TPM Cafe: Opinion

Congress is calling an emergency session for next Tuesday to do something about the aftermath of Katrina. Representatives Conyers, Jackson Lee and Nadler have an idea: let’s take another look at the bankruptcy legislation. It seems that in the haste to adopt the credit industry version of the bill, some amendments to cut a little break for the victims of natural disasters were defeated. Now everyone is scurrying to re-read the those amendments to see just how hard this new bankruptcy law will fall on families and small businesses thrown into financial chaos in the wake of Katrina.

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Newsweek counts eight ambassadorships handed out to $100,000-plus donors since January. Add in Bush’s appointee from Friday, billionaire Roland Arnall, and that brings us to a Big Donor Appointment Rate of one every 24 days. Billionaires, get your bids in now.

Roland Arnall paid in at least $600,000 to President Bush’s causes to earn him an ambassadorship to the Netherlands, but where did he get all that money? Should he have the Ambassadorship — or should it go to the people his company is accused of cheating?

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Todd Zywicki (credit industry head cheerleader, Volokh Conspirator and maybe the only bankruptcy professor in America who actually supported the recent Congressional mangling) has a lot of work ahead of him. Families will soon discover what life is like when the door to the bankruptcy court, the financial refuge of last resort for the past 107 years, is too narrow to permit many of them any relief. So what’s the best way to head off a Congressional stampede to bring back the century-old system? Blame families.

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Todd Zywicki (TZ), the long-time cheerleader for the credit industry on the bankruptcy bill, says on Volokh Conspiracy that bankruptcy rates have gone up in anticipation of the bankruptcy bill’s becoming law on October 17. (He says filings in April increased by 70% from January, but the same data source shows that filings were only up 16% from April ‘04.) This increase, he claims, just proves what he said all along — that the debtors could pay, but they are strategic and take advantage of those poor credit card companies.

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When the Wall Street Journal compared the tech bubble with the housing bubble, they offered one comparison that was a stunner. It had that same home-as-piggy-bank notion that appeared in Money magazine. Comparing owning stock with owning a home, the WSJ concludes: “Families are also better able to tap into the value of their homes to finance the purchase of new homes and other items.”

You can sell stock in a recognized market one share at a time, but if you need cash you can’t sell off a bedroom or chop ten feet off the back yard. A second mortgage doesn’t “tap” the value of a home. It is just plain old borrowing.

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Money magazine’s July issue has an article on the 50 smartest things you can do with your money. Number One? “Tap your home equity.” This is my nomination for the Worst Advice of the Year. But since Alan Greenspan has repeatedly applauded Americans for tapping their home equity, it has become heresy to suggest anything else.

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I had lunch yesterday with one of my colleagues, an evangelical Christian. (Yes, there are real, live believers on the Harvard Law faculty — more than a few.) We agreed that the middle class is in serious economic trouble, which led us to a discussion about fault. He made the point that part of evangelical Christianity is about taking blame when things go wrong. “It’s my own fault” — or, sometimes its close cousin, “It’s your own fault.” As a first step in acknowledging sin and weakness, this makes sense. And when it is coupled with seeking help and making real efforts to change.

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The National Consumer Law Center is featuring a report on bounce protection scams. (Known in the bizarro-speak of the credit industry as “sound financial strategies.”)

I wrote about these earlier, but apparently it’s even worse than I thought. Some highlights: ATMs include the overdraft line of credit on-screen as part of the available funds. ATM users aren’t notified that they’re withdrawing more than they have until the bill arrives later. Annualized interest rates on the cash lent to cover bounced checks and withdrawals can reach 1520%. That is not a typo. And thanks to a loophole in the federal Truth in Lending law, banks never have to reveal the actual interest rates Customers automatically get “protection” whether they want it or not, and must specifically request to be taken out. Consultants hyped bounce protection to banks as a way to compete with payday lenders — barely legal loan sharks that prey on our cash-strapped troops (among others).

A highly recommended read. If you like horror stories.

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Here is a list of some of the questions we’ve received from readers that should be asked at Tuesday’s hearing:

We don’t know if he’s a reader, but we feel that it can be inferred that Representative James Sensenbrenner (R-Wis), Chairman of the House Judiciary Committee, would ask credit card companies:

“Now that the risk of consumers failing to pay back their debts has been reduced, will this reduction in risk be returned to consumers in the form of lower interest rates?”

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One reader has a three-part question along the same lines as Rep. Sensenbrenner:

1) “Now that Uncle Sam has transferred your risk to consumers, how much savings will you pass on to consumers, in the form of lower rates and fees?” (this one was the most common question from our readers)

2) “How much will go straight to your shareholders?”

3) “How much went to Joe Biden?”

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Reader SJ asks:

“If the practices by the Credit Card industry are not predatory, why am I – who went to court for a bankruptcy in April of this year – receiving offers for credit cards when my bankruptcy has not even been fully discharged yet?”

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Reader LP asks:

“Why has the gap between interest rates at which banks borrow money and the interest rates they charge credit card customers remained so large over the years?”

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Reader DR asks:

“Do you feel that you have gotten your money’s worth from Congress in the passage of the recent bankruptcy bill, and are you pissed it took so long?”

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Reader KM asks:

“Why are banks allowed to apply your payments in order of interest rate, such that credit card loan-types with the highest rate are paid off last regardless of when it was borrowed?”

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Reader DN asks:

“Would you (the credit card companies) be willing under any circumstances short of legislation to ever place information on statements about how long it would take consumers to pay off their debts making only the minimum payments?”

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Reader JA asks:

“Why are you taking advantage of teenagers in high school and college and then suing their parents when they can’t pay, without first asking for their cosigning on the account? Isn’t this dishonest? “

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One observer asks credit card companies:

“How do you justify hitting consumers struggling to pay their balances with $35 late fees and 30% “penalty” interest rates that might force them over the financial brink into bankruptcy? If the goal is to protect the company’s financial commitment, why not just cut off their credit and help keep them solvent?”

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Do you get burned up over credit card practices? Think it isn’t fair that they can change the price of the credit after you borrow the money — even if you make your payments on time? Aggravated over bait-and-switch advertising? Stung by fees that you think are unfair? Do you even know the terms of your credit cards?

On Tuesday the Senate Banking Committee will be holding hearings about disclosure and marketing in the credit card industry. They have some real live witnesses: VPs from Capitol One and CitiCards, and the acting director of the Office of the Controller of the Currency — the head of the agency partly responsible for regulating national credit cards.

These people are supposed to be there to answer hard questions. So how about asking some? Give us some questions, and we’ll post them. There will be some good consumer advocacy folks testifying, and Senators Akaka and Feinstein are also planning to testify. We think some of the questions you want to pose just might get asked. And if they get asked, we can talk about the answers.

This is your chance. What do you want to know?

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Want to contribute to TPM Cafe? Email ideas for your pieces to us at talk@talkingpointsmemo.com

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