Bankruptcy reform:  The pigs are at the trough

By:  William Scheuerman

The Count lived in the neighborhood where I grew up. It was a working-class neighborhood, and “The Count” earned his name by loaning money to those who came to him for help. The Count was neither charitable nor noble. He was a loan shark.

People in the neighborhood who were down-and-out had no alternative to the Count, whose talent was counting money. When the bill collectors started beating at their door, they’d turn to the Count, who’d lend them money at exorbitant interest rates.

It was clear and simple. There was no fine print. If you didn’t pay him back on time, chances were good that you’d end up with a broken body part. Or worse. As for calling the police … fuhgeddabowdit!

 Yeah, back in the days of my youth loan sharking was illegal, but times change. Just look at the recent congressional action on bankruptcy reform and you’ll know what I mean.

The credit card companies did something old-time loan sharks like the Count would never do. They went to the authorities for help.

Look what they got:

First, credit card companies can charge exorbitant interest rates, reaching as high as 36 percent. That’s 36 percent on the total, not on the unpaid balance. So, if I owe $1,000 and pay $990, I’m charged 36 percent interest on the full $1,000, not on the outstanding $10 I still owe.

Second, traditional loan sharks took a low-profile approach. They didn’t stuff people’s mailboxes with ads to take out a loan. The Count was more responsible doling out credit than today’s credit card companies. What does that tell us?

So, what happens if we overextend our credit and can’t pay? If we get sick? Some 700,000 families are forced into bankruptcy annually because of medical problems.

In the old days, the Count might give you a temporary pass on the debt if you took ill. Worst-case scenario: You paid more interest and perhaps suffered a broken body part. Not a pretty picture, but your family at least kept the roof over their heads.

No more. Now, should you go bankrupt, your creditors may seize your home.

Such is the nature of reform in today’s America. It protects the credit card companies by making families pay more to creditors. Reform also makes it more expensive and more difficult to file for bankruptcy, and it makes it harder to repay debts by raising the minimum payments in repayment programs.

Bankruptcy reform doesn’t hurt all consumers. It goes to great lengths to protect the rich, who can hide their millions through special exemptions or other loopholes written just for them.

The law took no steps, of course, to address the growing tendency of many large companies—think most recently of United Airlines and Enron—to abuse the public trust and file for bankruptcy to sidestep their pension obligations. High-paid CEOs still walk away with their pockets full of gold while thousands of their loyal workers are left behind with no job, no pension and little or no hope.

The pigs are at the trough. With the so-called reform laws on their side, the credit card companies now have the authority and the power to do what the old loan sharks never imagined. If the Count were still alive, I wonder what he’d say about this strange turn of events.