Credit Scavengers

CREDIT SCAVENGERS….Timothy Egan of the New York Times explains why credit card companies spent so much money and energy lobbying to pass a new bankruptcy bill earlier this year. It makes it even more profitable than usual to sell new credit cards to the very people who have just been ruined by them:

Under the new law, which the banking industry spent more than $100 million lobbying for, [recent bankruptcy filers] may be even more attractive because it makes it harder for them to escape new credit card debt and extends to eight years from six the time before which they could liquidate their debts through bankruptcy again.

“The theory is that people who have just declared bankruptcy are a good credit risk because their old debts are clean and now they won’t be able to get a new discharge for eight years,” said John D. Penn, president of the American Bankruptcy Institute, a nonprofit clearinghouse for information on the subject.

….But the new law makes for an even better gamble for lenders, consumer groups say. It not only makes bankrupt debtors wait eight years to clear their debts again, but it also requires many of those who do go back into bankruptcy to pay previous credit card bills that may have been excused under the old law.

The bankruptcy bill had nothing to do with “personal responsibility” or any of the other shibboleths of modern conservatism. It’s just a pure corporate payoff. Credit card companies know full well the risks of issuing cards to different kinds of people, and they know almost to the penny the risk/reward ratio of issuing cards to their worst credit risks, including those who have just filed for bankruptcy. This bill was intended solely to change that risk/reward ratio a little further in favor of the banking industry. The result: $100 million worth of lobbying is turned into $1 billion per year of extra revenue, all on the backs of consumers who the credit industry’s own computer models tell them are the most likely to be ruined by it. It’s disgusting.