[Congressional Record Volume 144, Number 127 (Tuesday, September 22, 1998)]
[Senate]
[Pages S10673-S10679]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 CONSUMER BANKRUPTCY REFORM ACT OF 1998

  The PRESIDING OFFICER. Under the previous order, the Senate will now 
resume consideration of S. 1301, which the clerk will report.
  The assistant legislative clerk read as follows:

       A bill (S. 1301) to amend title 11, United States Code, to 
     provide for consumer bankruptcy protection, and for other 
     purposes.

  The Senate resumed consideration of the bill.
  Pending:

       Lott (for Grassley/Hatch) amendment No. 3559, in the nature 
     of a substitute.
       Feingold/Specter amendment No. 3602 (to amendment No. 
     3559), to ensure payment of trustees' costs under chapter 7 
     of title 11, United States Code, of abuse motions, without 
     encouraging conflicts of interest between attorneys and 
     clients.
       Feingold/Specter amendment No. 3565 (to amendment No. 
     3559), to provide for a waiver of filing fees in certain 
     bankruptcy cases.

  The PRESIDING OFFICER. Under the previous order, the Senator from 
Rhode Island is recognized to offer an amendment regarding underwriting 
standards, on which there will be 1 hour of debate equally divided.
  The Senator from Rhode Island.
  Mr. REED. Thank you, Mr. President.
  Mr. WARNER. Mr. President, will the Senator yield?

[[Page S10674]]

  Mr. REED. Yes.
  Mr. WARNER. Might I inquire as to how long the Senator might wish to 
speak?
  Mr. REED. I assume I will speak anywhere from 10 to 15 minutes.
  Mr. WARNER. I wonder if the managers of the bill would simply grant 
me the opportunity to introduce a bill, which will take less than 2 
minutes.
  The PRESIDING OFFICER. Is there objection?
  Mr. REED. Mr. President, I assume that if the Senator introduces a 
bill we would still have the full time to debate my amendment.
  The PRESIDING OFFICER. The Senator is correct.
  Mr. REED. Thank you. I have no objection.
  THE PRESIDING OFFICER. The Senator from Virginia is recognized.
  Mr. WARNER. I thank the Chair. I thank my distinguished colleagues.
  (The remarks of Mr. Warner pertaining to the introduction of S. 2506 
are located in today's Record under ``Statements on Introduced Bills 
and Joint Resolutions.'')
  The PRESIDING OFFICER. The Senator from Rhode Island.


                Amendment No. 3610 to Amendment No. 3559

(Purpose: To make amendments with respect to court considerations with 
                  respect to dismissal or conversion)

  Mr. REED. Mr. President, I have an amendment at the desk.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Rhode Island (Mr. Reed) numbered 3610 to 
     amendment No. 3559.

  Mr. REED. Mr. President, I ask unanimous consent that reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       On page 5, line 10, insert ``(i)'' after ``(A)''.
       On page 5, line 15, strike ``or'' and insert ``and''.
       On page 5, between lines 15 and 16, insert the following:
       ``(ii) when any party in interest moves for dismissal or 
     conversion, whether the party in interest dealt in good faith 
     with the debtor; or''.

  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

[[Page S10675]]

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

[[Page S10676]]

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.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. GRASSLEY. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRASSLEY. Mr. President, I yield myself such time as I might 
consume.
  The PRESIDING OFFICER (Mr. Roberts). The Senator from Iowa is 
recognized.
  Mr. GRASSLEY. Mr. President, this amendment by the Senator from Rhode 
Island is very much a modification of an amendment he proposed which 
would require bankruptcy judges to consider whether a creditor had used 
sound underwriting practices and standards when considering whether to 
dismiss or convert a chapter 7 to chapter 13. The modified amendment 
now requires judges to consider whether a creditor acted in good faith 
when considering whether to convert or to dismiss that case.
  It is my understanding from discussions that have gone on between 
Senator Reed's staff and my staff, and from what Senator Reed has said, 
now, as he has introduced his amendment, that the good faith standard 
in the modified amendment also includes many of the underwriting 
considerations in the original amendment. So, accordingly, many of the 
objections to the original amendment still apply to this modified 
amendment presented by the Senator from Rhode Island.
  At the outset, as with other amendments which relate to lending 
practices, I urge my colleagues to vote ``aye'' on a motion I will make 
to table this amendment because the Banking Committee should have a 
chance to consider this issue. But, since this amendment affects the 
means-testing provisions of S. 1301, I would like to describe how this 
amendment will be difficult to apply in practice, should it be adopted.
  Under the bill as written now, judges are directed to consider 
repayment ability, and given the power to dismiss or convert chapter 7 
cases if a debtor could repay some portion of his or her debt. This is 
the very foundation of this legislation. This is what makes this bill, 
this year, different than any bankruptcy legislation we have had in the 
100-year history--and this is the 100th year that the first national 
bankruptcy code was passed, on an ongoing basis.
  This amendment also requires judges to consider whether a creditor 
acted in good faith, including a creditor's lending practices. I don't 
think anyone knows how this amendment will work in the real world. 
There are questions raised by this amendment but not answered by the 
amendment:
  How would a judge even find out what the creditor's underwriting 
practices are?
  What is ``good faith'' in the context of section 707(b)?
  Procedurally, who would have the burden of producing evidence about 
underwriting practices in good faith?
  And if a creditor had properly extended credit to the debtor whose 
chapter 7 case is pending, but had recklessly offered credit to other 
people, is a judge supposed to factor that in as well?
  What if there are two pending motions asking for dismissal or 
conversion--one motion by a creditor who has sloppy underwriting 
practices or who acted in bad faith, and another motion by a creditor 
with tight underwriting standards who acted in good faith? In this 
case, should a judge deny both motions?
  Mr. President, what these questions show is that the amendment 
offered by the Senator from Rhode Island should be rejected because it 
is not good bankruptcy policy. There are too many unanswered questions 
and, of course, the underlying question regarding which underwriting 
practices are sloppy and which underwriting practices are not sloppy 
needs to be addressed not by the Judiciary Committee, not on the floor 
of the Senate, but in the laboratory of jurisdiction of that subject 
where legislation is perfected, and that happens to be the Senate 
Banking Committee.
  There are already penalties for creditors who refuse to act in good 
faith. We made sure they were in this bill. They are a very important 
part of making this a well-balanced piece of legislation.
  We talk so much about personal responsibility and making it tougher 
to get into bankruptcy that maybe people viewing this debate have 
sensed over the last week that all we are going after is the debtor, 
but that sometimes creditors don't act in good faith. This bill is 
balanced because it has penalties against creditors. For instance, if a 
creditor refuses to negotiate in good faith, then that creditor can't 
object to the discharge of his or her debt. This is already in the 
bill.
  Again, I urge my colleagues to vote ``no'' on the Reed amendment and 
eventually get this bill to final passage, because this is a very 
needed bill. We have 2 weeks to work out some differences between the 
House and Senate. The other body's bankruptcy bill is considerably 
different from ours. And I don't say that in a denigrating way; it just 
is different. The process of negotiating for provisions somewhere 
between the House and Senate provisions--also we have to consider the 
White House, because we want a bill that the President can sign--takes 
2 weeks to get done, and we need to get this bill passed.
  I hope the Senator from Rhode Island is aware that the 20-percent 
figure was raised to 30 percent in the managers' amendment. I need to 
clarify that point because that 30-percent figure is also something 
that the White House was involved in working out as well, because the 
White House had raised some concerns about our 20-percent figure.
  There also was some willingness on the part of the White House to 
consider some points of view we had about the 30-percent figure, and 
they even modified their original position, to some extent, to satisfy 
me.

  I think it is odd that the Senator from Rhode Island is critical of 
lenders extending too much credit. When the credit union bill was on 
the floor, there was an amendment to strike the Community Reinvestment 
Act. The Community Reinvestment Act, of course, requires banks to 
extend credit to low-income people.
  I don't think that any of us can argue with the social responsibility 
of a bank to be fair to all people and all sectors, with the 
understanding that they have a responsibility to the stockholders of 
that bank and other people who are saving, but, within the concept of 
good financial prudence, to lend accordingly to all sectors of a city, 
all types of people who have the ability to repay.
  We had this community reinvestment amendment offered, and we had many 
Members talk about the need to make sure that credit is widely 
available to low-income people. What in the heck do you think credit 
cards are about? They are about giving people who maybe would not have 
that opportunity elsewhere an opportunity to borrow--again, within the 
concept of personal responsibility for debt.
  Now, through this amendment, we hear that we should, in effect, deny 
a creditor the ability to collect on a debt if the creditor extended 
credit to low-income people. On the one hand, a month ago we had a bill 
before us that we were trying to modify to make it reasonable, and the 
other side, which was opposed to that, said we are hurting low-income 
people with that amendment. And now with this amendment they are saying 
that low-income people are people taken advantage of.
  It seems to me that you can't have it both ways. I believe that 
borrowing and I believe that lending decisions are best made by 
individual Americans and not second-guessed by bankruptcy judges or 
political leaders in Washington, DC.
  I yield the floor.
  Mr. REED addressed the Chair.
  The PRESIDING OFFICER. The Senator from Rhode Island is recognized.
  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

[[Page S10677]]

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.
  The PRESIDING OFFICER. The Senator from Iowa is recognized.
  Mr. GRASSLEY. Mr. President, I have had a chance now for a second 
time to hear the explanation of the amendment from the Senator from 
Rhode Island. I think he is a person who always acts in good faith on 
his amendments and other legislative activity. He is a very active 
member of the Aging Committee, which I chair, and I have had a chance 
to observe him there as being a very serious Senator. So I do not raise 
any questions with the motives of the Senator because I think he even 
sees a need for bankruptcy legislation.
  But I still have to point out that I think the amendment, even if the 
intent is good, is just unworkable. I do not know whether we could have 
an amendment written to accomplish his goals that could be perfected 
enough to be workable--I should not draw that conclusion; that is a 
possibility--but I do believe that the language we have before us would 
fall into that category, because the modified amendment still requires 
bankruptcy judges to review underwriting standards. That is what the 
Senator from Rhode Island said earlier on the floor.
  So I do not think that we know how this amendment will work. I do not 
know how you can make even a commonsense determination of whether 
lending practices are in good faith unless the judge begins to second-
guess many credit-granting decisions.
  As I have said, if the Senator from Rhode Island believes that there 
are too many credit card solicitations, then I think I should refer him 
to a letter that I read into the Record last week, which I am going to 
insert in the Record at this point as well, a letter from the junior 
Senator from North Carolina, Mr. Faircloth, who chairs the subcommittee 
of banking where I made an argument, from a procedural standpoint, that 
this amendment should be considered there, and that he has offered to 
hold hearings on this subject matter, and maybe even the goal that the 
Senator from Rhode Island seeks can be accomplished, but, more 
importantly, accomplished in a studied approach.
  So I ask unanimous consent that this letter be printed in the Record 
as justification on a procedure not to add this amendment to this bill 
but to have the Banking Committee consider this.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                    Committee on Banking, Housing,


                                            and Urban Affairs,

                               Washington, DC, September 16, 1998.
     Hon. Charles Grassley,
     Chairman, Subcommittee on Administrative Oversight and the 
         Courts, Senate Committee on the Judiciary, Washington, 
         DC.
       Dear Chuck: It is my understanding that a number of 
     amendments relating to credit cards will be offered to S. 
     1301. Most, if not all, of these amendments will relate to 
     matters in the jurisdiction of the Banking Committee. I Chair 
     the Financial Institutions Subcommittee of the Banking 
     Committee.
       I share the concerns that many have regarding multiple 
     credit card solicitations and solicitations to minors. In 
     fact earlier this year, my Subcommittee held a hearing on 
     bankruptcy issues, with representatives of the credit card 
     industry testifying. I have requested and received GAO 
     reports on such practices as high loan to value loans and the 
     sending of ``live'' loan checks.
       As for many of the proposed amendments relating, however, 
     none have been passed by

[[Page S10678]]

     the Committee. In fact, none have been considered by the 
     Committee. Further, none of the proponents of the amendments 
     have requested hearings on any of their legislative 
     proposals.
       During consideration of the bankruptcy bill, please know 
     that I would be more than willing to hold a hearing or 
     hearings on any these proposals in my Subcommittee where they 
     rightfully should be considered under regular order.
           Sincerely,

                                              Lauch Faircloth,

                                         Chairman, Subcommittee on
                                           Financial Institutions.

  Mr. GRASSLEY. I yield the floor.
  Mr. REED addressed the Chair.
  The PRESIDING OFFICER. The Senator from Rhode Island.
  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. GRASSLEY. Mr. President, I yield 5 minutes to the Senator from 
Minnesota.
  The PRESIDING OFFICER. The distinguished Senator from Minnesota is 
recognized.
  Mr. GRAMS. I thank my colleague from Iowa for yielding the floor to 
me. First, I ask unanimous consent that I be made an original cosponsor 
of the consumer bankruptcy reform bill.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRAMS. Mr. President, as a cosponsor, I rise today in strong 
support of the Consumer Bankruptcy Reform Bill. The bill contains 
sorely needed provisions to help curb the dramatic rise of personal 
bankruptcies in this country.
  It is incredible that while most sectors of the economy are 
experiencing an economic boom--with the notable exception of some of 
the hardest-working farmers in the country--personal bankruptcy filings 
have reached record highs. My constituents tell me that declaring 
bankruptcy has become so routine as to be considered just another 
personal finance option. No longer is it an avenue of last resort. It 
has become a matter of convenience, sometimes to avoid the personal 
responsibilities of living within one's means and repaying one's debts. 
I believe this shift in attitude is due in large part to a system which 
readily lends itself to abuse and exploitation.
  The passage of the Consumer Bankruptcy Reform bill is critical 
because it directly confronts the abuses within our bankruptcy system. 
One of the main features of the bill would allow bankruptcy judges to 
dismiss or reassign cases if the system is being ``abused.'' Under the 
bill, one of the factors which shows abuse in a chapter 7 filing is if 
the debtor has current income sufficient to pay at least 20% of 
unsecured claims against him. A motion alleging abuse of the system 
could be filed by the judge, the trustee, or any party in interest.
  We must return to the real purpose of bankruptcy laws--to establish 
uniform rules in facilitating debt collection. Unfortunately today, the 
laws are increasingly recognized as a tool for escaping debt 
responsibility. They are becoming a substitute for personal 
responsibility.
  In addition, I am disappointed that some of my colleagues seek to 
offer a nongermane amendment to to the underlying bankruptcy 
legislation that would increase the minimum wage.
  As my colleagues may recall, it was only two years ago that Congress 
enacted legislation that increased the federal minimum wage in two 
phases, from $4.25 to $4.75 on October 1, 1996, and from $4.75 to $5.15 
on September 1, 1997. Now, as part of the Small Business Regulatory 
Fairness Act of 1996, this provision represented a 20 percent increase 
in the federal minimum wage.
  Now, I voted for this legislation because it included a number of 
long overdue tax measures designed to help small businesses grow and 
create more jobs in our economy. These changes, in my judgement, would 
be far more helpful to wage earners than would the minimum wage 
increases.
  Two years after enactment of this legislation, I am not convinced 
that the economic effect of that federal minimum wage increase is fully 
understood. For this reason, I am particularly concerned that an 
additional increase in the federal minimum wage at this time could 
actually have an adverse impact upon our economy.
  Mr. President, the proponents of an additional increase in the 
minimum wage argue that Congress should do more to help Americans 
increase their take-home pay. I agree. However, I believe this can be 
done far better through tax cuts and reduced government regulation. By 
doing so, we will save the private sector billions of dollars which 
could be used for investment that brings better jobs and higher wages.

  Mr. President, basic economics tells us that raising real wages above 
what the market will bear will cause unemployment. The higher real 
wages rise above the market rate the greater the level of unemployment 
and overall downward pressure on all wages. The solution, therefore, is 
to allow wage rates to adjust to market conditions. Otherwise we will 
have persistent, widespread unemployment that hurts the low-income 
workers the hardest.
  Raising the cost of doing business by raising the minimum wage is 
probably going to mean even fewer of those jobs. Some statistics say as 
many as 600,000 of those jobs will be lost, killing work opportunities 
for young people and those families who depend on a needed second 
income.
  Besides artificially inflating salaries, hiking the minimum wage 
ignores the real concerns of many working Americans. Yes, they want 
better jobs that pay better salaries, but they have told me repeatedly 
that what matters most is not how much you earn but how much of your 
own paycheck you are allowed to keep after the greedy Federal 
Government has deducted its taxes.
  Families today are taxed at the highest levels since World War II, 
with 38 percent of a typical family's budget going to pay taxes on the 
federal, state, and local level. In nominal dollars, a two-income 
family is paying more just in taxes today than their paychecks totaled 
in 1977. That's nearly 50 percent more than they are spending for food, 
shelter, and clothing combined.
  Compared to the proposed minimum wage increase, tax relief and 
economic growth is a better solution for helping low-income families. 
It will increase incentives to work, save and invest. It

[[Page S10679]]

will allow families to maximize their income and improve their standard 
of living. Tax relief will allow families who today are forced to 
scrimp just to cover their monthly bills and their tax bills to have 
more money to spend on their children's education, health care 
expenses, food and clothing, or insurance.
  In 1981, President Reagan initiated massive tax reduction which 
resulted in an economic miracle we are still benefiting from today. 
Over eight years, real economic growth averaged 3.2 percent and real 
median family income grew by $4,000, 20 million new jobs were created, 
unemployment sank to record lows, all classes of people did better.
  According to the National Taxpayers Union, if Congress could roll 
federal domestic spending back to 1969 levels, a family of four would 
keep $9,000 a year more of its own money than it does today.
  Recent estimates by the CBO show that the government will enjoy a 
nearly $1.6 trillion budget surplus over the next ten years. This 
potential surplus is generated by working Americans and should be 
returned to the taxpayers. Tax relief particularly, lower payroll 
income tax rates will immediately increase Americans' take-home pay and 
allow them to keep a little more of their own money.
  In sum, Mr. President, the real answer to increasing the take-home 
pay of American families is not promoting political grandstanding 
efforts like this which would only destroy jobs, but to support more 
meaningful tax relief and sustainable economic growth. I urge my 
colleagues to support the bankruptcy legislation and resist any effort 
to distort the intent of this most important bill.
  Mr. GRASSLEY. Mr. President, I yield 5 minutes to the Senator from 
Pennsylvania.
  Mr. SPECTER. I thank the distinguished Senator from Iowa.
  The PRESIDING OFFICER. The Senator from Pennsylvania is recognized.

                          ____________________