Consumer Law

Simkovic Study Finds 2005 Bankruptcy Act Profits Credit Card Companies at Consumers' Expense

By Jeff Sovern

Michael Simkovic of Harvard's Olin Center for Law and Economics has written The Effect of 2005 Bankruptcy Reforms on Credit Card Industry Profits and Prices.  Here's the abstract:

The U.S. Bankruptcy code changed dramatically with the passage of The Bankruptcy Abuse Prevention and Consumer Protection Act Of 2005. This act increased the costs and decreased the benefits of bankruptcy to consumers. Supporters of the law claimed that it would benefit consumers as well as creditors, because reducing the losses faced by creditors would lower the cost of credit to consumers. Critics of the law depicted it as special interest legislation designed to profit credit card companies at the expense of consumers. This study tests whether the 2005 Bankruptcy Reform: (1) reduced the number of bankruptcies; (2) reduced credit card company losses; (3) lowered the cost to consumers of credit card debt; and (4) increased credit card company profits. The data suggests that although bankruptcies and credit card company losses decreased, and credit card companies achieved record profits, the cost to consumers of credit card debt actually increased. In other words the 2005 bankruptcy reforms profited credit card companies at consumers' expense.

Full post as published by CL&P Blog on January 23, 2009 (boomark / email).