest charges on late fees. Americans need to pay what they owe, but you should pay what?s fair, not just what fattens profits for some credit card company and they can get away with.

The same principle should apply to our bankruptcy laws. When I first arrived in the Senate, I opposed the credit card industry?s bankruptcy bill that made it harder for working families to climb out of debt. John McCain supported that bill ? and he even opposed exempting families who were only in bankruptcy because of medical expenses they couldn?t pay.

When I?m President, we?ll reform our bankruptcy laws so that we give Americans who find themselves in debt a second chance. We?ll make sure that if you can demonstrate that you went bankrupt because of medical expenses, you can relieve that debt and get back on your feet."

Full post as published by Credit Slips on June 09, 2008 (boomark / email).