Editorial: Bankruptcy law a boon for banks

Thursday, Dec. 15, 2005 | 7:25 a.m.

Earlier this year President Bush signed into law legislation that would make it more difficult for consumers to wipe out their debts through bankruptcy protection. Banks that issue credit cards spent an estimated $100 million lobbying Congress to pass the legislation, which consumer groups derided as a gift to the banking industry.

For instance, there was nothing in the law to curtail predatory solicitation by credit card companies, despite the fact that it's their aggressive, unseemly marketing practices that encourage irresponsible spending.

The New York Times, in a story Sunday about the effect of the new bankruptcy law, told the story of Laura Fogle. A nurse and single mother of two in Tacoma, Wash., Fogle was one of more than 2 million Americans who hurried to file for bankruptcy protection before the new law with tougher restrictions went into effect on Oct. 17. But soon after she filed for bankruptcy, guess what happened?

"Every day, I get at least two or three new credit card offers -- Citibank, MasterCard, you name it -- they want to give me a credit card, at pretty high interest rates," Fogle says. "I've got a stack of these things on my table."

It might seem counterintuitive for credit card companies to try to sign up those who would seem to be a high risk, but because the new law makes it harder to file for bankruptcy -- and escape their debts -- the credit card companies are willing to take the chance and sign up these customers. With the high interest rates and late fees the companies charge, it's no wonder issuing credit cards is a lucrative business.

Once customers get on this treadmill of debt -- and are enticed by credit card companies to rack up yet more charges -- they often have no way of getting off. The credit card companies have got themselves quite a racket -- one in which they can feel no shame -- that a Republican-controlled Congress and White House have helped foster.