MR. AKAKA. Mr. President, I rise to introduce the Bankruptcy Prevention Credit Counseling Act. The new Bankruptcy Reform Law does not allow consumers to declare personal bankruptcy in either Chapter 7 or Chapter 13, unless they receive a briefing from an approved nonprofit credit counseling agency within six months of filing. The credit counseling instructional course requirement is intended to provide financial education to consumers who declare bankruptcy so they can attempt to avoid future financial problems.
About one in three consumers in credit counseling enter a debt management plan. In exchange, creditors may agree to concessions so that consumers pay off as much of their outstanding debt as possible. Concessions can include a reduced interest rate on the amount they owe and the elimination of fees. Unfortunately, most credit card companies have become increasingly unwilling to significantly reduce interest rates for consumers in credit counseling. A study by the National Consumer Law Center and the Consumer Federation of America revealed that 5 of 13 credit card issuers increased the interest rates they offered to consumers in credit counseling between 1999 and 2003. American Express and Wells Fargo completely waive all interest for consumers in credit counseling. However, the majority of credit card issuers charge interest rates above nine percent for account holders that enter into credit counseling, with several charging more than 15 percent.
My bill would prevent unsecured creditors, primarily credit card issuers, from attempting to collect accruing interest and additional fees from consumers in bankruptcy, if the creditor does not have a policy of waiving interest and fees for debtors who enter a consolidated payment plan at a credit counseling agency.
Since the new bankruptcy law requires that consumers enter credit counseling before filing for bankruptcy, we must ensure that credit counseling is truly effective and a viable alternative to bankruptcy. Credit card issuers undermine the good intentions of those consumers. They have sharply curtailed the concessions they offer to consumers in credit counseling, contributing to increased bankruptcy filings. According to a survey by VISA USA, 33 percent of consumers who failed to complete a debt management plan in credit counseling said they would have stayed on the plan if creditors had lowered interest rates or waived fees. Credit card companies have an obligation to ensure that effective alternatives are readily available to the consumers they aggressively pursue.
We must make sure that credit counseling is an effective tool to help consumers avoid bankruptcy. In order to do this, credit card issuers should waive the amount owed in interest and fees for consumers who enter a consolidated payment plan. Successful completion of a debt management plan benefits both creditors and consumers. Mr. President, for many consumers paying off their debt is not easy. My bill will help people who are struggling to repay their obligations. I encourage all of my colleagues to support this legislation to help consumers enrolled in debt management plans to successfully repay their creditors, free themselves from debt, and avoid bankruptcy.
Mr. President, I ask unanimous consent that the full text of the bill be printed in the Record. Thank you Mr. President.
