Reply #45: You started with the FDIC, move to the Clinton years and now want specific statements about Gramm?

[ProSense]

Well, here is the thing. You said that Kerry did nothing about anything. The crisis is about the bad regulations that caused the credit and mortgage crisis. The fact is that Kerry has been addressing these every since. I can give you examples, and you can move the goal post further.

FOR IMMEDIATE RELEASE: CONTACT: Jesse Jacobs - 202-224-4524

Wednesday, May 1, 2002 Craig Davis - 202-224-7391

SARBANES ANNOUNCES INTRODUCTION
OF LEGISLATION TO COMBAT PREDATORY
LENDING PRACTICES

Senator Paul S. Sarbanes (D-MD), the Chairman of the Senate Banking, Housing, and Urban Affairs, was today joined by several of his Senate colleagues, Mayors, and representatives from groups who have been actively involved in efforts to combat predatory lending across the country, in introducing "The Predatory Lending Consumer Protection Act of 2002." The legislation is designed to restrict abusive predatory lending practices, expand consumer protections, and strengthen enforcement of existing protections in current law by enhancing civil remedies and statutory penalties.

Predatory lenders typically target vulnerable people with equity in their homes. They underwrite the property without establishing a borrower's ability to repay the loan. The brokers or lenders typically make their money by charging extremely high points and origination fees, and by "packing" other products into the loan, including up-front premiums for credit insurance, for which they get significant commissions. The financing of these fees greatly increases the balance of the loan and leaves the borrower with exorbitant monthly payments, in many instances leading to the loss of the home.

"Homeownership is the opportunity for Americans to put down roots and start creating equity for themselves and their families," said Sarbanes. "Homeownership has been the path to building wealth for generations of Americans. Homeownership has been the key to ensuring stable communities, good schools, and safe streets. Common sense tells us, and the evidence confirms, that homeowners are more engaged citizens and more active their communities. Little wonder, then, that so many Americans aspire to achieve this dream."

"The predatory lending industry plays on these hopes and dreams to cynically cheat people out of their wealth in their homes," Sarbanes added. "These lenders target lower income, elderly, and often, uneducated homeowners for their abusive practices. They overwhelmingly target minorities, driving a wedge between these families and the hope of a productive life in the economic and financial mainstream of America."

The bill was endorsed today by the AARP, ACORN, Center for Community Change, Consumer Federation of America, Consumer's Union, Leadership Conference for Civil Rights, NAACP, National Association of Consumer Advocates, National Consumer Reinvestment Coalition, National Consumer Law Center, National League of Cities, Self-Help Credit Union, and the US Conference of Mayors.

Joining Sarbanes in sponsoring the legislation were 14 of his colleagues, all Democrats: Senators Chris Dodd (CT), Chuck Schumer (NY), Debbie Stabenow (MI), Jon Corzine (NJ), Edward Kennedy (MA), John Kerry (MA), Barbara Mikulski (MD), Richard Durbin (IL), Barbara Boxer (CA), Paul Wellstone (MN), Robert Torricelli (NJ), Hillary Rodham Clinton (NY), Mark Dayton (MN), and Carl Levin (MI).

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Sen. Kerry on Bankruptcy Reform

The following are excerpts from Senate floor statements made by Sen. John F. Kerry (D-Mass.) on the Bankruptcy Reform Act of 2001 (S. 420 in the 107th Congress), the predecessor bill to H.R. 975 in the current Congress. S. 420 passed the Senate 83-15 on March 15, 2001 (with Sen. John Edwards, D-N.C., voting in favor), but did not become law. Sen. Kerry offered one significant amendment during the floor debate: to strike the bill's small-business provisions in favor of a study by the Small Business Administration. This amendment was tabled by a vote of 55-41. Excerpts from the debate on the amendment are also included below.

Mr. President, the Bankruptcy Reform bill we are voting on today has a valid, uncontroversial and necessary purpose. It is intended to curb bankruptcy abuse and ensure that those who can afford to pay their debts, do pay their debts. And I would say to you, Mr. President, if this were all about those goals—if this were a debate about personal responsibility—there would be a very different dialogue in the U.S. Senate, and it would have given us a very different bill than the one we're voting on today. But Mr. President, the bill we are voting on is seriously flawed and will harm innocent debtors who are genuinely in need of the protections and the "fresh start" that bankruptcy procedures are intended to provide. It is for that reason that I must vote against this bill.

During the 106th Congress, I voted in favor of the Senate bankruptcy bill, because I believe that we need to reform the system and curb abuse. I had some serious reservations about that bill and had hoped that many of the concerns I had at that time would be addressed in conference. Unfortunately, the conference bill, like the bill we are voting on today, did not target only those who abuse the bankruptcy system. What we needed during the 106th Congress, and what we need now, is bankruptcy reform that does not lump together those who need the protections of bankruptcy with those who abuse the system.

We must absolutely prevent the abuse of the bankruptcy system by the millionaires whom we know have received the protections of the bankruptcy system despite their ability to repay their debts. But even beyond the flagrant, high-profile abuse of the bankruptcy system that we have read about in the papers, we must also be sure that every consumer acts responsibly and does not charge meals, vacations and clothes that he can't afford, only to turn to the bankruptcy system to bail him out of his debt.

At the same time, we must not forget that a fresh start in bankruptcy serves a valuable purpose for many individuals who truly need its protections. When an individual gets into financial trouble because, for example, she has catastrophic, unforeseen medical expenses, it is better for her, for her creditors and even for society as a whole if she is given the opportunity to have her debts discharged and is given a fresh start. The alternative is that the innocent but unlucky debtor may have as much as 25 percent of her wages garnished by her creditors. Most people live paycheck to paycheck and would be put in serious financial trouble if their paychecks were reduced by that much. In those circumstances, consumers have no choice but to cut back on other, important expenses. They stop paying for their auto insurance and health insurance. They deplete any savings they might have and stop contributing to their retirement accounts. This is a perverse result that doesn't benefit anyone and certainly should not be the outcome of our efforts to reform the bankruptcy system.

As you know, this bill implements a means-testing system that would create a presumption that a chapter 7 bankruptcy, or fresh-start bankruptcy, should be dismissed or converted to a chapter 13 reorganization if a certain financial formula is satisfied. The means test applies an IRS standard to determine whether a case should be dismissed or converted. The IRS standard is inflexible, and it provides no room for a bankruptcy judge to determine whether the circumstances that led to the debtor's financial situation warrant treatment under chapter 7. A father with a sick child is treated the same way as a reckless spender who ran up his credit cards on luxury items. Judges should have some discretion to distinguish those situations and exempt from means-testing debtors who, due to circumstances beyond their control, have come to the court to ask for the protection bankruptcy is intended to provide.

The purpose of the means test is to ensure that more individuals file in chapter 13 and therefore pay off more of their debts. That sounds like a laudable goal. But it is likely to fail. Simply because more people are forced into chapter 13 plans does not mean that they will be able to successfully complete those plans. Even under the current system, only a third of those who file for chapter 13 successfully complete their plans. Simply funneling more individuals into chapter 13 does not in any way guarantee that more debts will be paid off.

Finally, the means test imposes financial disclosure requirements that put significant burdens on all debtors, not just the 10 percent or fewer whom experts say abuse the system. Under the means test, everyone who files for bankruptcy must engage in more preparation, more paperwork and more attorney and other expenses prior to filing for bankruptcy, leaving fewer assets to distribute to creditors.

A narrowly targeted reform bill designed to reduce abuse of the system would have provided bankruptcy judges with the discretion to dismiss or convert a case to chapter 7, but would not have mandated it. It would have provided creditors the opportunity to ask for a dismissal or conversion, but would not have put the burden on every filer to prove that he or she deserves the protections of chapter 7. This bill simply fails to take that reasonable, targeted approach toward curbing abuse.

In its attempt to thwart abuse of the system, the bill we are voting on will also result in some innocent debtors losing their rented homes and apartments. Current bankruptcy law allows individuals in bankruptcy to remain in their apartments as long as they keep paying their rent while the bankruptcy is pending, and as long as they repay any unpaid rent. A landlord must go to the bankruptcy court for permission to evict tenants who have filed for bankruptcy. There is no question that some tenants will abuse this provision and withhold rent while gambling on the fact that the time and expense of going to bankruptcy court will prevent the landlord from getting permission to evict the tenant. This bill, which allows landlords to evict debtors without going to bankruptcy court, punishes the innocent tenant who is paying his rent while it attempts to get at those who abuse the system. And once again, the answer lies in more narrowly targeting reform. We simply need to make it easier and less expensive for a landlord to evict a tenant when that tenant has failed to pay his rent. It is not necessary, nor is it good public policy, to allow a landlord to evict a tenant who is paying rent and who will pay back any debts owed.

Perhaps one of the most disturbing parts of the bill is its impact on children. The bill's supporters claim that by moving child support claims from seventh to first priority in chapter 7 cases, the bill "puts child support first." What they don't say is that this provision is virtually meaningless and will help very few children. The reason is because few debtors in chapter 7 have any assets to distribute to priority unsecured creditors, such as credit card companies, after secured creditors receive the value of their collateral. Therefore, this change would affect only the smallest number of cases.

In addition, by forcing more debtors to file chapter 13, more debt, including credit card debt, will have to be repaid. The result is that banks and credit card companies will be in direct competition with single parents trying to collect child support after bankruptcy. Once again, Mr. President, a bill that claims to reform the system may actually make it worse for those most in need.

While this bill puts more burdens on the innocent debtor, it does not place more responsibility on the creditors who provide the consumers with the opportunity to take on increasing amounts of debt. A simple provision requiring credit card bills to state the length of time it would take and the interest that would be paid on the current debt if only the monthly minimum was paid would have provided real reform. Such a provision would have provided valuable information to consumers and given them the tools they need to decide whether they can afford to take on any new debt. This bill, however, fails to include such a balanced reform provision. Instead, it includes an inadequate disclosure provision that would free 80 percent of all banks from any disclosure responsibility and place the burden of disclosure on the Federal Reserve for two years. After that time, it is unclear whether and how the consumer disclosure requirements would be maintained.

Impact on Small Business
This bill is not only detrimental to consumers, but it also hurts our small businesses. This effort to reform our bankruptcy laws will make it more difficult for entrepreneurs to start a small business and impose additional regulations and reporting requirements on small businesses who file for bankruptcy. I believe we must do everything possible to ensure the viability of small businesses and to assist in fostering entrepreneurship in our economy. It has been Congress's long-held belief that regulatory and procedural burdens should be lowered for small business wherever possible. However, the Bankruptcy Reform Act fails to meet this challenge. Instead, this legislation promotes additional red tape and a government bureaucracy that we have worked to reduce for small business. Specifically, the provisions included in the Bankruptcy Reform Act impose new technical and burdensome reporting requirements for small businesses who file for bankruptcy that are more stringent on small businesses than they are on big business. Further, the bill will provide creditors with greatly enhanced powers to force small businesses to liquidate their assets.


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A narrowly targeted reform bill designed to reduce abuse of the system would have provided bankruptcy judges with the discretion to dismiss or convert a case to chapter 7, but would not have mandated it. It would have provided creditors the opportunity to ask for a dismissal or conversion, but would not have put the burden on every filer to prove that he or she deserves the protections of chapter 7.—Sen. John F. Kerry

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Any big business would have difficulty complying with these new burdensome reporting requirements. But think of the difficulties an entrepreneur or a mom-and-pop grocery store will have in complying with this dizzying array of new and complex reporting and other requirements. These small businesses are the most likely to need, but least likely to be able to afford, the assistance of a lawyer or an accountant to comply with these new taxing requirements. That is why during the consideration of this bill I offered an amendment to strike the small-business provisions which will make it easier for creditors to force liquidations of small business during the bankruptcy process. Unfortunately, that amendment was not adopted.

A limited number of provisions do help small businesses and family fishing businesses. The amendments that I offered last year to extend the reorganization plan filing and confirmation deadlines for small business are included in this bill along with a provision to include small businesses in the creditors' committee. Those amendments help small businesses, but they cannot compensate for the greater burdens this bill imposes.

Additionally, I am pleased that an amendment sponsored by Sen. Collins and I, which will extend chapter 12 bankruptcy protections to our family fishermen, has been included in the bill. Mr. President, small, family-owned fishing businesses are in serious trouble. Severe environmental factors such as coastal pollution, warmer oceans and changing currents have resulted in severely depleted fish stocks around the country. We are making progress in rebuilding stocks; however, the cost of this progress has been a steep decline in the amount of fishing allowed in Georges Bank and the Gulf of Maine. This in turn has made it much more difficult for fishermen in Massachusetts and Maine to maintain profitable businesses.

This amendment Sen. Collins and I sponsored will ensure that fishermen have the flexibility under chapter 12 of the Bankruptcy Code to wait out the rebuilding of our commercial fish stocks without back-tracking on our conservation gains to date. It will help preserve the rich New England fishing heritage in Massachusetts without wiping out the fiercely independent small-boat fishermen.

Despite those provisions, which I do believe improve the system, overall this bill does not provide for real bankruptcy reform. Mr. President, sponsors of this bill say it is necessary because we are in the midst of a "bankruptcy crisis." There has been widespread and justifiable concern over the increase in consumer bankruptcies during the 1990s. There were more than 1.4 million bankruptcy filings in 1998. However, personal bankruptcy filings have fallen steadily since then, down to 1.3 million in 1999 and to 1.2 million last year. That is fewer bankruptcies per capita than there were at the time the bankruptcy bill was first introduced. I cannot help but think that had we enacted bankruptcy reform in 1998, the sponsors of the bill would have been taking credit for this downturn in bankruptcies.

But without congressional intervention, bankruptcies have been on the decline. The reason, Mr. President, is simple. Lenders are profit-maximizing institutions that select their own credit criteria. If there is an increase in personal bankruptcies, credit card companies simply won't offer their cards to consumers who don't have the means to pay. The free-market thus corrects any upswing in bankruptcy.

Although the free market will correct the over-extension of credit to those who can least afford it, the market will not address the small percentage of bankruptcy filers who abuse the system. We need legislation for that. But that legislation should be targeted, it should be narrowly crafted, and it should avoid punishing those who truly need and deserve bankruptcy protection. This bill does not do that, and I must vote against it.

Debate on the Kerry Amendment
Mr. Kerry. Mr. President, the provisions included in the Bankruptcy Reform Act impose new technical and burdensome reporting requirements for small businesses that file for bankruptcy that are far more stringent on small businesses than they are on big businesses. Furthermore, the bill would provide creditors with greatly enhanced powers to force small businesses to liquidate their assets at a time when it may not be advisable, and with reporting requirements that may, in fact, force a liquidation that does not have to take place.

Specifically, the bill will require small businesses to provide periodic financial and other reports containing information ranging from cash receipts, cash disbursements and comparisons of actual cash receipts and disbursements with projections in prior reports.

Just in case they missed anything, the bill includes a provision that includes reports on such matters as are in the best interests of the debtor and the creditors. This shifts all of the power in such a way as to place an extraordinary burden on mom-and-pop stores and mom-and-pop operations and small businesses that simply do not have the capacity to be able to comply.

Any big business would have difficulty complying with these burdensome requirements. But I think we ought to measure what we are doing here against the necessity that we see in the declining number of bankruptcies, the declining level of assets that are at stake, and the great upside of what these entities provide to the country.

So for that reason, I hope my colleagues will join me in specifically asking for a study, a short-term study, that will enable us to better judge whether these changes in the current system are needed. I believe we ought to do everything possible to ensure the viability of small businesses and to assist in fostering entrepreneurship in the economy. The Bankruptcy Reform Act, as it is today constructed, does not meet that challenge.

I ask my colleagues to join me in removing the small-business provisions, undertake the study, and then we can revisit it, if we need to, based on a sound analysis of precisely how we might proceed in a least intrusive, a least burdensome manner.

Mr. Grassley. Mr. President, I am not going to respond to the substance of the amendment but to give some background on where we have come over the last five or six years on this legislation for the consideration of people who will want to debate against the amendment by the senator from Massachusetts.


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If small business fails to comply with the new reporting requirements that are in this legislation, then creditors are given entirely new powers, and those powers could force bankruptcy court judges to liquidate small businesses or to completely dismiss their proceedings. This could force many small businesses to expend a huge amount of resources to fend off challenges by any creditor simply for not complying with one of the new burdensome reporting requirements that are put into this legislation.—Sen. John F. Kerry

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When Sen. Heflin from Alabama was a member of the Senate, he and I served as either chairman or ranking member of the judiciary subcommittee over bankruptcy issues.

During this period of time, he and I came to the conclusion that there were changes in the economy—the globalization of the economy and a lot of other reasons—and that we ought to give considerable attention to greater changes of the Bankruptcy Code rather than the very small changes we enacted from time to time during the 1980s.

So we set up the Bankruptcy Commission, of which this legislation we are dealing with now is a product. That Commission was not made up of any members of Congress. It was made up of appointees by legislative leaders and by the President of the United States. These people truly are authorities in bankruptcy legislation, including Prof. Warren from Harvard, who is the person Sen. Kerry was quoting.

The Commission studied the issues for over a year, and put a lot of work into recommendations for both consumer bankruptcy and for business bankruptcy reform.

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He was on of 14 Senators to vote against it:

Roll Call on S. 420

Roll Call on H.R. 333

And moneylaundering isn't just about terrorism, it also addresses embezzlement.