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Cui Bono? (Who Profits?)

With two major wars, a sluggish economy, and spending issues with almost every branch of government, a bill designed to thwart "deadbeat" bankruptcy claimants doesn't seem to be in sync with Congress' stated priorities. But passage of this legislation has been an eight-year struggle for certain members of the House and Senate, backed by their very powerful supporters in the credit card and banking industries.

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According to the Center for Responsive Politics, financial and credit companies donated nearly $7.5 million to candidates in the 2004 election cycle. Of that, $1.5 million was donated by credit card titan MBNA Corporation, nearly all of it to Republican candidates. The decisive winner in this particular sweepstakes was President George W. Bush, with $644,475 in campaign contributions -- nearly triple that of his opponent, Senator John Kerry (D-Massachusetts), who got $173,366 from MBNA.

Other major beneficiaries of financial and credit companies' generosity included Senators Joe Biden and Tom Carper from Delaware, both Democrats, and both representing the notoriously bank-friendly state. MBNA's political action committee (PAC), its subsidiaries, and associated individuals donated a total of $147,700 to Biden during the cycle spanning 1999-2004, dwarfing his other contributors.

The sponsor of S. 256, Senator Grassley of Iowa, received $123,300 from financial institutions in the 2001-2002 cycle, as well as $36,600 from Wells Fargo and $25,000 from Prudential Financial towards his win in the 2004 election.

Not that Grassley is the only senator to sponsor tougher bankruptcy legislation. Virtually identical versions of this bill have come up in every Congressional session for the better part of a decade, each time containing the same ominous provisions, and each time edging closer to passage.

A New York Times article in March 2001 noted the bill being brought up for debate in that session of Congress, and the potential results are a mirror image of what can be expected if S. 256 goes into law. The article's author, Philip Shenon, notes that "the bill's most important provision would bar many people from getting a fresh start from credit card bills and other forms of debt when they enter bankruptcy. Depending on their income, it would bar them from filing under Chapter 7 of the bankruptcy code, which forgives most debts."

Shenon quotes financial analyst Kenneth Posner's statement that passage of the bill would provide billions of dollars in additional profits to creditors, including an extra $75 million for MBNA in 2002, had the bill become law.

A February 2001 press statement by Consumers' Union noted that provisions put in place to ensure payment of child or alimony payments by debtors are undercut by the new "nondischargeable" debts that consumers would have to pay under the law. The same provision exists in S.256, four years later.

Until now, the bills have stalled in joint session or failed due to insertion of amendments that couldn't be supported by a majority of either house, but as Jeffery Morris observes, "the makeup of the House and Senate is favorable to passage this time." Though the Republican majorities in Congress definitely smooth the way, it's clear that both parties can find time to pay homage to the giants of the banking and credit industries, and receive lots of campaign-ready cash for their troubles.

Further, any attempts by conscientious Senators to insert amendments that might soften the blows laid by S.256, such as requiring banks to disclose how much debtors can pay on their minimum credit card balances without incurring fees or penalties, were soundly rejected.

Professor Warren noted that without such protections, debtors are at the mercy of creditors who gain their revenue from interest, penalties, and late fees, as opposed to actually paying the principal debt balance itself. Another amendment was introduced to "exempt debtors from means testing if their circumstances were caused by identity theft". It was defeated, 61-37.

Next: Long View for a Long Road

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