Credit Industry Implicitly Endorsing "Adverse Events" Model of Bankruptcy?
Katherine Porter's recent longitudinal post-bankruptcy study revealed something that may be hard for the credit industry to explain--something we've all known though anecdotal evidence for a long time, but which can no longer be denied: credit card companies are very, very eager to extend new credit to families fresh out of bankruptcy.
In fact, according to Porter's study, a post-bankruptcy household receives about three times as many credit solicitations as a household where there has been no bankruptcy filing. That's no oversight, either; many of these credit solicitations specifically refer to the recipient's recent bankruptcy.
Many bankruptcy and consumer credit experts, including Harvard Law Professor Elizabeth Warren, have pointed out that there are big profit margins in dealing with a sector of society that struggles to pay its bills on time: those consumers are more likely to incur late fees, over the limit fees, and to trigger punitive interest rates.
Still, there's no money to be made if the bills aren't paid at all, a fact that calls into question the credit industry's "deadbeat debtor" model of bankruptcy filing. If, as the credit industry has been loudly proclaiming for a dozen years, it believes that bankruptcy petitioners are morally bankrupt strategic filers who work the system to avoid paying their bills, then it makes no sense that these same credit card companies are tripping over themselves to do business with those debtors again.
No, as Porter explicitly points out, "Efforts to lend to post-bankruptcy familes are more consistent with an adverse events model of bankruptcy than the 'deadbeat debtor' model."
The debtor focus of the bankruptcy reform debate overshadowed to the point of exclusion any serious scrutiny of credit industry behavior. Porter suggests that post-bankruptcy credit marketing as it exists today is a product of existing bankruptcy law by eliminating the possibility of bankruptcy discharge for eight years and removing "competition" for those repayment dollars by eradicating past debt.
The study sets for excellent support for a completely new analysis of bankruptcy law from the perspective of shaping credit industry as well as debtor behavior to make the most of the fresh start bankruptcy provides. The entire study is well worth a read: Bankrupt Profits: The Credit Industry's Business Model for PostBankruptcy Lending
Very interesting... as always! Cheers from -Switzerland-.