Introduced Just Weeks Ago, Bankruptcy Reform Legislation is Already Kicking up Controversy

WASHINGTON-As soon as House Judiciary Chairman Jim Sensenbrenner (R-Wis.) introduced a new bankruptcy reform bill for the 108th Congress, it started kicking up controversy all over again. Word on the Hill is that Senate Judiciary Chairman Orrin Hatch (R-Utah) is looking to bypass the committee process and bring the bill straight to the Senate floor after passing through the House through an item known as Rule 14. Senator Patrick Leahy (D-Vt.), the committee’s ranking member, is opposed to the streamlining because of new members both on the committee and in the Senate. The bill, H.R. 975, also had the benefit of a hearing in the House Judiciary Subcommittee on Commercial and Administrative Law, which allowed Democratic members of the subcommittee to vent their frustrations with the bill. The bill, recently introduced, mirrors last session’s legislation minus the controversial clinic violence amendment-the final hurdle for the bill during the last session. The bill enjoys 50 original, reasonably bipartisan co-sponsors in addition to Sensenbrenner. Few Republican members of the House Judiciary subcommittee remained at the hearing for long, leaving most of the questioning up to the Democrats, all of whom present at the hearing opposed the bill. CUNA representative Lucile Beckwith, president and CEO of Palmetto Trust Federal Credit Union in South Carolina, told the subcommittee that current increases in bankruptcy filings are hurting credit union members in particular. She provided statistics that approximately 256,000 credit union members filed for bankruptcy last year totaling $775 million in losses for the credit union community. In South Carolina, alone, she said, credit union member bankruptcy filings increased 14.2% in 2002, totaling 2,820 cases and $11.6 million. Beckwith provided a number of examples of abusive bankruptcy filings, including where parents funded their daughter’s wedding in Hawaii through two $10,000-limit credit cards issued by the credit union without making any payments on them even though the couple made a six-digit salary. Judiciary Committee Ranking Member John Conyers (D-Mich.) asked Beckwith if she was aware that the bill would have a negative impact on seniors, minorities, and others and referred to in the means test in the bill as “arbitrary.” She responded that H.R. 975 would actually raise the priority of child support payments and lower the importance of attorney’s fees in bankruptcy filings. North Carolina Republican Congressman Howard Coble countered Conyers’ inquiry by asking about the improvements for low-income households. Beckwith replied, “It will protect those that fall below the means test. If I didn’t feel that way, I couldn’t support this bill.” She admitted that she did not know the percentage of the 256,000 credit union member bankruptcy filers that fell below the means test. Congressman William Delahunt (D-Mass.), a former district attorney, pointed out that efforts in the reform legislation to exact penalties against those giving fraudulent testimony in bankruptcy proceedings is null and void because fraudulent testimony under oath is already illegal and, thus, has other remedies. The real attack on credit unions’ support of the bill came when Congressman Jerry Nadler (D-N.Y.) asked if the removal of the reaffirmation provision in the bill would be a deal breaker for credit unions and indicated the bill allowed credit union members to reaffirm more than their monthly income. When Beckwith took longer than he liked to answer, Nadler chastised her and repeated the question. She responded after yet another attempt that CUNA would have to get back to him in writing on the issue. “That answer says all I need to say,” Nadler concluded. “It was unfortunate that he was so antagonistic toward our witness. It was also unfortunate that he questioned her about our support for the provision.” CUNA Senior Vice President of Government Affairs John McKechnie said, pointing out that Nadler left out the word `voluntary’ in front of reaffirmations. “It was unfortunate that he chose to personalize it.” McKechnie also emphasized that the bill would only permit disposable income to count toward reaffirmation agreements. As promised, CUNA responded to subcommittee chairman Congressman Chris Cannon (R-Utah) last week, stating, “Let me make it perfectly clear that CUNA would strongly oppose any amendment or bill designed to require more difficult reaffirmation procedures for credit unions and their members who wish to voluntarily reaffirm their debts.” The letter, signed by Beckwith, also stressed that the ability to reaffirm debts with a credit union saves all its members money and that credit unions work with their members through financial hardships to educate them for the future. “The original House bill totally exempted credit unions from its reaffirmation provisions,” Beckwith wrote. “These provisions were modified in conference in response to the Senate’s insistence. Ultimately, Congress recognized that credit unions and their members have a special relationship with each other and that in a credit union, this relationships results in protecting the members’ rights to voluntarily reaffirm their debts.” NAFCU was also concerned about the line of questioning and submitted a letter, in addition to its written testimony, to the subcommittee chairman. “It is NAFCU’s position that it is critical that any bankruptcy reform bill preserve this right of voluntarily reaffirmation for credit union members,” NAFCU President and CEO Fred Becker wrote. “The higher credit union reaffirmation rates reflect other characteristics central to the credit union philosophy as well, such as the belief that credit union members who legitimately invoke the opportunity for a `fresh start’ available to them under the bankruptcy laws should be allowed to retain their relationship with their credit union through the reaffirmation process, rather than forced to sever that important relationship and doubtlessly pay higher prices for financial services elsewhere,” wrote Becker. In addition, NAFCU raised the issue of its support for fast settlement of bilateral netting agreements in most situations included in H.R. 975. “Recognizing the interdependence of overnight and money market transactions, the financial services industry considers bilateral netting essential to ensuring that the insolvency of one institution does not have a domino effect on other institutions that could lead to disruptions in the money supply,” Becker wrote. Both CUNA and NAFCU also noted their support of the provisions in the bill for means testing in Chapter 7 filings and mandatory financial education counseling before filing for bankruptcy. [email protected]