Jack Reed

Mr. REED

Mr. REED. Mr. President, I voted in favor of S. 1301, the Consumer Bankruptcy Reform Act of 1998, to address certain abuses regarding consumer bankruptcy laws, while providing bankruptcy protection to those who genuinely need it. Indeed, in recent years, there have been record increases in bankruptcy filings. In 1997 alone there were 1.3 million bankruptcy filings--an all-time high. While I think this increase is in part a result of the significant rise in outstanding consumer credit, I believe it is also attributable to the reduced stigma associated with filing for bankruptcy. As such, I believe that S. 1301 will be an important tool in curtailing irresponsible debtor practices. The version of S. 1301 passed by the Senate is the product of significant compromise by both Democrats and Republicans and is much- improved over the Judiciary Committee-passed bill. I am pleased that my amendments prohibiting certain credit card terminations, limiting consumer debit card liability, and providing greater disclosure for ``high LTV'' loans were adopted by the Senate. Nonetheless, I am concerned about the means-testing provisions in the bill and would be inclined to oppose the Conference Report if the means-testing provisions are made mandatory or if consumer credit protections are deleted. S. 1301 signifies a fundamental change in bankruptcy policy by establishing a system of means testing for determining eligibility for Chapter 7 relief. Heretofore, debtors have had the power to determine the type of bankruptcy relief to be sought, regardless of their ability to repay. S. 1301, however, gives a bankruptcy judge the discretion to convert a Chapter 7 case to Chapter 13 upon a motion by the creditor, if the debtor can afford to repay 30 percent of his or her debts. My concern with the provision is that it does not contemplate whether the creditor acted responsibly and in good faith in extending credit to the debtor. Statistics showing that household debt has increased to 104 percent of household income, as compared to 24 percent in 1975, suggests that some creditors may be irresponsibly extending credit. In response to my concerns, I offered an amendment to the bill that would have required creditors to act in good faith in their dealings with debtors. Unfortunately, this amendment did not pass. Despite my concerns with the means testing provision, I was able to support the bill because the means testing provision does not require the judge to convert a case to Chapter 13, but instead gives the judge discretion. If the Conference Report eliminates this judicial discretion and incorporates the House-passed means testing provision that requires conversion, I would have a difficult time supporting the Conference Report. Lastly, my support for S. 1301 was in part predicated on the significant consumer credit protections incorporated in the bill. For example, the bill includes an amendment that I offered that would prohibit credit card companies from terminating a consumer's account simply because the consumer paid his or her bill in full each month. This is a detestable practice which flies in the face of the goals being promoted in S. 1301. If this provision, or other such provisions are not included in the Conference Report, I would seriously consider opposing the Conference Report.

Mr. REED

Mr. REED. Mr. President, I rise in strong support of Senator Kennedy's and Senator Wellstone's proposal to raise the minimum wage. There, in my view, is a very compelling reason why we must do this and we must do it today. That reason, simply stated, is that if you are a full-time worker, a head of household, a single head of household and a family of three, you will make $10,700 a year. That is $2,900 below the poverty level. Today, the minimum wage law in the United States guarantees to so many people only one thing: that they will still be in poverty. We can do much better than that, and we should do much better than that. There have been discussions about the employment effects of raising the minimum wage. Studies have been presented; statistics have been presented. Let's look clearly at what has happened in the last two episodes in which we raised the minimum wage. Back in October of 1996, the minimum wage was increased to $4.75. And what happened to unemployment? It fell; it was in a cyclical pattern, but it fell. Again, in September of 1997, we raised the minimum wage to $5.15, and once again unemployment fell. This legislation is not a job killer. This legislation does not deny opportunities to work for anyone. What it does is it gives people more money in their paycheck, gives them more opportunities to provide for their families, gives them a bigger share in this country's economy. That is why we need to do it. There are others who argue, ``Well, those are just general statistics.'' The real problem with the minimum wage increase is it affects some discrete subgroups like teenagers. If you look at the record of teen unemployment, age 16 to 19, once again the same pattern emerges. The minimum wage was raised in October of 1996--it is a cyclical process--and unemployment declined. Again, in September of 1997, with some cyclical variation, a declining curve, unemployment in this category also falls. So the arguments against the minimum wage because it kills employment just do not hold water based upon the most recent experiences. Then there is the argument that small businesses will invariably and automatically react to an increase by cutting back on their employment. There has been a recent study by two researchers from the Jerome Levy Economic Institute at Bard College. And 90 percent of the small businesses they surveyed indicated that the 1996 minimum wage increase did not change their hiring decisions. Their hiring decisions were based upon the demands in their marketplace for their products, driven by a very strong economy. Moreover, 75 percent of these individuals surveyed said that a further increase to $6 would also not influence their decisions about hiring. So small business is not reacting to this proposed minimum wage increase by saying, ``We are going to cut off employment.'' What this does is give hard-working Americans a chance to put more money in their paycheck to provide more opportunities for their families. We have also heard arguments on the floor today that, ``Well, the minimum wage is benefiting not just the poorest people, just teenagers who work, but maybe spouses who work and their husbands or wives are employed in more lucrative jobs.'' First of all, the reality of the minimum wage is that 74 percent of the wage earners are over 20, so the vast majority are not teenagers. And 40 percent are the family's sole breadwinner. They have people who depend upon them, depend upon them bringing in a living wage. And 63 percent are women; and 50 percent of the minimum wage earners are in the lowest 40 percent of earners in the United States. This does, in fact, provide a very positive impact on the opportunities for low- income Americans. There is another argument here, too, that I think we have to present. Last Congress, many of us joined together to pass significant welfare reform, in fact, directing people off welfare into the workforce; and it is an irony, at best, moving people from welfare into poverty-level wages--indeed, below poverty-level wages. To make this experiment in welfare reform truly workable, we have to ensure that when people leave welfare they get adequate pay. And the minimum wage increase will help do that. Also, it seems to me illogical that in every other sphere of economic endeavor raising someone's pay is seen as a good thing, not a bad thing, that most of our activities in the workplace are designed to get increases in pay. In fact, very few people would think, ``I'm not going to ask for an increase in pay. It might curtail my opportunities to work.'' Because the reality, as demonstrated by my colleague, just to survive, to put food on the table, clothe children, to provide minimal care to their families, requires an increase in the minimum wage. I think there is another argument that has to be stressed. We are coming into some rocky economic times in the United States because of the turmoil throughout the world. Demand for American goods overseas is faltering. How do we keep our economy going? One way to do that is to give the American people more purchasing power. Increasing the minimum wage does that for the very lowest income Americans, those people who go into the Kmarts, go into the Wal-Marts, to buy products. In fact, they are typically the types of individual households that, because of the demands on them, are constantly buying products for their children, buying goods and services. This will also help, I think, in a broader economic sense. So for all these reasons--basic justice and fairness, to keep our economy moving, to recognize that there are so many good reasons to do this--it does not affect employment dramatically but what it does affect is the ability of working families, people who work very hard to provide for their families and maybe provide a little extra. That, to me, is why we are all here. I strongly support the efforts of Senator Kennedy, the efforts of Senator Wellstone, and their strong commitment to ensure that the benefits of this economy are shared not by just those who are affluent but are shared by the broadest segments of American society, particularly by those who struggle each and every day under circumstances, frankly, that few of us have had to endure, to be good citizens, to work hard, and to get something a little bit more for their families. I hope, in that spirit, and recognition of those facts, that we strongly support this amendment. I yield back my time.

Mr. REED. Mr. President, I yield the remainder of my time.

Mr. REED

Mr. REED. Thank you, Mr. President.

Mr. REED. Thank you. I have no objection. THE PRESIDING OFFICER. The Senator from Virginia is recognized.

Mr. REED. Yes.

Mr. REED. Mr. President, I assume that if the Senator introduces a bill we would still have the full time to debate my amendment.

Mr. REED. Mr. President, my amendment to S. 1301 is designed to encourage responsible lending by the credit card industry just as the underlying motivation of the bill is to require responsible borrowing by the general population of the United States. Under the present legislation before us, a credit card company, or a creditor, may go into a bankruptcy court and request that the judge move a petition from chapter 7 to chapter 13 if the individual has the ability to pay at least 20 percent and is not acting in bad faith. My amendment will certainly look at the other side of the transaction and require that the creditor also act in good faith. As I have indicated before, section 707 of this legislation will, for the first time, give the power to creditors to request that a court convert a chapter 7 petition into a chapter 13 case. This is discretionary with the judge. It is not mandatory. But implicit in that, I believe, is already the standard of good faith that the judge will require through his or her analysis of the request of the change from chapter 7 to chapter 13. But I believe it is appropriate--indeed, necessary--to have an explicit standard of good faith on behalf of the creditor, as well as on behalf of the debtor. The bankruptcy judge, in considering this request, will first have to determine that the individual debtor has the ability to pay at least 20 percent of the claims against the debt, and, in addition, the judge will have to consider whether the debtor filed for chapter 7 in bad faith. Once again, my amendment would propose a complementary analysis of the creditor, whether that creditor has been offering credit in good faith. This is not only fair but is something that is necessary to maintain the balance and the appropriateness of this change to a longstanding rule in bankruptcy court which allowed the debtor to go in and file in chapter 7. Now, we understand the differences between these two provisions of the bankruptcy code. Chapter 7 allows the debtor to discharge all of their debts. Chapter 13 requires them to repay a portion of the debts based upon their ability to repay. The proponents of this legislation have suggested that by using this means test, by saying that if a debtor can pay at least 20 percent and requiring them, or at least giving the judge the option to put them into a provision of chapter 13 where they must repay a portion, this procedure will reduce the abuse of the bankruptcy system, the abuse that is cited in terms of people coming in with that but still declaring under chapter 7 they cannot pay and having all of their debts discharged. We know that part of the impetus behind this legislation is the increase in bankruptcy filings throughout the United States. The proponents of this legislation have pointed out that in 1997 alone there were a record 1.3 million bankruptcy filings, and over the past 10 years the bankruptcy filings have increased year after year after year. Unfortunately, these assertions are correct. In my State of Rhode Island, there has been a 500-percent increase in bankruptcy filings between 1984 and 1996. And so I think everyone is concerned and, indeed, everyone is interested in working out an arrangement which will prevent the abuse of the bankruptcy system, and that is a part of the underlying legislation. Just focusing alone, however, on the increase in bankruptcy filings misses the full story because it is just one side of the story. On the other side, there has been an explosion in the extension of credit by the credit industry of the United States. Many times their standards for underwriting have diminished substantially. Many times they are issuing credit--in fact, fostering credit upon people at exorbitant interest rates. This, too, must be factored into our analysis of the bankruptcy problem in the United States today. Between 1986 and 1996, total bankruptcy filings did increase by 122 percent, but outstanding revolving consumer credit increased by almost twice as much--238 percent. So when you look at both sides of the story, the analysis would lead me to believe, very strongly, that this is not solely the problem of individual debtors gaming the system and taking advantage of this system. This is also the problem of the credit card industry, and the credit industry in general, that is fostering and pushing credit on some people who they know are incapable of keeping up with their debts. And so when we look at these changes, we have to look at both sides of the question. Now, this whole trend in the explosion of credit is reflected graphically in the analysis of household debt and income data. Back in 1974, total household debt was 24 percent of aggregate household income. Today, that same ratio is 104 percent. That is graphic evidence of not only the increased access to credit but the unusually robust and forceful presentation of credit and availability of credit throughout the United States. We all know this in daily life. You just have to go to your mailbox every day and get a credit card solicitation. You just have to sit in your home from early morning to late at night 7 days a week and answer the telephone and hear a solicitation from a credit card company saying they want to give you credit. It is annoying, it is constant, and it reflects this incredible urge on the part of the industry to push credit as much as they can. Last year, for example, the credit card companies sent out over 2 billion credit card solicitations. By my calculation, that is roughly 10 for every American man, woman and child. A recent Wall Street Journal article about a California family demonstrated just the ubiquitous and constant effort to get people to sign up for these credit cards. In 1997 alone, this one family was offered almost $5 million in credit through mail solicitations. The wife, who was not working and without independent income, was offered more than $2.5 million in credit. Her husband, who was president of a nonprofit organization, earning a good salary, on the other hand, was offered only $592,000 in credit, suggesting that the industry is not so much interested in how much you make but really how much you potentially might spend. In that regard, the daughter in the household was offered another $1.4 million in credit--in 1 year. What does this say? This says that the industry is not looking carefully at where it is sending its solicitations. It is not looking at those people who can pay, and, in fact, in many cases it is burdening people already in debt with further debt, and now what they would like to do, when these individuals come before the bankruptcy court, is they would like to say, well, listen, you people who can't discharge your debts fully, you have to pay up. I think, again, that the appropriate balance, if we are to pursue this ability to move from chapter 13 to chapter 7, is to at least look at the good faith of the credit card industry. In view of these facts, Mr. President, it becomes clear that the increase in bankruptcy filings is not simply a result of more borrowers borrowing more money. It is also a factor of these credit card companies soliciting poorer and poorer credit risks, and doing it quite deliberately, quite knowingly. Data from the National Bankruptcy Review Commission supports this assertion. Indeed, this data suggests that the proportional incidence of bankruptcy filings has actually decreased slightly in the last 20 years. We have seen the numbers go up, up, up. But if you look at the ratio, if you look at the proportional incidence, given the outstanding credit, there has been a slight decrease. In 1977, there were 0.74 bankruptcies for every million dollars of consumer credit. In 1997, there are 0.73 bankruptcies for every million dollars in consumer credit. So when you, again, look at the situation, it is not simply a group of Americans who have suddenly decided that they no longer want to honor their obligations, that they want to abandon the tradition of responsible credit behavior that their fathers and mothers had; these statistics suggest that not much has changed except in the absolute numbers, and that has been driven by this constant extension of credit by the companies, in many cases to people who they know are very unlikely to be able to keep up with the debts at the time. The approach in the underlying bill overlooks, I think, this other side of the equation. They focus solely on the borrower. They take the ``blame the debtor'' approach. I do not think that is entirely correct. My amendment seeks to address that approach by striking a balance, by allowing--in fact requiring--the judge to look at the good faith of the individual company that is extending this credit. Most, indeed, the vast majority, of reputable creditors day in and day out take pains to ensure that they are doing the proper underwriting, that they are targeting people who have the ability to pay and they are not abusing their ability to market their products. But there are those operators who are not so scrupulous. These unscrupulous operators should not easily have the ability to force an individual from one chapter in the bankruptcy code to another. At the heart of what my amendment is suggesting is that we explicitly do what I believe is implicit within the existing legislation--that the judge makes a finding that the creditor, in fact, operated in good faith. Under the present language, he or she is required to make a judgment that the debtor has not acted in bad faith in their application for chapter 7. I think that the same approach, complimentary approach should be applied to creditors. My amendment adds this good-faith standard, and it is not the only place you will find a good-faith standard or its related bad-faith standard within this legislation and within the bankruptcy code. For example, section 202 of the bill protects the debtor's ability to discharge certain debts if in the language of the bill ``the debtor makes a good-faith effort to negotiate a reasonable alternative repayment schedule.'' The point is clear that throughout this legislation we have imposed good-faith standards at various junctures to give the bankruptcy judge guidance in assessing various petitions for various claims, so that this amendment is consistent with that good-faith theme throughout the legislation. My legislation does not prescribe specific factors to be considered on the good-faith standard. Instead, it gives the bankruptcy judge the discretion to make that judgment. Again, that is consistent with this legislation and also with the general practice in the bankruptcy code. Judges, bankruptcy judges particularly, are quite familiar with making these analyses of good-faith judgment, either on the part of the creditor or the part of the debtor. In fact, if you look through the bankruptcy code, there are about 79 annotations related to the court's interpretation of ``good faith.'' So it is a constant of the bankruptcy law and it is something that is not a novel injection into this particular legislation. I think, in fact I am convinced, that the judges can handle this analysis of ``good faith'' very clearly and very well. But one might ask, what are we talking about in terms of good faith? For example, if a judge had found that there was intimidation in the extension of credit, that is certainly not good faith, and I do not think any creditor should be able to claim this privilege under the bankruptcy code if it can be shown they intimidated the creditor. If they are taking advantage of creditors, if their marketing pattern is to market to vulnerable people in our population--seniors or low-income Americans who may not have the ability to get good counseling on their debts--all these things together which suggest bad faith, or the lack of good faith, if they are consistent, demonstrable, then that judge should not allow the ability for that claimant to demand that debtor be moved from one section of the bankruptcy code to another. All of these things together, I think, suggest very strongly that we have to look out for the exception, in terms of the creditor population, those unscrupulous creditors. There are examples already in the legislation where we have taken steps to guard against unscrupulous operations in the extension of credit. For example, the committee report comments that in section 202 they use ``substantially justified'' language to describe or to allow the award of attorney's fees in terms of allegations that a debt was obtained fraudulently. That is an attempt, as the committee report says, because they are ``concerned that some unscrupulous creditors have alleged false misrepresentations with no proof of doing so.'' Indeed, there are protections already in the bill. I think, in this particular section, 707(b), there should be further protection for the good faith standard that would protect that. I have mentioned also that there is a concern to have some sense of what might be operating out there presently that would fall under this ambit of bad faith, or lack of good faith. There is a practice that is evolving in the industry of offering, particularly to low-income populations, these loan checks, where essentially they will send a check unsolicited to the home and all you have to do is sign it to get the money. But once you do that, you now have a debt with a substantial interest rate in many cases. That is the type of behavior I think a judge reasonably can look at and say, ``Is this good faith?'' For all these reasons and many, many more, the standard of good faith should be obvious to the bankruptcy judge. And I believe the way we have designed this overall legislation and this particular amendment is that we give that individual not only the incentive but also the mission to look closely at the company applying for this transfer of the debtor from one chapter to another. I am pleased to say that this particular amendment has been endorsed by the Consumer Federation of America and that it represents an attempt to balance the standard within this particular legislation. I hope all my colleagues will support this amendment. It seems to me to do several things that are essential. First of all, it recognizes that the problem we face is not solely, exclusively as a result of the behavior of debtors; that, in fact, it is the result of the behavior of lenders who are lending more and who are doing it without the kind of tight underwriting standards that are necessary. In that context, to give them the opportunity to move a debtor from a chapter 7 to a chapter 13 without looking at their behavior, I think, is inappropriate. It is particularly inappropriate when the judge must consider the behavior of the debtor in filing a chapter 7 petition. This amendment, I believe, is a very important one. It will restore the balance in this particular section, section 707 of the underlying legislation, and it will, I think, provide not only a way to safeguard against abuse of the bankruptcy system by debtors, but also strike a balance so creditors understand they have the responsibility to act responsibly also. I urge support of this amendment. I yield the floor and suggest the absence of a quorum.

Mr. REED. Thank you, Mr. President. I yield myself such time as I may consume. Let me respond to the Senator from Iowa. First of all, he raised interesting arguments about the amendment I did not propose, which would be a more detailed review of the underwriting practices of credit card companies and those that extend credit. For the reasons he illustrated, I did not suggest that amendment, because requiring a bankruptcy judge to look at the myriad of different underwriting standards of companies throughout the United States would not be appropriate. What is appropriate, I believe, is to require that they look at the good faith of the person who extends the credit and is now requesting that the debtor be transferred from chapter 7 to chapter 13. It seems to me to be perfectly consistent with the notion that the judge would also look at the good faith of the debtor--whether that debtor, in fact, was trying to use chapter 7 as a dodge. That is already in the legislation. He also raised some very interesting questions about how this will apply in practice, but I think the answer--a compelling answer, in my view--is that this is exactly what a bankruptcy judge is authorized and empowered to do on a daily basis--make judgments about the good faith of the debtor and, I suggest, also the good faith of the creditor. He or she can make these judgments. That is why they are there. They have the facts. This is a standard that is persistent throughout the bankruptcy code. There are numerous places in which the judge is called upon to make good-faith determinations. It does not require the kind of searching, detailed analysis of all the credit policies of a particular credit card company or a bank that extends credit, but what it requires is a commonsense view of whether or not the individual who has extended the credit has abused their market power or has, in fact, somehow distorted the relationship which we think is appropriate between a borrower and a lender. The Senator from Iowa also makes reference to the CRA Act in terms of suggesting that my demonstration of the explosion of credit is in some way inconsistent with suggesting that the Community Reinvestment Act play as positive a role. I do not think we witnessed a 238-percent increase in consumer community lending over the last several years as we have witnessed an explosion of the extension of credit by credit card companies. I do not think that we have seen the kind of robust lending into distressed communities that many in this Chamber would think would be appropriate. So to make that analogy by pointing out that credit card companies are increasingly lax about their extension of credit is somehow inconsistent with supporting very thorough and very limited lending under the CRA, I do not think carries weight. What we have is a situation in which the credit card companies--and we know this. Again, you do not have to go ahead and commission a survey to find out and discover this fact; you just have to sit home some Saturday when at 9:30 in the morning the phone rings, and you think it is your cousin or your brother calling up, and it is a credit card company. You politely hang up the phone. At 10:30 you get another call, thinking again it is a family member, and it is another credit card company. You go out to your mailbox at 11 a.m. Guess what? There are two solicitations, a platinum card and a gold card; and at 2 o'clock, thinking it is a member of the staff, it is another credit card company. You know this because you go back to your States, as I do, and you learn this from your constituents. This industry is really promoting credit. Is it beneficial? Sure it is. Access to credit is something that moves this economy forward. But when this credit extension is not done in a wise way, when in fact there is tangible evidence that there has been, in fact, bad faith--and that is a fairly strong standard to meet--then I think that the judge should be able to say or should be required to say you cannot move a debtor from chapter 7 to chapter 13. I am also pleased to note that the increase in the standard is to 30 percent of the ability to pay. I think that is an improvement in the legislation, just like I think this would be an improvement in the legislation. Let me conclude by saying I, frankly, believe that the way this legislation is already structured, with the judge in a position, not required to but having discretion--and the language is ``may'' move a debtor from chapter 7 to chapter 13--there is implicitly already a good-faith standard that I think any bankruptcy judge worth his or her salt in seeing a company that was abusive, that is filing constant petitions to move someone from chapter 7 to chapter 13, that have a known record for shoddy behavior in the community, I would think that individual would take that into consideration and should take that into consideration. That is why I do not believe my amendment is a unique or extreme departure from what already should be the standard. I would hope that we could adopt this amendment. I think it will go a long way to ensure that there is a balanced test, that you look at the debtor, you determine whether that individual can pay a certain amount--30 percent--and you look to see if that debtor has been deploying bad faith to apply to chapter 7, but at the same time look over, not at any rigorous searching review of underwriting standards, but look at that very, very obvious standard of good faith, look at that creditor. That is what this amendment is supposed to do. I yield the floor. Mr. GRASSLEY addressed the Chair.

Mr. REED. I do not know if this is the final word, but the Senator is doing a remarkably good job moving this legislation forward. I agree with him, it is quite important because of this increase in the number of bankruptcy filings. There has been a huge growth in my home State of Rhode Island, a 500-percent increase in just a few years. If we are going to do it, let's do it in a fair and balanced way. I also go back to the underlying legislation that we are trying to amend. It says essentially that a creditor may file a request to move the debtor from chapter 7 to chapter 13, and the judge will make a determination. It is not mandatory. As I read it, even if that judge determines that the debtor has 30 percent, the sufficient amount of money to repay, and that the debtor may have, in fact, been questionable in filing a chapter 7 petition, the judge is still not required to grant the request and move the petitioner from chapter 7 to chapter 13. So as I said before, I think, implicitly, we already have this good- faith standard, because that is what the judge is going to apply. He or she is going to look at the behavior of both parties and determine if this is appropriate--if the individual should have all his debts discharged or whether there should be some partial repayment. What I would like to do is make it clear that this good-faith standard does exist, and it does not require this searching analysis of the underwriting practices of any company. It just requires a judge looking at the facts before him or her and making a judgment, as they do every day, as to what is fair, who has acted with clean hands coming to the bar of justice. I also say, in conclusion, that this amendment has the strong support of the Consumers Union and the Consumers Federation of America. This legislation is designed to ensure there is responsible borrowing, that the American public is responsible, and that they recognize their debts and their obligations. I believe and I think there is underlying support of the Consumers Union and the Consumer Federation of America, that the credit industry should also be responsible and understand their obligations. This is just a small way of making explicit what I think is already within the law--to recognize that responsibility. I yield the floor.

Mr. REED. I assume I will speak anywhere from 10 to 15 minutes.

Mr. REED. Mr. President, I ask unanimous consent that reading of the amendment be dispensed with.

Mr. REED. Mr. President, I have an amendment at the desk.

Mr. REED

Mr. REED. How much time is remaining?

Mr. REED. Mr. President, I yield myself such time as I may consume. Mr. President, the underlying legislation that we are considering today will allow a creditor to request a bankruptcy judge to move a petition in bankruptcy from chapter 7 to chapter 13. As we all realize, in chapter 7, a debtor may fully discharge his debts, and in chapter 13, there is an obligation to partially pay one's debts. The focus of this legislation is on the debtor. There are two conditions which the creditor must show: The creditor must show either the individual debtor has at least enough assets to pay 30 percent of the debts or that the debtor has acted in bad faith in applying for chapter 7 liquidation. I believe this focus exclusively on the debtor misses half of the equation. The other important half of the equation is the behavior of the creditor. My amendment explicitly requires the bankruptcy judge to consider the behavior of the creditor, whether that creditor acted in good faith in the extension of credit. We all know there has been a significant increase in bankruptcy filings, but what we frequently overlook is the fact that there has been an extraordinary increase in credit extension. In 1986 through 1996, that 10-year period, filings increased by 122 percent, but revolving consumer credit increased 238 percent in that same period. As a result, we have had a situation where much of this credit extension has been done with very poor underwriting standards, a situation in which the companies themselves might very well anticipate that the debtor could not handle the debt. Those companies that act recklessly and unscrupulously should not have the option to request that a debtor be thrown into chapter 13 from chapter 7. As a result, I believe it is incumbent upon the bankruptcy judge to look explicitly at the issue of the good faith of the creditor. This is not just a question of the volume of credit that has been extended; this is the proliferation of solicitations. Each year, 2 billion credit solicitations are made in this country, many of them without any concern of the ability of the debtor ultimately to pay. We don't need a test to establish this fact. We just have to sit home on a Saturday and at about 10 o'clock, you get the first call from a credit card company. Then at 10:30, you get the second call. At 11, the mail comes and you get two or three solicitations, and it goes all the way through the evening. What I want to see, and what the amendment requires, is if there is a consideration to move a debtor from chapter 7 to chapter 13, the judge should be able to apply a good-faith standard when reviewing the activities of the creditor. This establishes balance, this establishes a strong presumption that both sides must be looked at in terms of this rather unique and novel approach to the bankruptcy code. It is well within the expertise of the banking judge to make this determination. I simply conclude by saying that this amendment has the strong support of the Consumer Federation of America and Consumers Union. This is an opportunity to vote with consumers with regard to this legislation. I now retain the remainder of my time but also ask at this time for the yeas and nays.

Mr. REED. Thank you. I applaud all the consumer protections that the Senator from Utah has listed, but I would like to add one more. I would like to add, along with the Consumers Union and the Consumer Federation of America, the protection of looking at the good-faith operation of a creditor who is demanding that a debtor be placed from chapter 7 into chapter 13. With respect to the standard, my standard is as equally well defined as the bad-faith standard that exists today within the legislation, because good faith and bad faith are something that the banking judge should be able to determine, and it does not require an elaborate searching through of underwriting policies and looking through documentation and going around the country. What it does require is that that trier of fact, that bankruptcy judge, determine whether or not the creditor has abused the relationship, either by intimidation or deceit. All these things would rise to the level of a lack of good faith. I suggest very strongly the bankruptcy judge can do that, and should do that in this context. Mr. President, I yield the remainder of my time to the Senator from Illinois.

Mr. REED

Mr. REED. Mr. President, I have an amendment at the desk.

Mr. REED. Mr. President, my amendment would prohibit credit card companies from terminating a customer's account or imposing a penalty solely because the customer pays his or her bill on time and in full each month. It seems amazing but there are actually some companies out there that will terminate credit because the borrower, the debtor, pays the full amount each and every month on time. This amendment is narrowly tailored and would not otherwise affect the ability of the credit card company to terminate accounts or charge any fees or do anything with respect to penalties, but it would restrict and, indeed, eliminate this practice of terminating the best creditors that they have simply because they are not making any money on finance charges. I am offering this amendment in response to this very troubling practice which finds many credit card companies discriminating against the most responsible borrowers, those who pay their balances on time each and every month. Specifically, several companies have started to terminate a customer's card or impose a penalty if the customer pays his or her credit card bill in full each month. For example, in my home State of Rhode Island, many consumers with a credit card issued by a popular national discount store were alarmed to receive letters which stated: Our records indicate this account has had no finance charges assessed in the last 12 months. Unfortunately, the expense incurred by our company to maintain and service your account has become prohibitive, and as a result, in accordance with the terms of your cardholder agreement, we are not reissuing your credit card. One couple who received this letter has been married for 49 years and had never been late on any mortgage payment or denied any loan or been late in any type of credit arrangement that they had. Yet, with this note, the company was informing them that they were effectively being denied credit solely because they were responsible borrowers. Now, the message from credit card companies in this case is if you are too good a risk we won't give you any credit. That is illogical and, I think, should not be the practice of these companies. In fact, this practice is contrary to the goals of S. 1301, which is to promote responsible borrowing practices and reward those who are responsible in their borrowing practices. By penalizing borrowers who pay off their bills each month, it seems that some credit card companies are, in fact, advocating the type of behavior which S. 1301 is designed to discourage. I am not moved by the claims of these companies that say they need to cancel accounts which do not incur financial charges because the cost of servicing these accounts is prohibitive. Industry data suggests it costs issuers about $25 annually to service an account. But issuers are able to offset this cost through an interchange fee of approximately 2 percent charged to merchants on each transaction. Each year, on average, $3,000 is charged to a credit card. This 2-percent interchange fee on these charges equals about $60 which would seem to more than cover the cost of these accounts. Moreover, with Americans holding over $450 billion in consumer debt and with an average interest rate on credit card balances at 17.7 percent, the overall profitability of credit card lending is obvious and apparent. This amendment is a narrowly crafted measure which is designed to prohibit credit card companies from discriminating against the most responsible borrowers. For this reason, the amendment would clearly advance the goals of S. 1301 to promote more responsible credit card practices. I see no reason why my colleagues would oppose it. I therefore ask my colleagues to support this amendment. At the appropriate time I will ask for the yeas and nays. I yield the floor.

Mr. REED. Mr. President, I thank the Senator from Iowa for his comments and for his leadership, along with our colleague from Illinois, Senator Durbin. I have a few comments in response to his very thoughtful commentary. First, the jurisdiction of the committee when it gets to the floor, it has been my limited experience, is somewhat fluid. In fact, in this bill we are amending the Truth in Lending Act, which has ramifications in both the Judiciary Committee and the Banking Committee. I think, to be very scrupulous about jurisdictional responsibilities here, we missed the opportunity to do something which most of our colleagues, I hope, would recognize is an appropriate thing to do--preventing the termination of credit to people who simply pay their bills on time. The second aspect of this debate, which I think is appropriate to have in this bill, is that the driving force for this legislation comes very powerfully from the credit card industry. They are concerned that many individual consumers seek bankruptcy because of their huge credit card debts, and they feel that they are currently disadvantaged with the present system. So, again, I don't think it is inappropriate as we look at this bankruptcy system and, in many respects, test the credit card industry and look at some of their practices. This practice is particularly disturbing--again, that somebody's credit would be terminated simply because they paid on time. Another aspect that the Senator from Iowa mentioned was the suggestion that this is, in some way, price controls. I think that is a very, very long stretch--to look at this amendment which says you can't terminate an individual because they pay on time--that is a far cry from imposing limits on how much could be charged in terms of fees, penalties; and, clearly, I make no attempt to do that. I would never suggest that we do that in this amendment. I point out that in fact there are existing situations, in State law certainly, usury statutes, which do impose fees and caps on what a credit card company can charge. That is not the intent nor the specificity of this amendment. This simply says that it should not be permissible for a company to terminate an individual who has paid promptly, solely for the fact that that individual has paid promptly. If the individual is in arrears, if the individual has done something else to violate the agreement, then that is grounds, but not prompt payment; that should not be grounds. Ultimately, let me get back to the initial point I made. At the heart of this legislation--and, again, the Senator from Iowa and his colleagues have done much to make sure this was at the core--was to try to reinstill a sense of responsibility among borrowers that we will not tolerate people who game the system, who use bankruptcy as a shield for their irresponsibility. To me, it is extremely ironic that we would be talking about a situation here where I am attempting to recognize and protect the continued extension of credit to the most responsible borrowers we have in the country, the ones who pay on time every month and don't use this system to be irresponsible. So I hope my colleagues can recognize the merits within this particular amendment and support it. On a final point, I note that today is the birthday of the Senator from Iowa. I thank you for working overtime on your birthday on this measure, Senator. I yield the floor.

Mr. REED. Mr. President, I ask unanimous consent reading of the amendment be dispensed with.

Mr. REED. Mr. President, I also ask unanimous consent to lay aside the pending managers' amendment.

Mr. REED. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. REED

Mr. REED. Thank you, Mr. President. The credit card companies make a great deal of money even on those individuals who pay their bills on time. They have membership fees, fees from merchants when the transaction is processed, and they have additional ways to acquire fees. I do not think it is a question of forcing an enterprise to give money away. What it is is a situation in which the credit card companies have come to us and said, ``There are all these irresponsible borrowers out there; we have to amend the bankruptcy laws so we are protected.'' Yet, when we point out they are punishing responsible borrowers, they rise up and say, ``That is an imposition on us.'' If we believe in responsible borrowing, we should support this amendment. I yield back my time.

Mr. REED. Mr. President, how much time do I have remaining?

Mr. REED. Mr. President, this amendment is a very straightforward one. It would prohibit credit card companies from penalizing or terminating customers who pay their bills on time. The core principle of this bankruptcy legislation that we are debating today is responsible borrowing, and being responsible for your debts. Here, we have a population of the most responsible borrowers, those who pay their bills timely and full each and every month. But what is happening is that there is a growing movement among credit card companies to penalize these individuals or to terminate their credit arrangements. I think it is wrong and I think we should do something about it here today. The credit card industry claims it is too expensive to maintain these accounts. Frankly, if you look at the charges that they receive from merchants on each transaction, the very substantial interest rate that they charge for outstanding balances, and also the membership fees which now seem to be ubiquitous, those claims seem to be very hollow. Indeed, this should be an issue about not only responsibility but fairness, and also about whether we really do believe that if people conduct their lives appropriately, pay their bills on time, are responsible, that they should end up being penalized. If we are talking, today, in this legislation, about responsible borrowing, how can we allow the most responsible borrowers in our society, ones who pay their bills each and every month, to be punished by these credit card companies? I urge adoption of this amendment. I retain the remainder of my time. Mr. GRASSLEY addressed the Chair.