Trying to Have It Both Ways
It might seem counterintuitive that many credit card companies would inundate the recently bankrupt with solicitations for new cards. It's especially perplexing that those same companies would do so after having spent more than eight years and $100 million lobbying Congress to protect them from irresponsible borrowers with a draconian new bankruptcy law.
But the truth is that credit card companies aren't all that interested in customers who pay their bills in full every month. They really want the so-called revolvers, people who don't cover their balances and pony up those juicy interest payments and fees. The tighter repayment provisions in the new law will encourage companies to trawl for even less-qualified customers.
This is all a stark reminder of just how one-sided the new bankruptcy law is. While access to Chapter 7 bankruptcy has been sharply curtailed in the law, which went into effect in October, credit card companies are welcome to keep stuffing mailboxes with pre-approved cards.
Legislators ignored the five billion solicitations for new cards sent out last year alone. They pretended that the blame for the rising number of bankruptcies and delinquencies lay solely at the doorstep of debtors who recklessly used bankruptcy courts to dodge their responsibilities. This year, we've set a record with more than two million people in this country declaring bankruptcy. And many of their doorsteps are littered with direct mail offering new, high-interest cards.
At the very least, the credit card industry shares responsibility for this surge in bankruptcy filings. And with the reams of data and advanced risk-modeling tools available to financial companies, it is fair to argue that they deserve the better part of the blame.
The industry would have you believe that lending to the recently bankrupt is a service. "The people coming out of bankruptcy need an opportunity to get back on their feet," a spokeswoman for the American Bankers Association was quoted as saying in a recent article in The Times. It is the standard excuse for irresponsible lending: serving the underserved.
Indeed, with the help of these second-chance Samaritans, bankrupt Americans can quickly assume a new millstone of debt - only this time it will be even tougher to escape. If Congress is going to leave its bankruptcy law on the books, it should at least demand as much responsibility from the lenders as it is forcing on the borrowers.
