Statement of Senator Carl Levin on the Bankruptcy Reform Act

CONGRESSIONAL RECORD 106th Congress, 2nd Session Wednesday, February 2, 2000

Mr. LEVIN. Mr. President, in the 105th Congress, the Senate passed a meaningful bankruptcy reform bill by an almost unanimous vote. I voted for that bill because I thought it was well-balanced reform bill that would discourage abuse of the system and provide enhanced protections and reasonable information to consumers. The final version of that bill was not approved in the 105th Congress, and so, once again, we engaged in debate over how to restructure the nation's bankruptcy laws. When we started debate on this bill, it was substantially different from the moderate, bi-partisan bill of last Congress. I was particularly concerned with the provisions relative to the means-test and consumer credit card disclosures. However, over the course of this debate, the Senate has adopted more than 40 amendments, making this a more reasonable approach to bankruptcy reform.

As reported out of the Judiciary Committee, the bankruptcy reform bill did not include consumer protections providing reasonable disclosures of unsecured credit such as credit cards. Studies show that bankruptcy filings increase as household debt increases. High debt-to-income ratios makes working Americans more vulnerable to financial emergencies. I am pleased that the Senate accepted an amendment to provide enhanced access to consumer credit information. Creditors will be responsible for warning debtors about potential dangers of paying only minimum monthly payments and will make a toll free number available to the debtor for more specific information. Although this is not as helpful as the Senate's 1998 bill, it is a step in the right direction. The previous bankruptcy bill gave specific information to consumers about the months and years it would take for consumers to pay off their debts by paying the minimum payment and provided them with their total costs in interest and principle. A more detailed disclosure regarding minimum monthly payments will help families exercise personal responsibility and limit financial vulnerability.

In addition, the Senate has made modest steps relative to the bankruptcy bill's means-test. The purpose of a means-test is to prevent consumers, who can afford to repay some of their debts, from abusing the system by filing for Chapter 7. Directing so-called abusive debtors away from Chapter 7, where debts are forgiven, and into Chapter 13, where the debtor must enter into a debt repayment plan, makes sense. But an inflexible means test, with virtually no exceptions, will, in the words of Henry Hyde, "deprive debtors and their families of the means to pay for their basic needs." I hope that in conference, the Senate-House conferees will work toward establishing a more flexible means-test, one that makes allowances for basic expenses such as transportation, food and rent.

I am pleased that two amendments I sponsored, a credit card redlining study and the prohibition of retroactive interest charges, were accepted by the Senate. The redlining amendment requires the Federal Reserve to conduct a study and report to the Banking committee about whether financial institutions use place of residence as a factor in determining credit worthiness. It is an important study that will bring to light the problem of unequal credit opportunity.

My other amendment seeks to clarify what credit card companies refer to as a "grace period." Credit card lenders use complicated definitions to explain that "grace periods" only apply if the balance is paid in full. For example, assume that a consumer charges an average of $1000 each month and always repays in full on time. If one month, due to an error he writes a check that is $10 less than the full amount he owes, but which is paid on time and is within the "grace period," he probably would expect to pay the $10 charge and the interest on the $10 unpaid balance. However, he is really charged retroactively on the full $1,000 balance to the date the charges were made, even though he had paid 99% of the balance. This consumer's $10 error ends up costing him up to four times that in interest charges.

Current practice by these companies undermines reasonable consumer expectations about what how a grace period for their payment works and results in monetary penalties from the application of interest charges. This amendment makes clear that the definition of a grace period is one where a consumer is extended credit. No finance charge can be imposed on the amount paid before the end of the "grace period."

Mr. President, I have decided, on balance, to support this bill. However, I am very concerned by the inclusion of non-germane tax provisions which spend $76 billion dollars of the projected non-Social Security surplus over the next ten years . While some of the provisions included in this package make sense, it is premature and unwise for the Congress to begin spending a surplus which is uncertain before we have begun to pay down the national debt and assured that our priorities in protecting Social Security and Medicare, investing in education, and considering other types of tax cuts have been met. For that reason, should this legislation come back from conference with some of these tax provisions or without the modest amendments we adopted in the Senate, I will consider opposing the bill at that time.