Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005

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Mr. DODD. Mr. President, before the Senator departs the floor, I commend my colleague from Tennessee for his comments. I will take a close look at them myself.

As usual, the Senator from Tennessee makes an awful lot of sense. The question raised by our colleague from Alabama is an appropriate question. I underscore the last point he made, as well, this idea of dumping on the courts a lot of time to resolve matters which are thorny and difficult. It is a lot easier to do that.

We have learned painfully in the area of education, the area of equalization formulas, 47 States have enacted or required through the courts to provide equalization of funding for elementary and secondary education. I don't know of a single State that has done it yet because the political community has passed the ball on, in a sense, to the courts without addressing the issue in a fundamental way themselves. It is another example of Congress not coming to terms with some of the difficult issues.

My colleague has pointed out the one dealing with Medicaid. I applaud him for his comments. I intend to take a close look at his bill and may join him. I thank him for his comments this morning.

Mr. President, I have been present for most of the votes the past 4 or 5 days but not engaged in the debate on the bankruptcy bill. The reason for my absence is because my wife and I were very blessed on Tuesday morning, in the wee hours, to become parents again. So for the past 4 or 5 days if I looked a little sleepy to my colleagues it is because we have been up with a wonderful new infant. This child arrived a little earlier than expected. I intended to be much more involved in this debate than I have had the ability to. I apologize to my colleagues and to others who have had a strong interest in this legislation.

This morning I would like to take a few minutes and talk generally about the bankruptcy bill, and also to propose a couple of amendments which I will describe briefly. I realize any votes on these amendments may occur on Monday or Tuesday, depending on conversation with the majority in terms of how they will handle these matters.

The fundamental premise behind the bankruptcy bill, as I understand it and in listening to my colleagues over the last 7 or 8 years who have talked about this legislation, is that more and more consumers across this great country of ours are living rather lavish lifestyles and then filing for bankruptcy to avoid paying the debts which they have incurred as a result of their irresponsibility. This is one of the major arguments for this legislation--that bad actors are depriving credit card issuers of money owed to them as a result of people lavishly using these credit cards to acquire whatever products or services they want. This premise, I argue, is categorically and demonstrably false.

Let me, first, begin with the first chart, if I may, which lays out the statistics of what happens to an individual in America in the two years before they file for bankruptcy. I hope it will give my colleagues some sense of what actually is going on with these families. Who are these families? Are these people living lavish lifestyles, accumulating debts that they should have been more responsible about, and then trying to avoid their obligations by declaring bankruptcy?

Health Affairs, a respected organization in this field, did an analysis of what happened in the 2 years prior for people who file for bankruptcy. The study revealed that sixty-one percent of those who filed for bankruptcy during the previous 2 years had gone without needed medical care, 50 percent did not fill doctors' prescriptions they had been given, 30 percent had their utilities shut off, 22 percent went without adequate nutrition and food, and 7 percent moved elderly parents to cheaper care facilities across the country. These are hardly people who are leading what you would call a lavish lifestyle.

In fact, these are people who are desperately trying to hold their families together, who cannot meet the kind of responsibilities despite their best efforts.

Credit card issuers, I point out, are earning enormous amounts of money in income from fees, penalties, and interest charges. As one expert said:

The idea that companies are losing their shirts on bankruptcies is [just not true at all].

Mr. President, I ask unanimous consent that an article that appeared this morning in the Los Angeles Times be printed in the RECORD.

There being no objection, the material was ordered to be printed in the RECORD, as follows:

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Mr. DODD. Taking the Bankruptcy Act goes back to the earliest days of our Republic. Article I, section 8 of the U.S. Constitution mandates that Congress pass laws dealing with bankruptcy. I believe our Founders did so because they realized there was inherent, fundamental value to allowing people who find themselves under difficult circumstances to be able to get out from underneath those circumstances, to discharge their responsibilities to the best extent possible, and then to get back on their feet again. That is a social value from which all Americans benefit.

Now, will there be people who should have been far more responsible? Absolutely. But I happen to believe that the overwhelming majority of people who are forced to file for bankruptcy do so most reluctantly, only because there are no other avenues available to them which they can deal with their problems. We have with a responsibility, to remember what our Founders envisioned in article I, section 8, which calls upon Congress to pass bankruptcy legislation.

I would like to add at the outset of these remarks, if I can, some general understanding of what is happening to American consumers and their indebtedness.

First of all, in terms of household savings, in 1993, the savings rate was 4.3 percent of the gross domestic product nationally. In 2003, it was at 1 percent of gross domestic product. In the third quarter of 2004, savings rates were less than one-half of 1 percent of the gross domestic product. The national savings rate is declining rapidly in this country. At a time when we ought to be doing everything we can to encourage consumers to begin to save more, to participate in their own long-term financial needs, we are going in the exact opposite direction of where we ought to be heading in this country.

Let me add, simultaneously, that according to the Federal Reserve Board, the United States has over $2.1 trillion in consumer debt. Consumer debt is truly skyrocketing. Almost one-half of that $2.1 trillion in consumer debt is revolving credit--to credit cards and home equity loans--nearly $800 billion of the $2.1 trillion.

Our nation's savings rates are less than one-half of 1 percent of our gross domestic product--down from over 4 percent just a few years ago. Our nation's consumer debt has skyrocketed to $2.1 trillion, $800 billion of which is due to credit cards and home equity loans.

We are going in the absolute wrong direction. The questions we ought to be asking as we debate and discuss this bankruptcy bill is: Does this legislation contribute in the 21st century to encouraging more savings? Does it do anything at all to try to reduce consumer debt? Does this bankruptcy bill do anything to reduce the number of bankruptcies and effect the underlying causes of bankruptcy.

Certainly, consumers bear responsibility in terms of how they handle their money and the obligations they incur to those who extend them credit. However, there is a commensurate responsibility, I believe, on the part of those who extend credit. Creditors must make sure they are extending credit in a responsible way, with prudent underwriting standards. If they extend credit to those who can least afford it, charging them incredibly high rates and packed with hidden fees and costs, and with little or no expectation that they will have the ability to repay the debts incurred, then it seems to me that their charges of personal responsibility is wholly inappropriate.

If we are going to try to increase savings rates and reduce consumer debt in this country, then we ought to ask ourselves whether or not this bill before us contributes to those important goals.

Now, again, proponents of this legislation have wrapped themselves, if you will, in the flag of personal responsibility. The real purpose of the legislation, they argue, is to punish those who abuse our bankruptcy system, who raise costs to all consumers. The creditors are being forced, they argue, to raise prices on a variety of goods and services because of so-called bad actors who abuse the Bankruptcy Code. They would like us to believe that those bad actors are the real culprits behind why creditors, such as credit card issuers, are charging these incredibly high rates, using hidden, undisclosed fees and engaging in deceptive predatory practices.

I would like to dispel, if I can, these myths. Nothing in this bill, in my view, is going to help consumers. Let me repeat that. Nothing in this legislation will help consumers. The legislation, I would argue, will only help creditors recover more money from debtors, most of whom have been forced to declare bankruptcy because of emergency medical expenses or due to the loss of a job or as a result of a divorce.

Let me put up the second chart, if I can, to make that point for my colleagues and others who may be interested in this debate. We are told, again, that 46 percent--almost half--of the 1.5 million bankruptcies taken annually are as a result of illness. Mr. President, 46 percent as a result of illness, alone.

I mentioned briefly at the outset the reason I have not been as engaged in this debate over the last 4 days is because of the arrival of my new daughter in the wee hours of Tuesday morning. As I went to the nursery to see my new daughter I looked across the hall of the hospital, located in Northern Virginia. I saw where the premature infants were being cared for in incubators, and I saw the families with their premature infants. Many of the families did not strike me as people living lavish lifestyles at all, struggling with a new infant who is in a very fragile condition inside an incubator.

I do not need to tell anyone the costs associated with those type of medical challenges. I suspect, unfortunately, that a lot of these people do not have health insurance. As I watched them come in and out of that nursery to be with their newborn child in an incubator, I suspected that many of them are going to have costs far beyond anything they ever imagined. The idea, that somehow, we ought to penalize people because of a newborn in their life, who are going to have incredible increased costs, seems to me to be terribly wrongheaded.

As I stated earlier, 46 percent, of the 1.5 million bankruptcies annually occur because of medical causes. Of the remaining 54 percent, we know the majority of that 54 percent is due to job loss and divorce in the country--not the lavish lifestyles of bad actors that the credit card companies would suggest.

This legislation will injure honest, hard-working Americans, in my view, who fall on hard times through no fault of their own.

Let's just take a few steps back, if we can. What is the reason we have bankruptcy laws? The reason we have a Bankruptcy Code is because life, sometimes, just deals people all across our country, regardless of who they are or where they come from, a bad hand. People get dealt a bad hand every now and then. And we happen to believe, as a society, it is important to give people a fresh start in our Nation, an opportunity to overcome the financial misfortunes that have struck them, such as those families I have just described that I watched with premature infants.

This principle is so fundamental to our Nation that our Constitution expressly lists the establishment of uniform bankruptcy laws as a congressional responsibility. It seems that the Framers understood that society is better off if we can find an orderly way to allow people to pay off their debts to the best degree possible. It is critical to helping people to get back on their feet as productive citizens. Regrettably, that principle seems to suffer, in my view, at the hands of this legislation.

Recent evidence supports the idea the vast majority of people who file for bankruptcy do so because of some financial crisis beyond their control that has plunged them into debt they cannot avoid.

A recent study, conducted in early 2005 by a team of researchers at Harvard University, confirmed that nearly half of all people who file for bankruptcy protection do so because of medical or health reasons.

The evidence shows that abusive filings are the exception, not the rule. The median income of the average American family filing for chapter 7 bankruptcy--what do my colleagues think it might be? What is the median income of the average family filing for bankruptcy, these lavish-lifestyle people out there? It is $20,000 a year. That is the average annual income of a person filing for bankruptcy--hardly people living lavish lifestyles. That is according to the General Accounting Office.

The majority of the people who file for bankruptcy are single women who are heads of households, elderly people trying to cope with medical costs, and people who have lost their jobs or families whose finances have been complicated by divorce. For the most part we are talking about working people or elderly Americans on fixed incomes who have fallen on hard times and who need the protection of the Bankruptcy Act to help put them and their lives back together.

It is also worth noting that based on the first three quarters of 2004, the personal bankruptcy rate actually decreased by 2.6 percent. According to the American Bankruptcy Institute, there were actually 50,000 fewer cases from September 2003 to September 2004 than there were in the previous 12-month period, which, of course, begs the question: If bankruptcy rates are falling, why is this legislation necessary?

There is no smoke and there is certainly no fire except for maybe the millions of consumers who are being burned by abusive creditor practices.

The impact this legislation would have on single-parent households is of particular concern to me. Single parents have one of the hardest jobs in America. Most work all day, prepare meals, keep house, help children with their homework, schedule doctor appointments, parent-teacher meetings, and extracurricular activities. Life is very hard for working single parents, and often financial assistance they receive in the form of alimony or child support is critical to keeping their families from falling into poverty. I believe sincerely that this legislation, if enacted, is going to frustrate the efforts of single-parent families to collect child support payments.

I understand that the proponents of this bill believe they have treated single-parent families fairly. But what I worry about is the unintended but perfectly foreseeable consequence of allowing more debts to survive bankruptcy. Let me explain why and what is in this bill today.

For more than 100 years, the Bankruptcy Code has given women and children an absolute preference over all others who have claims on a debtor's estate. Under the well-established rule, if a divorced person files for bankruptcy, the court doesn't require the person's ex-spouse or children to compete with creditors for the funds needed to pay child support and alimony. Instead, for 100 years, alimony and child support have been taken out of the debtor's monthly income first, and if there is anything left over, it is made available to commercial creditors. If there is nothing left over, the commercial or consumer debts are discharged, and the debtor's only remaining obligation is to the ex-spouse and his or her children.

This legislation changes those rules for the first time in 100 years. For the first time we are going to make credit card and other consumer debts essentially nondischargeable so that while a divorced spouse would still be obligated to pay alimony and child support, his or her other unsecured debts remain intact. The proponents of the bill will say this does no harm to the divorced spouses or children because the ex-spouses are still at the front of the collection process. But there is, in my view, a huge practical difference between being first in line and being the only one in line.

Under current law, nonsupport debts are often discharged and debtors can focus entirely on meeting their obligations to their children and current spouses. If this legislation becomes law, that will change for the first time in 100 years. Debtors will not be able to focus on their children; they will, as a matter of law, have to divert limited financial resources to pay back consumer creditors. I believe this change will inevitably lead to conflicts between commercial creditors and single parents who are owed support and alimony payments. Sure, they are going to be first in line, but single parents will be competing with large creditors, creditors who have teams of lawyers who are hired to use every imaginable tactic to see to it that they get their money first. That is what they are going to do. I promise, it is going to happen.

I believe it is a mistake to make single parents compete with teams of lawyers from very well-heeled creditors for the money they need to clothe and feed and educate their children. That is a mistake, and we will regret it.

I understand the perspective that says that all debts incurred should be paid. I don't fundamentally disagree with that. But when debtors simply cannot pay all of their debts, I believe that our laws should protect the interests of children and families first. Under this legislation, child support payments could very well be reduced in order to satisfy an unsecured commercial creditor. In my view, that change will place the well-being of children at a disadvantage and elevate the status of the unsecured creditor. Low-income children and families will be put at a practical disadvantage by this bill and will ultimately suffer greater economic deprivation because they cannot afford to compete with sophisticated creditors.

I have talked a bit about who will be hurt by this legislation. Let me take a few minutes to focus on the big winners, if the legislation passes. The big winner, of course, is the credit card industry. Let me describe the current state of the credit card industry. In a time when access to credit is the easiest and cheapest, credit card companies are making more money than ever, bilking millions of American families by charging what would have been only a few years ago usurious rates and fees, engaging in a series of abusive and deceptive practices which will have drastic long-term consequences. At the same time they are getting more and more Americans deeper and deeper into debt.

I have cited these statistics previously: $2.1 trillion, almost half of that coming from credit cards and home equity loans--the same creditors pushing bankruptcy legislation in Congress to make their debts nondischargeable in the event of a bankruptcy. In effect, we are becoming the collection agency for these companies. The old expression never had a more apt example: the credit card industry wants to have its cake and eat it, too.

Credit card companies are charging consumers higher fees than ever before.

In 1980, credit card fees alone raised $2.6 billion. In the year 2004, credit card fees alone raised over $24.4 billion--$2.6 billion 24 years ago to $24.4 billion. Fees alone. Proponents of this legislation argue that because of increasing default rates, the supposed work of those bad actors, the ones making $20,000 a year on average, credit card companies are being forced to charge more fees.

In fact, the exact opposite is the truth. Consumer bankruptcies actually went down last year by nearly 3 percent, and default rates actually decreased.

A recent American Banker article cites industry expert Robert Hammer, chairman of R.K. Hammer Investment Bankers, who said that the biggest factor in industrywide credit card industry improvement was the 20-basis-point drop in chargeoffs from the year 2003. So I ask again: If default rates are decreasing, why is this legislation necessary?

The truth is, this is the best time in history to be in the credit card business. Last year over 5 billion solicitations were offered to consumers, which is nearly twice as many as only 8 years ago. Despite the assertions that the credit card industry is struggling because of bad consumer behavior, credit card companies have more money than they know what to do with. They are pumping out solicitations in search of new people who will only acquire more and more debt.

Credit card companies are making record profits. Credit Card Management reported in May 2003 that it was the most profitable year ever for credit cards. At a time when interests rates are at historic lows, credit card rates have not followed suit. The industry is engaged in a series of deceptive and abusive practices to take advantage of consumers.

Let me take a few moment to describe a few of these practices. I am not making this up. Credit card companies are finding more ways to effectively increase their income from rates and fees. Abusive practices such as misleading teaser rates which employ bait-and-switch tactics, hidden fees and penalties, and the universal default provisions buried in the fine print are standard operating procedures in the credit card industry today.

One of these abuses, the so-called ``universal default'', which could more accurately be described as a predatory retroactive interest rate hike. This practice forces a credit card consumer in good standing--one who is paying his or her credit card bills on time--to have his interest rates retroactively jacked up 25 to 30 percent because of an unknown, irrelevant change in his or her spending patterns.

The idea that credit card companies can charge an initial interest rate that would have in the past been outlawed as usurious, and then double or triple that rate for any reason it so chooses is plain wrong, in my view. If a phone bill is inadvertently mailed to the wrong address or you are disputing an amount of a bill and it is not paid on time, does the mortgage rate on your house go up? Of course not. But it does with the credit card industry.

We should stop this practice. At a minimum--and I will offer an amendment shortly--we should make any increase in the rates prospective, not retroactive.

Let me explain why. If you enter into a agreement with a credit card company, and the established rate is set at 15 percent. Despite the fact that you continue to make your monthly payments on time, without exception, you can have your interest rate unexplainably raised. This inexplicable rate hike can occur for whatever reason the creditor sees fit. You have an argument with your automobile company and you decide to withhold a car payment, or you are having a debate with the utility company, so you hold back on your utility bill--under the law today, the credit card company can automatically increase your rates. And to add insult to injury, this new rate retroactively applies for the goods you have already purchased.

I think this practice is completely uncalled for. But if you are going to allow for rates to go up, at a minimum they ought to be prospective, on future purchases,

I would, frankly, like to eliminate it altogether, but I don't think enough people here would support that. At the very least, if you entered into a contract at 15 percent and if you are suddenly forced to pay a higher interest rate, it ought to be on prospective purchases, not to things that you may have bought 1 or 2 years ago. That is patently wrong, and I will offer an amendment to implement this policy.

There is a second practice: credit card companies are focusing on customers who pay their bills on time. Credit card issuers are now providing incentives or rewards to customers for not paying their bills. They get a reward for not paying their bills. They offer up to 3 percent cash back on all credit card purchases, but only during the month when the credit card holder doesn't pay off his or her monthly balance. We have this consumer debt mounting by the hour, and we have credit card companies offering rewards to those who don't pay on time and they are cutting off the card for those who do. It is absolutely incredible.

That underscores how important it is to the credit card industry that consumers get in debt and stay in debt. There are 51 million households that carry balances on the credit cards at an average balance of $11,944. That is the average amount of debt families carry on their credit cards. The current average interest rate is running at about 13 percent. This is at a time when we have the lowest interest rates at 3, 4 percent and we have 13 percent credit card charges. Each of those families is paying credit card interest, on average, of 15 percent a year. Some are having their credit cards cancelled because they simply pay all of their outstanding debt every month. Imagine that. You are paying your bills on time and the credit card company triples your interest rate or cancels your card.

In fact, the credit card industry calls you a ``deadbeat'' if you pay off your entire balance every month. Why do they call you a deadbeat? The credit card industry has a vested interest to keep you in debt. Failure to do so affects their bottom line. They don't like people to pay off their monthly balances. You could lose your credit card for doing that.

As I have said earlier, the real purpose of this legislation is to help credit card companies make more money. I am not opposed to them making their money, but I think we have a higher obligation here to see that these companies are prevented from engaging in abusive and predatory practices that run contrary directly to stated national goals of increasing savings rates and reducing consumer debt.

I have given you some brief insight into some of the abusive practices of the credit card industry. I would now like to focus on what I believe to be the most egregious trend in the industry, which is targeting our Nation's most vulnerable customers. One of the most troubling developments is the hotly contested battle between credit card issuers to sign up new customers, and the aggressive way they have targeted people under the age of 21, particularly college students. Solicitations going to this age group have become incredibly intense. First, it is one of the few market segments in which every year 25 to 30 percent of the undergraduates are fresh faces entering their first year of college. Second, it is an age group in which brand loyalty can be readily established. Most people hold on to their first credit card for up to 15 years, which, by the way, is probably the amount of time it takes to dig out of the amount of debt they have incurred while in their teens.

Let me share this with my colleagues. It is somewhat amusing, but it is also rather sad. This is a letter that was sent to a 7-year-old child of one of the people in my office. I have crossed out the family name. He has a 7-year-old son. He was amazed to find a brand new American Express card being issued to his son. The card came as a result--according to the offer--of this young elementary schooler's ``excellent credit history.'' It says: You should know about this milestone that you have achieved. With your excellent financial record, our decision was very simple. We want you as a card member. Imagine, a 7-year-old. It reads: ``You have the flexibility of a no preset spending limit''--a 7-year-old. There are no limits on how much you can spend on this credit card. He has amply demonstrated his financial responsibility, according to this letter. He has earned this recognition to receive an American Express card at age 7. This type of solicitation happens more and more every single day and yet we need to focus on personal responsibility and not corporate responsibility.

There are 5 million solicitations that go out every year, many going to young children in our society. Obviously, we are talking not just about 7-year-olds here but also to college-age persons. They are vulnerable, these younger people in our society. To extend them large amounts of credit, with no limits, is an act of incredible irresponsibility. Again, I agree that consumers have a duty to be responsible. I will take a back seat to no one in arguing that ought to be the case. However, there needs to be a sense of balance about this. If you are expecting the consumer to be responsible, the issuer of the credit card also has to be responsible. They lack total responsibility when it comes to these solicitations.

I have an amendment that I will offer shortly that places new requirements on credit card companies who solicit to persons under the age of 21. It requires if you are under the age of 21, either demonstrate that you can pay--a lot of people under 21 can pay because they hold jobs, they have made money, and they have saved. Or have somebody cosign--a parent, guardian or other responsible party--the application to get the credit card, Or lastly, the completion of certified credit counseling course. Any one of those three, not all three. It is a very simple and prudent requirement to ask for before issuing credit cards. This ought to be plain common sense, in my view.

We have an obligation to protect and educate our young people. The next generation of American leaders deserves no less than reining in the irresponsible practices of the credit card industry that just pushes these cards out. In fact--and I will touch on this later--universities actually get money into their coffers if they will promote students signing up for credit cards.

There are actually fees that come to the universities as a result of the indebtedness of their students. It seems to me we ought to be thinking twice and thinking hard about those practices. Credit card companies are running roughshod over millions of Americans and their families. We should be passing legislation that prevents these types of practices, not padding the credit card industry's pockets, in my view.

The credit card issuers seem to have forgotten the correlation between high interest rates and unsecured debt. Traditionally, unsecured credit issued without collateral and relying only on the integrity of the borrower has a higher default rate. As a result, credit issuers are allowed to charge a higher interest rate in order to make up for expected losses from those higher default rates.

However, this legislation begins to change this deal, changing the Bankruptcy Code to make unsecured debt nondischargeable in the event of a bankruptcy. Record fees, record abuses, record profits, and a record number of Americans are being taken advantage of. I urge my colleagues to reject this legislation.

AMENDMENT NO. 52

Mr. DODD. Mr. President, I wish to call up two amendments. I believe the first, amendment No. 52, is at the desk. I ask that it be called up.

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Mr. DODD. Mr. President, I briefly mentioned this amendment before. This amendment focuses on a abusive practice that I have to believe all of my colleagues would want to see done away with, this universal default practice. Let me explain what this means.

Under a universal default, which almost all these companies now engage in, it says that credit card companies have the right to raise fees and rates, whenever they want, for any reason I choose. That language actually is included in some of the small print. Again, I believe that consumers have an important responsibility for the debts they incur. However, I think it is patently unfair, that if you are paying your minimum monthly balance to the credit card company, and for whatever reason you are not meeting your obligation to the car payment, the house payment, or the utility bill that you be subject to a universal default clause. And while I think the practice should be banned, if it is part of the credit card agreement, credit card companies are allowed to raise your rates even though you are meeting your obligation to them.

This amendment simply restores some basic fairness in this arrangement. You can raise interest rates--but only prospectively on new purchases. However, it prohibits retroactively rate hikes, that is, raising the interest rate on purchases you may have made a week, a month, a year, or 2 years earlier.

Let me make the point again. I understand why the credit card companies would like to do this. Obviously, they make more money doing it. But I think we have an obligation to see to it that there is a sense of fairness about all of this.

That is what I am trying to do with this amendment. That is all this amendment does. It just says here you cannot apply these rates retroactively. On future purchases, fine. Again, I think the practice of universal default is unfair. If I have a contract with my friend from Alabama at a certain rate and I am meeting my responsibilities to him, he is lending money at 15 percent, and for whatever reason I have a contract with my friend from Georgia, and we have a dispute about my payment obligations to you, my friend from Alabama then can automatically raise my rate to 20 percent, 25 percent, or 30 percent because of my dispute with the Senator from Georgia.

The idea that a credit card company can charge an initial interest rate that would have in the past been outlawed as usurious and then double or triple that rate for any reason it chooses is just plain wrong, in my view.

If a phone bill is inadvertently mailed to the wrong address, you are disputing the bill that is not paid on time, does the mortgage rate on your home go up? No, but apparently your credit card interest rate can.

Record number credit card companies have built-in universal default clauses in their agreements. ``Universal default complaints are definitely on the increase at a disturbing rate,'' says Paul Richard, director of the nonprofit Institute of Consumer Financial Education. More than one-third of all major credit card issuers now say they act on these clauses regularly. A recent survey found that a staggering 39 percent of credit card issuers apply this universal default rate to consumers even if they have no late payment on their credit cards.

A recent New York Times article entitled ``Plastic Trap, Soaring Interest Rate Compounds Credit Card Payments for Millions'' illustrates the point.

Ed Sweibel was whittling down his mound of credit card debt at an interest rate of 9.2 percent. The MBNA company had a happy and profitable customer. But this past summer when MBNA suddenly doubled the rate on his account, Mr. Sweibel joined the growing number of irate card holders stunned by lenders' harsh tactics. Mr. Sweibel, 58 years old, a semiretired software engineer in Gilbert, AZ, was not pleased his minimum monthly payment jumped from $502 in June to $895 in July. But what really made him angry, he said, was the sense he was being punished despite having held up his end of the bargain with MBNA. ``I paid the bills the minute the envelope hit the desk. All of a sudden in July they swapped it to 18 percent, no warning, no reason. It was like I was blindsided.''

Mr. Sweibel had stumbled into the new era of consumer credit in which thousands of Americans are paying millions of dollars each month in fees that they did not expect and that strike them as unreasonable. Invoking clauses tucked into the fine print, lenders are doubling or tripling interest rates with little warning or explanation.

What truly astounds me is the fact that credit card companies view the practice as completely legitimate. In fact, when in fine print they disclose they engage in this practice, the language they use is incredibly brazen. One credit card issuer states in its standard disclosure:

We may change the rates, fees, and terms of your account at any time for any reason.

Rates, fees, and terms--is there anything left in the credit card contract that a consumer can count on staying the same? I understand why they would want to do this, but, again, I do not understand why the Congress should continue to allow them to continue this practice.

As I pointed out at the outset of these remarks, I carry a copy of the U.S. Constitution with me. In Article I, section 8 of the Federal Constitution--the Framers decided--that it is our job to write the Bankruptcy Code. In the initial draft of the Constitution, the Framers thought this was a significant enough issue. It is hard to find any more complicated or difficult issue than bankruptcy, and yet the Framers said do it.

Why did they do it? Again, the point I tried to make at the outset: The Framers wanted to give people a chance to get back on their feet. If we allow these credit card companies to constantly raise the bar--we will force future generations into never ending indebtedness. In the article I just read, Mr. Sweibel was trying to get rid of his debt and meet his obligations. No matter how diligent he was in paying his bills, his credit card company jacks up his interest rate--almost doubling it in one month because of a disagreement he had with some other obligation.

That is wrong. Again, I understand why the credit card companies may want to get away with it, but we should not let them get away with it. We have an obligation to people, to make sure that people play fair, play by the rules, and act responsibly. It is irresponsible for a credit card company to be able to double and triple the interest rates on someone when they are meeting their obligations of that creditor. I think it is wrong and unfair. If we do not put our foot down and say it is wrong and unfair, they are going to continue to get away with it, and we are never going to see consumers get beyond the mountain of debt they are accumulating.

Almost one-half of the $2.1 trillion in debt is consumer credit-card-related debt. The savings rate is down to less than 1 percent in the country. Consumer debt is skyrocketing, and we are handing these credit card companies a gift they could never have imagined when the Framers of the Constitution were around.

We should not be allowing credit card companies to use farcical excuses to penalize unaware consumers who pay their bills on time.

If a credit card company wants to change the rules of the game, they should not be allowed to reach back and set new terms and conditions to purchases made under previous agreements. This is just plain, basic fairness.

If for some reason a credit card issuer views a customer as an increased credit risk, which is the purported justification for the universal default practice, then it can decide to only lend future credit at a higher rate or with different terms. Also, consumers must be given ample notice of this new credit decision so they can fully understand the changes in the new contract.

This amendment is a necessary addition to the bill. It will not solve all the problems, but it will solve a major one, the universal default clauses.

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Mr. DODD. As I touched on briefly before, this amendment seeks to protect the most vulnerable of our nation's consumers--persons under the age of 21. According to Dr. Robert Manning, a professor at Rochester Institute of Technology, one of the fastest growing groups of bankruptcy filers are people under the age of 25.

In fact, the number of bankruptcies among those under the age of 25 is more than 6 times that of only 5 years ago, according to the American Bankruptcy Institute. One of the most troubling developments in the hotly contested battle of credit card issuers to sign up new customers has been the aggressive way in which they target people under the age of 21. Solicitations to this group have become more intense for a variety of reasons which I have mentioned already.

Obviously, we know about consumer loyalties. It is also an age group in which brand loyalty can be established. However, some credit card issuers have gone too far. Again, I am not opposed to people under the age of 21 having credit cards.

Credit cards, are a great asset to a lot of people. I am not opposed to them, but they must be issued and used responsibly.

I mentioned the letter earlier of the 7-year-old, which is just plain ridiculous. What also worries me is what is happening with these younger people on college campuses around the country.

Credit card issuers are deeply involved in the business of enticing colleges and universities to help promote their products. Many colleges receive as much as 1 percent of all student charges from credit card issuers in return for marketing or affinity agreements. Even those colleges that do not enter into such agreements are making money.

Robert Bugai, the President of the College Marketing Intelligence, told the American Banker that colleges charge up to $400 per day for each credit card company that sets up a table on campus. That can run into tens of thousands of dollars by the end of just one semester.

A ``60 Minutes II'' piece a number of years ago vividly illustrated the impact that credit card debt is having on college students. A crew from the show was on a major public university, and with the use of hidden cameras filmed vendors pushing free T-shirts, hats, and other enticements for credit applications. The ``60 Minutes'' program revealed that the university was being paid $13 million over 10 years by a credit card company for the right to have a presence on campus and to use the university logo on its cards.

This public university was making money off its students who used credit cards, the report said. As part of the agreement, the university receives four-tenths of a percent of each purchase made with the cards. Unbelievably, this university has a vested interest in getting their students into as much debt as possible.

Again, we have kids who are going--the anecdotal stories of the debt they are incurring is just staggering. We have watched it actually almost double. Debt among this group has gone from around $1,800 a year to over $3,000 a year.

Again, this amendment requires one of three things. Firstly, it requires that one can prove that they have the financial resources to repay debts incurred. That is simple enough. Or have someone cosign the application, or just agree to take a short course in credit counseling. Any one of those three things and a person gets their card.

To push these cards out with no spending limits on them at all, knowing what is inevitably going to happen--bankruptcy--is irresponsible. Again, I understand why the credit card companies want to do it. I do not understand why we want to allow them to do it in such an unfettered way, knowing what we know now.

If they were doing this for the first time and we did not know the implications or the effects of their actions, I could understand maybe why some people would be willing to go along with it. But we now know what is happening. We are watching consumer debt among young people double over the last several years.

Why would we not just say, look, prove you can pay your debts, prove you have some financial means, have someone cosign with you, or be willing to take a credit counseling course? These are not heavy burdens to make. It seems to me the very least we could do, again, acting responsibly. If this bill says consumers must act more responsibly, should we not commensurately ask the industry to act responsibly as well?

When universities are collecting $13 million over 10 years in fees to allow a credit card company to be on their campus, and they are getting four-tenths of 1 percent on every purchase made by a student on campus, that is a university encouraging debt among its kids. That is just wrong, in my view.

So we are requiring a cosigner, proving a person has a source of income, or take some counseling so the kids have some idea of what they are getting into.

Again, just some basic statistics, and I will wrap up. Our personal savings rate is at an all-time low. The last quarter in the year 2004, less than one-half of 1 percent was the national annual savings rate. That is down fromÐ 4 1/2 percent 10 years ago. It was at 1 percent last year. We are going in the wrong direction in terms of encouraging people to save. Consumer debt is now at $2.1 trillion, and almost half of that, $800 billion, is credit card debt--$2 billion alone in the month of December. The consumer debt is mounting, and there needs to be a commensurate sense of responsibility by these credit card companies. They are making incredible profits with interest rates at 18, 25, 30 percent, when one can borrow money to buy a home for 4 1/2 or 5 percent. Yet credit card companies are charging these incredibly high rates, making staggering profits.

The average income of a person taking the bankruptcy act is $20,000 a year. The reason they are taking the bankruptcy act is because of medical expenses, job loss, or divorce. These are not people living lavishly. Default rates are actually dropping. What is the justification and rationale for a bill that makes it easier for these credit card companies to collect and prevents consumers from getting back on their feet again?

Particularly disturbing to me is this change, after 100 years of law, where we sought to protect single women raising children with child support and alimony payments by allowing the discharge of these other obligations and seeing to it that they would focus on meeting their family obligations. We are now going to have the credit card companies competing with these children and these families, and I do not even have to say who is going to win that battle.

A team of lawyers representing very rich credit card companies are always going to beat that family out there. They are going to get that father, that husband, or that woman, to pay their unsecured debts to that credit card company, and that child and that family will lose. Why, after 100 years, are we changing the law protecting families and children? I think that is a huge mistake. I think it is going to come back to cause us a great deal of pain. This bill needs fundamental change.

I wish people would take time and look at these things. I understand there is a sentiment to reject all amendments, but we ought to ask these companies to act more responsibly. We are not going to do it, but I think, in time, we are going to pay an awful price. When we ought to be encouraging more personal savings, and when we ought to be reducing consumer debt, we are getting more consumer debt and less and less personal savings. We are allowing credit card companies to gouge consumers and never let average people who get into trouble--and, again, a lot of them, through no fault of their own--to get back on their feet again. That is what we ought to be trying to do.

When it is the appropriate time I will ask for votes on these amendments. I realize it will not be until next week. I have taken a lot of time, and I express my appreciation to my friend from Alabama who has been very patient, listening to me going on about this bill, and I thank the Presiding Officer for his patience as well in listening to this, and I yield the floor.

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