Business Week - September 16, 2002
Populism Takes a Bank Holiday Tough times and corporate crimes don't stop a bankruptcy bill
In the wake of the corporate crime wave, when most pro-business bills are sinking like stones, one proposal seems headed for enactment. What's different about an overhaul of federal bankruptcy laws that is highly favorable to Big Business? Simple: A massive lobbying campaign by a wealthy coalition of companies with powerful friends on Capitol Hill is greasing the skids.
Consumer and liberal groups had hoped that corporate scandals would force Congress to derail the bill, which makes it harder for consumers to walk away from their debts but doesn't curb aggressive marketing by purveyors of plastic. However, thanks to hefty campaign contributions and home-state ties, the bill has strong support, even among Democrats who style themselves as defenders of the downtrodden.
Exhibit A is Senate Majority Leader Tom Daschle (D-S.D.), who counts Citigroup among his state's biggest employers. Citi employs some 4,000 at its credit-card operations in Sioux Falls. The bank has been especially generous to South Dakota's other senator, Democrat Tim Johnson (table), who sits on the powerful Banking Committee and faces a tough reelection fight this year.
Delaware-based MBNA Corp. tops the list of finance and credit-card company donors for 2002, with $1.04 million in contributions to candidates and the parties. MBNA and its employees were President Bush's single-biggest source of cash--$237,675--in the 2000 election. MBNA and other finance and credit-card companies cover their bipartisan bases, though, giving Democrats 36% of the $4 million they already have donated to candidates and parties for the 2002 races.
Up against such big-money backers, consumer groups were unable to slow the bankruptcy bandwagon--until they got an assist from activists with whom they usually have little in common: abortion foes. Pro-lifers oppose a provision of the bill that prohibits abortion opponents from declaring bankruptcy to avoid paying fines imposed after violent protests at women's clinics. Anti-abortion hard-liners mustered enough Republican votes in the House to prevent final approval of the bill, which both the Senate and House passed in different forms in early 2001.
Hill leaders now say they're close to a compromise that could send a bankruptcy package to President Bush's desk by the end of September. The bill would impose a "needs-based" formula to determine whether debtors must pay off at least part of their obligations.
Critics argue that the measure is unduly harsh at a time when the economy is shaky and layoffs are mounting. The means test, for example, makes no allowance for bankruptcies due to medical emergencies. Women's rights advocates fume that letting credit-card debts survive bankruptcy will leave less money for child support.
But lenders, citing bankruptcy filings that hit a record 1.5 million last year, say reform is long overdue. "People who can pay their debts ought to do so," says Steve Bartlett, president of the Financial Services Roundtable, an industry group.
Credit-card issuers have a lot riding on reform. Bankruptcies generate about 40% of their credit losses, according to Caren Mayer, managing director at Banc of America Securities. Mayer estimates that the bankruptcy overhaul could boost credit-card issuers' annual earnings by 5%.
Detroit auto makers could benefit, too, since the bill makes it harder to write off auto loans. That's why car companies are key members of the Coalition for Responsible Bankruptcy Laws, an umbrella group.
Three Democrats - Senators Carl Levin and Debbie Stabenow of Michigan and Senate Finance Committee Chair Max Baucus of Montana - are among the leading recipients of the coalition's 2001-02 political contributions. Because reform foes have little money and even less clout, "Democrats who ordinarily would protect the little guys and gals decided they wouldn't pay a price for going along," says Travis B. Plunkett of the Consumer Federation of America. Not even, it seems, in the midst of an anti-business backlash.
By Amy Borrus and Lorraine Woellert in Washington