[Congressional Record Volume 146, Number 6 (Tuesday, February 1, 2000)]
[Senate]
[Pages S167-S186]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     BANKRUPTCY REFORM ACT OF 1999

  The PRESIDING OFFICER. Under the previous order, the Senate will now 
resume consideration of S. 625, which the clerk will report.
  The bill clerk read as follows:

       A bill (S. 625) to amend title II, United States Code, and 
     for other purposes.

  Pending:

       Wellstone amendment No. 2537, to disallow claims of certain 
     insured depository institutions.
       Wellstone amendment No. 2538, with respect to the 
     disallowance of certain claims and to prohibit certain 
     coercive debt collection practices.
       Schumer/Durbin amendment No. 2762, to modify the means test 
     relating to safe harbor provisions.
       Schumer amendment No. 2763, to ensure that debts incurred 
     as a result of clinic violence are nondischargeable.
       Feingold modified amendment No. 2748, to provide for an 
     exception to a limitation on an automatic stay under section 
     362(b) of title 11, United States Code, relating to evictions 
     and similar proceedings to provide for the payment of rent 
     that becomes due after the petition of a debtor is filed.

  The PRESIDING OFFICER. Under the previous order, the time until 10:30 
a.m. shall be under the control of the Senator from Minnesota, Mr. 
Wellstone, to speak on amendments Nos. 2537 and 2538.
  The Senator from Nevada.
  Mr. REID. Mr. President, a couple things before we get to Senator 
Wellstone.
  It is my understanding, I say to the acting majority leader, Mr. 
Hatch, there will be no votes this morning and the first vote may occur 
after the caucuses.
  I also ask unanimous consent that the Senator from Minnesota be 
allowed 1 hour rather than terminating his remarks at 10:30, that he 
should be entitled to 1 hour.
  Mr. HATCH addressed the Chair.
  The PRESIDING OFFICER. The Senator from Utah.
  Mr. HATCH. If I may infringe on my colleague's time just for a 
minute----
  Mr. REID. Does the Senator accept that unanimous consent request?
  The PRESIDING OFFICER. Is the Senator objecting to the unanimous 
consent request?
  Mr. HATCH. As I understand it, the unanimous consent request is that 
there will be no votes until 2:15, Senator Wellstone having the first 
hour.
  Mr. REID. Yes, he gets an hour rather than being cut off at 10:30.
  Mr. HATCH. Yes. I have no objection.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. HATCH addressed the Chair.
  The PRESIDING OFFICER. The Senator from Utah.
  Mr. HATCH. The two Wellstone amendments, they have been filed, 
haven't they?
  The PRESIDING OFFICER. They are pending.

[[Page S168]]

  Mr. HATCH. Then I ask unanimous consent that the votes occur with 
respect to the pending amendments in stacked sequence beginning at 2:15 
p.m. today and that there be 5 minutes for debate to be equally divided 
for closing remarks prior to the votes.
  The PRESIDING OFFICER. Is there objection?
  Mr. HATCH. I move to table both amendments.
  I ask unanimous consent that it be in order for me to move to table 
each amendment.
  The PRESIDING OFFICER. Is there objection to the unanimous consent 
request?
  Mr. WELLSTONE. Mr. President, we are talking about tabling the 
amendments this afternoon; is that right--not now?
  Mr. HATCH. No. When they occur, they will be tabled.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Minnesota.


                     Amendments Nos. 2537 and 2538

  Mr. WELLSTONE. Mr. President, first of all, I remind my colleagues of 
what I said last week about this legislation which I think, with all 
due respect to my colleague--I do have a lot of admiration for Senator 
Hatch--is still fundamentally flawed legislation. It contains numerous 
provisions which are unbelievably harsh toward those citizens who are 
most vulnerable in our society, and that troubles this Senator.
  I think the entire concept of the bill is wrong. It addresses a 
crisis that appears to be self-directed. It rewards predatory and 
reckless lending by banks and credit card companies which fed the 
crisis in the first place, and it does nothing to actually prevent 
bankruptcy by closing economic security to working families. I reject 
the notion the Senate should assume that there are problems with the 
bankruptcy code because more people are going bankrupt.
  Real bankruptcy reform would address the root causes of bankruptcy. 
It would address the concentration of financial markets which are 
increasing the clout and power of big banks and credit card companies 
to unprecedented levels. It would make working families more 
financially secure. It would address skyrocketing medical expenses. It 
would confront the economic balkanization in this country, the 
increasing schism between the wealthy and the rest of America.
  This bill does none of these things. It imposes harsh penalties on 
families who, by and large, file for bankruptcy in good faith because 
it is the only option they have.
  The two amendments I have offered to this bill--the payday loan 
amendment, which would curb a form of predatory lending which targets 
low- and moderate-income working families, and also the low-cost basic 
banking amendment, which would require big banks with more than $200 
million in assets to offer low-cost banking services to their customers 
if they wish to be able to make claims against debtors in bankruptcy 
proceedings--would go a long way toward making this bill more fair and 
more balanced.
  When I spoke last week, I said the bankruptcy crisis is over and it 
ended without Congress passing legislation. I cited the fact that 
bankruptcy proceedings actually fell last year--fell last year, I 
repeat--by 112,000 cases.
  My good friend from Alabama came to the floor and said something 
that, actually, I think is true: This bill doesn't have anything to do 
with the number of bankruptcies. I think he was more right than 
probably any of us want to seem to admit. But the decrease in 
bankruptcy filings is significant, and let me explain why.
  Ironically, the bankruptcy crisis probably ended because Congress has 
not passed a bill. The bean counters in the consumer credit industry 
realized that all of these bankruptcies were not good for profits, so 
they started lending less money. They were more careful about to whom 
they lent the money. In fact, overall consumer debt actually declined 
in 1998. And guess what. There were fewer bankruptcies. But if S. 625 
becomes law, bankruptcy protection will be harshly rolled back. It will 
even be more profitable to overburden folks with debt, and the banks 
and credit card companies will fall over themselves trying to do it. 
But this time, America's working families are going to pay even more of 
a price.
  This argument isn't purely historical or theoretical. Empirical data 
backs it up. I want to take my colleagues through a little bit of 
history. I want to read from an article published in the August 13, 
1984, issue of Business Week. The article was entitled: ``Consumer 
Lenders Love the New Bankruptcy Laws.'' It was written in the aftermath 
of Congress' last tightening of the bankruptcy code in 1984. Here is 
how the article goes:

       It doesn't take much to get a laugh out of Finn Casperson 
     these days. Just ask him the outlook for Beneficial Corp. now 
     that the U.S. has a tough new bankruptcy law. ``It looks a 
     lot rosier,'' says the chairman of the consumer finance 
     company, punctuating the assessment with a hearty chuckle.

  The article then explains what the banks and credit card industries 
got back in 1984:

       But when someone seems to be abusing the revised law, a 
     judge can, on his or her own, throw a case out of Chapter 7, 
     leaving the debtor to file under Chapter 13. And in Chapter 
     13, where an individual works out a repayment plan under 
     court supervision, lenders now can get a court order 
     assigning all of a borrower's income for three years to 
     repaying debts . . .

  Anyway, it goes on to say that the lender does not have to worry any 
longer and they can have these predatory practices and they can target 
people and they do not have to worry if there is no protection for 
people. But there is protection for them.
  Does this sound familiar to my colleagues? These ``reforms" --and I 
put ``reforms'' in quotes--are substantially similar to what the 
industry says are desperately needed now--that means to curb abusive 
filings. That is exactly what the Congress gave the credit card 
industry in 1984. But the question is, After we passed that bill in 
1984, how did lenders behave after the ``strengthening'' of the 
bankruptcy code? That story will help us answer the question: If we 
give them this new, stricter, lopsided law in 2000, what will they do 
with it?
  From the same 1984 Business Week article:

       Lenders say they will make more unsecured loans from now 
     on, trying to lure back the generally younger and lower-
     income borrowers recently turned away.

  Why not? We are giving them all the protection in the world. They can 
go about with all kinds of unscrupulous practices that I am going to 
talk about: Target poor people, target single parents, target young 
people, and not have to worry.

  But that is exactly the problem. The consumer finance industry went 
after these folks with a vengeance post 1984. Lenders felt so protected 
by the new bankruptcy law that they eventually threw caution to the 
wind and began using the same aggressive, borderline deceptive and 
abusive tactics that are now common in the industry. That is exactly 
what we are going to do with this law--give them a blank check to 
continue with this deception.
  In a 1999 Harvard Business School study entitled, ``The Rise of 
Consumer Bankruptcy: Evolution, Revolution, or Both?'' David Moss of 
the Harvard Business School and Gibbs Johnson, an attorney, lay out the 
case. They say--colleagues and staff listening to this debate, I think 
this is an important piece:

       It is conceivable, therefore, that the pro-creditor reforms 
     of 1984 actually contributed to the growth of consumer 
     (bankruptcy) filings. This could have occurred if the reforms 
     exerted a larger impact in encouraging lenders to lend--and 
     to lend more deeply into the income distribution--than they 
     did in deterring borrowers from borrowing and filing.

  Mark Zandi, in the January 1997 edition of the Regional Financial 
Review, writes:

       While forcing more households into a Chapter 13 filing, 
     though an income test would raise the amount that lenders 
     would ultimately recover from bankrupt borrowers, it would 
     not significantly lower the net cost of bankruptcies.

  I emphasize:

       Tougher bankruptcy laws will simply induce lenders to ease 
     their standards further.

  That is exactly what we are doing with this bill.
  Again, we know this is exactly what happened. Credit card companies 
sent out over 3.5 billion solicitations last year. They use aggressive 
tactics to sign up borrowers. Is there anything in this ``reform'' 
legislation that holds them accountable? No. Once again, the big givers 
and heavy hitters and well-connected dominate. But when it

[[Page S169]]

comes to the poor, when it comes to single-parent families, when it 
comes to senior citizens, when it comes to the people who are most 
vulnerable, we have unbelievable harshness in this legislation.
  These credit card companies use aggressive tactics to sign up 
borrowers--and to keep you in debt once they get you. They also go 
after low-income individuals, even though they might not be good credit 
risks. Why? Because they are desperate for credit. They have a captive 
audience. Poor people can be charged exorbitant interest rates and 
fees. Despite the fact that there are hundreds of credit card firms 
targeting low-income borrowers, interest rates and terms on these cards 
have not been driven down by the supposed ``competition.''
  For these borrowers, for low-income people, the market is failing.
  In a June 3, 1999, interview in USA Today, Joe Lee, a respected 
bankruptcy judge for over 37 years in the Eastern District of Kentucky, 
placed the blame for the current high number of bankruptcies squarely 
on the backs of the banks and the credit card companies. There is not a 
word in this legislation holding them at all accountable for their 
unscrupulous practices; they all target people who are desperate for 
credit and have no other choice but to receive loans on horrible terms, 
the poor and the vulnerable.
  When asked if he had seen many people file for bankruptcy who could 
afford to pay most of their debts, he said--because that is the premise 
of this legislation, that you have all this abuse--

       No. It's simply not true. Most of them are very poor, 
     drowning in debt. The target (of bankruptcy reform) should be 
     the consumer credit [card] industry and the laws governing 
     extension of consumer credit. Instead they're robbing the 
     poor to enrich the rich.

  That is exactly what this legislation does. But these poor people are 
invisible. They have no clout. They have no power. They have no 
lobbyists. They are not the heavy hitters. They are not the big givers. 
They are left out.
  USA Today also asked Judge Lee if he thought there was less stigma 
attached to bankruptcy than there used to be. He said:

       I've been on the bench now for 37 years, working on 38. I 
     never have seen this business about debtors being cavalier 
     about bankruptcy.
       Look at it from the point of view of the debtor. They have 
     mothers and fathers. They go to church. They have neighbors. 
     They have to walk into the office after filing for bankruptcy 
     and explain it to other employees, and this is not easy to 
     do. There's the additional stigma that bankruptcy remains on 
     your credit report for 10 years. You have trouble getting 
     credit other than at high interest rates. You have difficulty 
     buying a home. You have lots of problems.

  What Judge Lee is saying is borne out by the facts. Remember, as I 
stated last year, the vast majority of families who file for bankruptcy 
are not trying to beat the system. They file for a fresh start. That is 
what bankruptcy provides for them. It is the only way they can get out 
from crushing medical bills or other debts brought on by unforeseen 
circumstances. Only a very small percentage--perhaps 3 percent--of 
those who file for bankruptcy file abusively, according to the American 
Bankruptcy Institute. The American Bankruptcy Institute says about 3 
percent of the people abuse this system. The Justice Department goes 
higher. For that, we have this wide, broad net that punishes the poor 
and the most vulnerable.
  A constituent from Crystal, MN, wrote to my office in July to tell me 
about her experience with bankruptcy:

       What I want you to know specifically is that this one 
     credit card company would not offer any reductions in the 
     interest rate, demanded over one quarter of my entire monthly 
     income, did not care if I could not meet my payments for the 
     most basic requirements of human existence, suggested that I 
     use a food shelf, and they refused to acknowledge that my 
     child was suicidal and that their harassing phone calls to my 
     house nearly caused her to overdose on the only 
     nonprescription pain relievers that I could have for myself.

  What was the reason for that? Her life was like ours. Actually, we 
make a lot more money than she made. She was a worker. She had a 
factory job. An injury forced her to leave the job. For all I know, it 
could have been a ruptured disk. I know what a ruptured disk is like. 
She worked multiple minimum-wage jobs for several years. Her marriage 
fell apart, and her daughter fell into deep clinical depression. No 
fault of hers; no fault of her daughter's. In the meantime, she 
enrolled in computer school so she could pursue a career that would 
give her some income and would also help her help her daughter. She 
purchased a computer on credit so she could spend more time working at 
home. In time the payments on the computer, her mortgage, and her 
daughter's medical bills became too much, and she fell behind on debt 
payments. When the creditors approached her, she tried to work out a 
repayment schedule she could meet, and then the quote I read is what 
happened to her. So she filed for bankruptcy.

  She has begun to rebuild her life. She ended her letter by saying 
this:

       Please do not vote for Senate Bill 625 or any other bill 
     that makes bankruptcy harder for people who find themselves 
     caught in the unforeseen predicaments of life for which they 
     have no control. It is not fair to pass a bill that helps the 
     credit card companies by hurting people like me without 
     forcing them to look at what they are doing and how they 
     respond. They have many options that could be used without 
     creating the emotional trauma that forces hard working people 
     to choose the relief of bankruptcy.

  I ask my colleagues, is there one thing in this piece of legislation 
that could have helped this woman head off bankruptcy, a Minnesotan? 
Absolutely not. This bill would simply have made it harder for her to 
get the relief necessary for her to take care of herself and her 
daughter. Why aren't we talking about what could have kept this woman 
out of bankruptcy? What does this bill have to do with helping a woman 
or a man educate themselves so they can do better for their family? The 
answer: Nothing. What does this bill do to help ordinary people who are 
overwhelmed by medical expenses? The answer is: Absolutely nothing. 
What does this bill do to promote economic stability for working 
families? Absolutely nothing.
  I believe if my colleagues wanted to reduce the number of 
bankruptcies, they would focus more on providing a helping hand rather 
than removing a safety net. If my colleagues wanted to tackle 
bankruptcy, they would take on the credit card companies and their 
abusive tactics. No, we don't want to take on those interests. 
Unfortunately, my constituent's story, a woman from Minnesota, single 
parent, is becoming increasingly typical. All too often overburdened 
families, the vast majority of them single-wage-earner families headed 
by a woman, have to deal with these circumstances all the time.
  This year more than a half million women-headed households filed for 
bankruptcy. Women-headed households are the poorest group of families 
in America. They are the largest group who have to file for bankruptcy. 
Ironically, the credit card industry has run advertisements--I cannot 
believe this--during debate on this bill talking about how friendly 
this piece of legislation is toward women and children. They have no 
shame. This is ridiculous.
  I will read from a letter signed by approximately 70 scholars at our 
Nation's law schools who are opposed to this legislation.
  I ask unanimous consent that this letter, along with a list of a 
variety of consumer, women, and union organizations be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                 November 2, 1999.
     Re: The Bankruptcy Reform Act of 1999 (S. 625)

     Hon. Orrin Hatch,
     Chairman, Committee on the Judiciary, U.S. Senate, 
         Washington, DC.
     Hon. Patrick Leahy,
     Ranking Member, Committee on the Judiciary, U.S. Senate, 
         Washington, DC.
       Dear Senators: In a letter to you dated September 7, 82 
     professors of bankruptcy law from across the country 
     expressed their grave concerns about some of the provisions 
     of S. 625. In a public letter dated September 16, two 
     professors took the opposing view. One of the principal 
     concerns of the 82 professors was that S. 625 ``may adversely 
     affect women and children.''
       Proponents of the bill--namely, the consumer credit 
     industry--have responded to the concerns raised about the 
     effects of the bill on women and children with a media blitz 
     trumpeting the view that ``Bankruptcy reform helps women and 
     children.'' A September 14 letter from consumer credit 
     issuers proclaims that ``S. 625 vastly improves the position 
     of women and children who depend on family support payments 
     from an absent parent who has filed for bankruptcy.'' A full-
     page advertisement also

[[Page S170]]

     dated September 14 asserts, ``The truth is that bankruptcy 
     reform gives much-needed help to single parents and their 
     children who are dependent on family support payments.'' The 
     advertisement cautions in large type: ``Distorting the facts 
     about reform helps no one.''
       The undersigned professors agree that ``distorting the 
     facts about reform helps no one.'' The real distortion is the 
     assertion that S. 625 would benefit women and children. The 
     truth is that, notwithstanding the pleas of the bill's 
     proponents, S. 625 does not help women and children. Thirty-
     one organizations devoted exclusively to promoting the best 
     interests of women and children continue to oppose the 
     pending bankruptcy bill. The concerns expressed in the 
     professors' letter of September 7 regarding how S. 625 would 
     hurt women and children have not been resolved--they have not 
     even been addressed.
       First, one of the biggest problems the bill presents for 
     women and children was stated in the September 7 letter:
       ``Women and children as creditors will have to compete with 
     powerful creditors to collect their claims after 
     bankruptcy.''
       This increased competition for women and children will come 
     from many quarters: from powerful credit card issuers, whose 
     credit card claims increasingly will be excepted from 
     discharge and remain legal obligations of the debtor after 
     bankruptcy; from large retailers, who will have an easier 
     time obtaining reaffirmations of debt that legally could be 
     discharged; and from creditors claiming they hold security, 
     even when the alleged collateral is virtually worthless. None 
     of the changes made to S. 625 and none being proposed 
     addresses these problems. The truth remains: if S. 625 is 
     enacted in its current form, women and children will face 
     increased competition in collecting their alimony and support 
     claims after the bankruptcy case is over.
       Second, it is a red herring to argue, as do advocates of 
     the bill in touting how the bill will ``help'' women and 
     children, that it will ``Make child support and alimony 
     payments the top priority--no exceptions.'' True enough--
     but, as the law professors pointed out in the September 7 
     letter: ``Giving `first priority' to domestic support 
     obligations does not address the problem.''
       Granting ``first priority'' to alimony and support claims 
     is not the magic solution the consumer credit industry claims 
     because ``priority'' is relevant only for distributions made 
     to creditors in the bankruptcy case itself. Such 
     distributions are made in only a negligible percentage of 
     cases. More than 95% of bankruptcy cases make NO 
     distributions to any creditors because there are no assets to 
     distribute. Granting women and children a first priority for 
     bankruptcy distributions permits them to stand first in line 
     to collect nothing.
       The hard-fought battle is over reaching the ex-husband's 
     income after bankruptcy. Under current law, child support and 
     alimony share a protected post-bankruptcy position with only 
     two other collectors of debt--taxes and student loans. The 
     credit industry asks that credit card debt and other consumer 
     credit share that position, thereby elbowing aside the women 
     trying to collect on their own behalf. The credit industry 
     carefully avoids discussing the increased post-bankruptcy 
     competition facing women if S. 625 becomes law. As a matter 
     of public policy, does this country want to elevate credit 
     card debt to the preferred position of taxes and child 
     support?
       In addition to the concerns raised on behalf of the 
     thousands of women who are struggling now to collect alimony 
     and child support after their ex-husband's bankruptcies, we 
     also express our concerns on behalf of the more than half a 
     million women heads of household who will file for bankruptcy 
     this year alone. As the heads of the economically most 
     vulnerable families, they have a special stake in the pending 
     legislation. Women heads of households are now the largest 
     demographic group in bankruptcy, and according to the credit 
     industry's own data, they are the poorest. The provisions in 
     this bill, particularly the provisions that apply without 
     regard to income, will fall hardest on them. A single mother 
     with dependent children who is hopelessly insolvent and whose 
     income is far below the national median income still would 
     have her bankruptcy case dismissed if she does not present 
     copies of income tax returns for the past three years--even 
     if those returns are in the possession of her ex-husband. A 
     single mother who hoped to work through a chapter 13 payment 
     plan would be forced to pay every penny of the entire debt 
     owed on almost worthless items of collateral, such as used 
     furniture or children's clothes, even if it meant that 
     successful completion of a repayment plan was impossible.
       These two facts are unassailable: S. 625 forces women to 
     compete with sophisticated creditors to collect alimony and 
     child support after bankruptcy. S. 625 makes it harder for 
     women to declare bankruptcy when they are in financial 
     trouble. We implore you to look beyond the distorted 
     ``facts'' peddled by the credit industry. Do not pass a bill 
     to hurt women and children.
       Thank you for your consideration.
           Respectfully yours,
                                        Sixty-nine (69) Professors
       Charles J. Tabb, Professor of Law, University of Illinois 
     College of Law; Peter A. Alces, Professor of Law, College of 
     William and Mary School of Law; Peter Alexander, Professor of 
     Law, The Dickinson School of Law, Pennsylvania State 
     University; Thomas B. Allington, Professor of Law, Indiana 
     University School of Law (Indianapolis); John D. Ayer, 
     Professor of Law, University of California at Davis School of 
     Law; Laura B. Bartell, Associate Professor of Law, Wayne 
     State University Law School; Patrick B. Bauer, Professor of 
     Law, University of Iowa College of Law; Susan Block-Lieb, 
     Professor of Law, Seton Hall University School of Law; 
     Douglass G. Boshkoff, Robert H. McKinney Emeritus Professor 
     of Law, Indiana University School of Law (Bloomington); 
     Amelia Boss, Professor of Law, Temple University School of 
     Law.
       Jean Braucher, Roger Henderson Professor of Law, University 
     of Arizona, James E. Rogers College of Law; Ralph Brubaker, 
     Associate Professor of Law, Emory University School of Law; 
     Mark E. Budnitz, Professor of Law, Georgia State University 
     College of Law; Daniel J. Bussel, Professor of Law, UCLA 
     School of Law; Marianne B. Culhane, Professor of Law, 
     Creighton University School of Law; Susan DeJarnatt, 
     Assistant Professor, Beasley School of Law of Temple 
     University; Paulette J. Delk, Associate Professor of Law, 
     Cecil C. Humphreys School of Law, The University of Memphis; 
     A. Mechele Dickerson, Associate Professor of Law, College of 
     William and Mary School of Law; Samuel J.M. Donnelly, 
     Professor of Law, Syracuse University College of Law; Scott 
     B. Ehrlich, Associate Dean and Professor of Law, California 
     Western School of Law; Thomas L. Eovaldi, Professor of Law, 
     Northwestern University School of Law.
       Jeffrey T. Ferriell, Professor of Law, Capital University 
     School of Law; Wilson Freyermuth, Associate Professor of Law, 
     University of Missouri-Columbia School of Law; Christopher W. 
     Frost, Professor of Law, University of Kentucky College of 
     Law; Nicholas Georgakopoulos, Professor of Law, University of 
     Connecticut School of Law; S. Elizabeth Gibson, Burton Craige 
     Professor of Law, University of North Carolina School of Law; 
     Marjorie L. Girth, Professor of Law, Georgia State University 
     College of Law; Karen Gross, Professor of Law, New York Law 
     School; Matthew P. Harrington, Associate Dean for Academic 
     Affairs and Director, Marine Affairs Institute, Roger 
     Williams University School of Law; Joann Henderson, Professor 
     of Law, University of Idaho College of Law; Richard A. Hesse, 
     Professor of Law, Franklin Pierce Law Center; Ingrid 
     Michelson Hillinger, Associate Professor of Law, Boston 
     College Law School; Margaret Howard, Professor of Law, 
     Vanderbilt University Law School; Ted Janger, Associate 
     Professor, Brooklyn Law School; Lawrence Kalevitch, Professor 
     of Law, Nova Southeastern University Law Center; Allen R. 
     Kamp, Professor of Law, John Marshall Law School; Lawrence P. 
     King, Charles Seligson Professor of Law, New York University 
     School of Law; Kenneth N. Klee, Acting Professor of Law, UCLA 
     School of Law; John W. Larson, Associate Professor of Law, 
     Florida State University College of Law; Robert M. Lawless, 
     Associate Professor of Law, University of Missouri-Columbia 
     School of Law; Lynn M. LoPucki, Security Pacific Bank 
     Professor of Law, UCLA School of Law; Lois R. Lupica, 
     Associate Professor of Law, University of Maine School of 
     Law; William H. Lyons, Professor of Law, University of 
     Nebraska College of Law.
       Bruce A. Markell, Professor of Law, William S. Boyd School 
     of Law, University of Nevada, Las Vegas; Nathalie Martin, 
     Assistant Professor of Law, University of New Mexico School 
     of Law; Judith L. Maute, Professor of Law, University of 
     Oklahoma Law Center; Jeffrey W. Morris, Professor of Law, 
     University of Dayton School of Law; Spencer Neth, Professor 
     of Law, Case Western Reserve University Law School; Gary 
     Neustadter, Professor of Law, Santa Clara University School 
     of Law; Dean Pawlowic, Professor of Law, Texas Tech 
     University School of Law; Lawrence Ponoroff, Vice Dean and 
     Professor of Law, Tulane Law School; Nancy B. Rapoport, Dean 
     and Professor of Law, University of Nebraska College of Law; 
     Doug Rendleman, Huntley Professor, Washington and Lee 
     University School of Law; Alan N. Resnick, Benjamin Weintraub 
     Professor of Law, Hofstra University School of Law.
       Linda J. Rusch, Professor of Law, Hamline University School 
     of Law; Charles J. Senger, Professor of Law, Thomas M. Cooley 
     Law School; Charles Shafer, Professor of Law, University of 
     Baltimore School of Law; Melvin G. Shimm, Professor of Law 
     Emeritus, Duke University; Philip Shuchman, Weintraub 
     Professor of Law, The State University of New Jersey, Rutgers 
     School of Law (Newark); Marshal Tracht, Associate Professor 
     of Law, Hofstra University School of Law; Bernard R. 
     Trujillo, Assistant Professor, University of Wisconsin Law 
     School; Valorie K. Vojdik, Assistant Professor of Law, 
     Western New England College, School of Law; William T. 
     Vukowich, Professor of Law, Georgetown University Law Center; 
     Thomas Ward, Professor of Law, University of Maine School of 
     Law; Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard 
     Law School; Jay L. Westbrook, Benno C. Schmidt Chair of 
     Business Law, University of Texas School of Law; Michaela M. 
     White, Professor of Law, Creighton University School of Law; 
     Mary Jo Wiggins, Professor of Law, University of San Diego 
     School of Law; Peter Winship, James Cleo Thompson Sr. Trustee 
     Professor of Law, Southern Methodist University School of 
     Law.

[[Page S171]]

     Organizations Opposed to S. 625, the ``Bankruptcy Reform Act''

       Among the organizations that have voiced their opposition 
     to S. 625 are:
       AFL-CIO, Alliance for Justice, American Association of 
     University Women, American Federation of Government Employees 
     (AFGE), American Federation of State, County and Municipal 
     Employees (AFSCME), American Medical Women's Association, 
     Association for Children for Enforcement of Support, Inc. 
     (ACES), Business and Professional Women/USA, Center for Law 
     and Social Policy, Center for the Advancement of Public 
     Policy, Center for the Child Care Workforce, Church Women 
     United, Coalition of Labor Union Women, Communications 
     Workers of America, Consumer Federation of America, Consumers 
     Union, Equal Rights Advocates.
       Feminist Majority, Hadassh, International Association of 
     Machinists & Aerospace Workers (IAM), International 
     Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, 
     Forgers & Helpers, International Brotherhood of Teamsters, 
     International Women's Insolvency & Restructuring 
     Confederation, Ralph Nader, National Association of 
     Commissions for Women, National Black Women's Health Project, 
     National Center for Youth Law, National Consumer Law Center, 
     National Council of Jewish Women, National Council of Negro 
     Women, National Council of Senior Citizens, National 
     Organization for Women, National Partnership for Women and 
     Families, National Women's Conference.
       National Women's Law Center, Northwest Women's Law Center, 
     NOW Legal Defense and Education Fund, Public Citizen, Union 
     of Needletrades, Industrial & Textile Employees (UNITE), 
     United Automobile, Aerospace and Agricultural Implement 
     Workers of America/UAW, United Food & Commercial Workers 
     International Union, United Steelworkers of America, U.S. 
     Public Interest Research Group, Wider Opportunities for 
     Women, The Woman Activist Fund, Women Employed, Women Work!, 
     Women's Institute for Freedom of the Press, Women's Law 
     Center of Maryland, Inc., YWCA of the U.S.A.

  Mr. WELLSTONE. The letter begins:

       In a letter to you, dated September 7, 82 professors of 
     bankruptcy law from across this country expressed their grave 
     concerns about some of the provisions of S. 625. In a public 
     letter dated September 16, two professors took the opposing 
     view. One of the principal concerns of the 82 law professors 
     was that S. 625 may adversely affect women and children.
       Proponents of the bill--namely, the consumer credit 
     industry--have responded to the concerns raised about the 
     effects of the bill on women and children with a media blitz. 
     . . .

  They have the money for a media blitz. These women and children don't 
have the money for that.

       . . . trumpeting the view that ``Bankruptcy reform helps 
     women and children.'' A September 14 letter from the consumer 
     credit issuers proclaims that ``S. 625 vastly improves the 
     position of women and children who depend on family support 
     payments from an absent parent who has filed for 
     bankruptcy.'' A full-page advertisement also dated September 
     14 asserts, ``The truth is that bankruptcy reform gives much-
     needed help to single parents and their children who are 
     dependent on family support payments.'' The advertisement 
     cautions in large type: ``Distorting the facts about reform 
     helps no one.'' The undersigned professors agree that 
     ``distorting the facts about reform helps no one.'' The real 
     distortion is the assertion that S. 625 would benefit women 
     and children.

  You can pass this legislation but I am not going to let you get by 
with that claim.

       The truth is that notwithstanding the pleas of the bill's 
     proponents, this legislation does not help women and 
     children. Thirty-one organizations devoted exclusively to 
     promoting the best interests of women and children continue 
     to oppose this pending bankruptcy bill. The concerns 
     expressed in the professors' letter of September 7 regarding 
     how S. 625 would hurt women and children have not been 
     resolved--they have not even been addressed.

  Reading from one other section of the letter:

       We also express our concerns on behalf of the more than 
     half a million women heads of household who will file for 
     bankruptcy this year alone. As the heads of the economically 
     most vulnerable families, they have a special stake in the 
     pending legislation. Women heads of households are now the 
     largest demographic group in bankruptcy and according to the 
     credit industry's own data, they are the poorest. The 
     provisions in this bill, particularly the provisions that 
     apply without regard to income, will fall hardest on them. A 
     single mother with dependent children who is hopelessly 
     insolvent and whose income is far below the national median 
     income still would have her bankruptcy case dismissed if she 
     does not present copies of income tax returns for the past 
     three years--even if those returns are in the possession of 
     her ex-husband. A single mother who hoped to work through a 
     chapter 13 payment plan would be forced to pay every penny of 
     the entire debt owed on almost worthless items of collateral, 
     such as used furniture or children's clothes, even if it 
     meant that successful completion of the repayment plan was 
     impossible.

  I don't think the choice could be framed any more starkly. Here is 
the core question:
  Will Senators be on the side of these women who are struggling to 
raise their families or do they see these women as the banks and the 
credit card companies do--as an economic opportunity, ripe for 
exploitation?
  Mr. President, I hope my colleagues will recognize as they take a 
second look at this legislation that a vote for this bill is a vote 
against consumers; it is against women, it is against children, and it 
is against working families.
  I believe our country and our society and this Senate should be 
judged by how we treat our society's most vulnerable members. By this 
standard, this is an exceptionally harsh piece of legislation. All the 
consumer groups oppose this bill; 31 organizations that are devoted to 
women and children's issues oppose this bill.
  The two amendments I will speak to after I have given them context 
are my payday loan amendment, which would curb a form of predatory 
lending that targets low- and moderate-income and working families, and 
the low-cost, basic banking amendment, which would require big banks 
with more than $200 million in assets to offer low-cost, basic banking 
services to customers if they wish to be able to make claims against 
the debtors in bankruptcy proceedings. I think that would make the 
legislation at least a little bit more fair and balanced.
  First, let me speak to my payday loan amendment. This is one that 
should have the vote of 100 Senators. This amendment would prevent 
claims in bankruptcy on high-cost transactions in which the annual rate 
exceeds 100 percent. That is what I am going to ask Senators to vote 
on. We would prevent claims in bankruptcy on transactions in which the 
annual rate exceeds 100 percent--such as payday loans and car title 
pawns. Now, these loans are marketed as giving the borrower a ``little 
extra until payday.''
  Do you know what happens with these loans? It is incredible. You have 
hard-pressed people, poor people, senior citizens, women, people of 
color, people who live in our rural and urban areas, and they can't get 
the credit any other way, so they get a loan for $100, which will hold 
them over until they get their paycheck. They get charged these huge 
fees--15 percent or more. These credit companies, unscrupulous 
companies, can put a lien on their car and even require that they give 
them the key to the car, and then when they can't pay it back--which is 
often the case--they just keep rolling the loan over and over and over 
again. For example, a $15 fee on a 2-week loan of $100 ends up being an 
annual rate of about 391 percent because people ask for the loans over 
and over again. Rates can be actually as high as 2,000 percent per 
year, or they take title to the car.
  This is absolutely incredible. Someone can take out a $100 loan, and 
the car might be worth $2,000, and these companies that we don't do a 
darn thing about--I know some of the national media has had some 
exposure, thank God. I just hope the Senate is sensitive to this 
question. They are hard-pressed people with nowhere to go for a $100 
loan. Maybe there has been an illness in the family or the car broke 
down, or whatever the case is. They end up getting charged 300, 400, 
500, 600 percent. Then they get harassed and they say: We have the 
check you made out to us. We are going to cash the check and you will 
be charged with writing a bad check and you can go to prison. These are 
unscrupulous practices. If the car is worth $2,000, they can basically 
repossess the car, sell the car, and in a lot of States they don't even 
have to give back to the owner anything that they make over what the 
owner owed them. Can you imagine that that goes on in this country? Why 
in this ``bankruptcy reform'' legislation have we not at least paid a 
little bit more attention to how we can protect some of our consumers?

  Now, nobody needs to charge this type of interest rate for a loan. 
Indeed, this industry is grossly profitable as a result. Stephens 
Incorporated, one of our investors, says they can expect a return of 48 
percent in 9 months to a year and can expect profit margins in excess 
of 30 percent. Stevens Incorporated reported that there were 6,000

[[Page S172]]

storefronts making payday loans in 1999 across the country but 
estimates the potential ``mature'' market as being 24,000 stores 
nationwide generating $6 billion in fees. With these kinds of profits, 
only your conscience will keep you out of this business.
  With these kinds of profits, only your conscience will keep you out 
of this business. It is amazing. You make these loans, you say you are 
going to help people, you charge them high fees, and you roll it over 
and over again. You end up charging way above 100 percent per year. You 
repossess their car. You sell the car. You don't even give them back 
the additional money you make beyond what they owed you. You do all 
this with impunity, and these are the poorest people, most vulnerable 
people who are targeted, and we don't have anything in this legislation 
to protect them. Let me tell you, Senators, if you want to protect 
them, you will and you should vote for this amendment.
  I say to my colleagues that these sleazy debt merchants, expanding 
their tentacles into our cities and towns, are the mirror image of the 
retreat of our Main Street and mainstream financial institutions from 
the same communities. Some of my colleagues on the floor know this. 
When we had our community banks and smaller banks, they cared. They 
helped small businesses out and helped out hard-pressed people. They 
were willing to help out. But now that we have moved to these branch 
banks and all of this consolidation, they don't. So people have to rely 
on these kinds of loans.
  According to an analysis by the brokerage firm Piper Jaffrey, as 
reported in the Washington Post, ``established customers'' of one 
payday lender engaged in 11 transactions a year and could end up paying 
$165 to $330 for a $100 loan.
  This vote is going to be watched. This is one I think national media 
will pay attention to because we have had some horror stories. We know 
about what has happened to people. The question is, Whose side are we 
on? Are we on the side of vulnerable people or on the side of single-
parent households headed by women, on the side of children, or are we 
on the side of these unscrupulous credit card companies?
  The following June 18 New York Times piece is typical of the horror 
stories associated with payday lending:

       Shari Harris, who earns around $25,000 a year as an 
     information security analyst, was managing money well enough 
     until the father of her two children, 10 and 4, stopped 
     paying $1,200 in child support. ``And then,'' Ms. Harris 
     said, ``I learned about the payday loan places.'' She 
     qualified immediately for a two-week $150 loan at Check Into 
     Cash, handing it a check for $183 to include the $33 fee. ``I 
     started maneuvering my way around until I was with seven of 
     them,'' she said. In six months, she owed $1,900 and was 
     paying fees at a rate of $6,000 a year. ``That's the sickness 
     of it,'' Ms. Harris said. ``I was in a hole worse than when I 
     started. I had to figure out a way to get out of it.''

  Mr. President, here is where we are. If you have desperate 
customers--the most vulnerable--and these are the kinds of loans they 
are dependent upon, where the terms are outrageous--only somebody with 
no alternative would seek to borrow money at such scandalous rates.
  The Consumer Federation of America noted in a September 1999 report 
entitled ``Safe harbor for Usury'' that, quote:

       Consumers who are desperate enough for credit to pay triple 
     digit interest rates for two week loans have very little 
     market power to bring rates down. The real costs of payday 
     loans made in small sums for very short periods of time may 
     not be clear to unsophisticated consumers. When lenders deny 
     that their cash advances are `loans' and fail to comply with 
     Truth and Lending Act disclosures of Annual Percentage Rates, 
     consumers do not have the key price tag needed to comparison 
     shop for credit. If, as the industry claims, payday loan 
     customers have nowhere else to go for small loans, rate 
     regulation is necessary to prevent abuse of a captive market.

  That is what is going on. The industry is saying to Senators: Oh, no, 
you can't do anything about this because these people are desperate and 
they come to us for loans and we perform a vital service. But does that 
justify scandalous fees? On the contrary, it justifies stringent 
regulation to protect the most vulnerable citizens. What are we about 
if we cannot at least extend this kind of protection?
  If it is poor credit which drives a borrower to a payday lender, the 
borrower is likely to find himself in still deeper water after taking 
one of these high interest loans. For example, in Tennessee--the state 
with the highest bankruptcy rate in the country--payday lending is 
becoming an increasing problem for the bankruptcy system. As one 
Chapter 13 bankruptcy trustee, as quoted in the March 18th edition of 
The Tennessean put it, quote:

       I see them (payday lenders) as the last straw. I would 
     certainly say they are compounding the problem. We are 
     dealing with a bankruptcy filing rate that's through the 
     roof. You are looking at one of the basic causes: lending to 
     people who are not credit worthy and extracting exorbitant 
     interest rates from them.

  Why aren't we doing something about this? This amendment says if you 
have a 100-percent interest charge over a year, you are not at the 
table when it comes to bankruptcy, and the collections of these payday 
loans can be coercive.
  For example, in September, the Cook County, Illinois State's Attorney 
filed suit against Nationwide Budget Finance, a St. Louis based payday 
lender, alleging multiple violations of Illinois Consumer Installment 
Loan Act and Consumer Fraud Act, charging that Nationwide threatened 
consumers with criminal charges and lawsuits when it had no intention 
of taking such action. The State's attorney stated, quote: 
``Apparently, pay day loan businesses are so lucrative that it is more 
cost-effective to write off bad debts rather than to try and collect 
them, even though they harass and intimidate their customers.'' 
Additionally, the company required borrowers to list four references on 
the loan application. But the references weren't used for the loan 
approval, instead Nationwide would place harassing to the people listed 
if the borrower defaulted.
  That is why this amendment amends the Fair Debt Collection Practices 
Act to prohibit coercive collecting tactics in lending transactions 
where deferred cashing of a check is involved.
  I should also point out that, at the very minimum, if we are going to 
be talking about accountability and responsibility, why don't we make 
it a little more lenient with this piece of legislation? It takes two 
to tango. These unscrupulous credit card companies have something to do 
with bankruptcy.
  Such loans are patently abusive. They should not be protected by the 
bankruptcy system. And because they are so expensive, they should be 
completely dischargeable in bankruptcy so that debtors can get a true 
fresh start, and so that more responsible lenders' claims are not 
``crowded out'' by these shifty operators.
  Consider that. Why should we penalize some of our good companies that 
are responsible lenders by letting these unscrupulous loan sharks be at 
the table? Why should unscrupulous lenders have equal standing in 
bankruptcy court with a community banker or a credit union that tries 
to do right by their customers? And lenders should not be able to take 
advantage of their customers' vulnerability through harassment and 
coercion.
  That is what this amendment is about.
  Mr. President, my amendment simply says: if you charge over 100% 
annual interest on a loan, and the borrower goes bankrupt, you cannot 
make a claim on that loan or the fees from the loan.
  Colleagues, you have such a clear choice. There is no reason in the 
world that you should not vote for this amendment.
  I grant you that I come to the floor today to speak for some people 
who haven't been included in the system. They are just poor and they 
are vulnerable, and therefore they are fair game for these companies.
  I have just said to you that my amendment says if you charge over 100 
percent as an interest rate and the borrower goes bankrupt, you cannot 
make a claim on that loan or on the fees on the loan.
  Why don't we make the legislation just a teeny bit fairer? Why don't 
we have just a little bit more balance? Why don't we go after these 
unscrupulous operators?
  The second amendment I've offered on this bill is my low cost, basic 
banking amendment. This important consumer amendment would require big 
banks with more that $200 million in assets to offer low-cost basic 
banking services to their customers if they wish

[[Page S173]]

to be able to make claims against debtors in bankruptcy proceedings.
  We have been talking about responsibility. What about the 
responsibility of the banks and the lending institutions to offer 
inexpensive means to conduct financial transactions and to save money 
for low-income people?
  Right now, the minimum balance that people are supposed to have in 
their accounts and the high fees mean that for about 12 million 
Americans, they can't afford to open up an account; they can't afford 
to have a checking account. What happens when people can't afford to 
open up a checking account? They are forced to complete their financial 
transactions either through costly check-cashing operations or they 
carry around whatever sums of money they have when they go out to 
purchase groceries or to pay their rent. These are risks that people 
should not have to take.
  For example, ACE Cash Express, a national check-cashing company, 
charges between 3 and 6 percent of a check's value to convert the check 
into cash. That is what poor people are forced to do. There would be a 
charge of between $15 and $30 on a paycheck of $500. While that may not 
seem to be much money to many of my colleagues, to many low- and 
moderate-income families who live paycheck to paycheck, that $30 could 
be a meal; that $30 could be a piece of clothing they could buy for 
their child; that $30 could mean they could go visit a doctor.
  We have been passing legislation that has driven these small banks 
out, that has led to all of these mergers and acquisitions, with these 
huge branch banks making billions and billions of dollars. All I am 
saying is, why can't we at least say to them: You have some community 
responsibility; you ought to at least give people low-cost basic bank 
services. If you do not, then you are not at the table in bankruptcy 
proceedings against such a bank.
  This amendment focuses on banks with more than $200 million. I want 
to be crystal clear that I am not talking about the smaller banks 
because the smaller banks have done a good job. Much of my work is in 
rural America. The smaller banks and the community banks have done a 
good job. They go out of their way to help. But the problem is that 
these small community banks that have been connected to Main Street 
have been connected by these huge financial conglomerates that are much 
more connected to Wall Street. They don't really know the people. They 
don't know them at all. They sure as heck don't go out of their way to 
help them.
  Would this amendment present an unfair burden to these larger banks, 
as some of my colleagues may argue? Not according to a survey of the 
Consumer Bankers Association. According to the CBA, 70 percent of the 
institutions found that offering a basic bank account did not result in 
a financial loss for their bank or impose a burden on their operation.
  What in the world is going to happen to seniors? What is going to 
happen to low-income elderly people? As the U.S. Government begins to 
make the shift to electronic distribution of benefits, pensions, and 
wages, consumers must have access to banking services. Now more than 
ever, the 6.5 million recipients of Social Security and SSI, the 
Supplemental Security Income program, who do not have a checking 
account, will face even a steeper uphill battle in their attempts to 
access these funds. They currently cannot afford the monthly fees, nor 
do they have the money to keep the minimum balance in their checking 
accounts necessary to complete these financial transactions.
  What are we saying to senior citizens who in the future will need a 
bank simply to get their electronically transferred Social Security 
check? Let's not forget that it is not just the financial giants that 
are affected by this process of modernization. It is everyone. We 
should not try to close the door to low-income consumers who 
desperately need access to basic banking services. If we provide wider 
access to bank accounts, we will reduce bankruptcy, we will promote 
financial literacy, and we will reduce low- and moderate-income 
families' reliance on high-cost check cashers and payday lenders.
  Why should bankers who are unwilling to promote the general good be 
given the same standing in bankruptcy court as those who do? I am tired 
of seeing the folks in the private sector who do the right thing being 
put at a competitive disadvantage because their competitors will not.
  I will conclude by characterizing the debate this way: Over the past 
several decades, our economy has become more and more balkanized. We 
have, indeed, seen an economy that is booming. But I come from a State 
where we have had an economic convulsion in agriculture and our family 
farmers and our rural citizens are falling behind. The U.S. economy is 
becoming more and more balkanized. More wealth and more economic power 
is concentrated among a few. What we have been doing in the Senate over 
the past several years is passing legislation which provides the lion's 
share of benefits for those at the top of the heap, those with the big 
bucks. The two amendments I have introduced give us an opportunity, in 
a small way, to reverse this trend.
  This bill is already an enormous giveaway to the financial services 
industry. It basically rewards lenders for their aggressive, 
irresponsible lending habits. I went over that already. So I say to 
colleagues, since we seem to be on our way to changing the rules for 
America's working families with this legislation, since we seem to be 
about to ratify the scandalous lending practices of the banking 
industry, let the Senate adopt several amendments that balances this 
legislation. Both of these amendments test whether we are serious about 
curbing bankruptcy. These two amendments, the payday loan amendment and 
the lifeline banking amendment, are antibankruptcy amendments. A vote 
for either of these amendments is a vote to promote responsible 
financial habits among consumers and responsible lending from the 
credit card companies--responsible lending from the credit card 
companies. A vote against these amendments sanctions the abandonment by 
big banks of poor people and, increasingly, the middle class, and 
ratifies the stranglehold that unscrupulous lenders have on low-income 
and moderate-income and working families. There is no doubt in my mind 
this is a flawed piece of legislation. It punishes the vulnerable and 
rewards the big banks and credit card companies for their own poor 
practices.

  Earlier I used the word ``injustice'' to describe this legislation. 
That is exactly right. It will be a bitter irony if the creditors are 
able to use a crisis, largely of their own making, to convince Congress 
to reduce borrowers' access to bankruptcy relief. That is exactly what 
is going on.
  I said at the beginning of my statement that real bankruptcy reform 
would address the concentration of financial markets, which are 
increasing the power and clout of the big banks and credit card 
companies to unprecedented levels. It would make working families more 
secure. It would deal with the crisis in agriculture and what is 
happening in rural America. It would address skyrocketing medical 
expenses. It would confront the economic balkanization of the country. 
It would confront the increasing chasm between the wealthy and the rest 
of America.
  But instead of lifting up low-income and moderate-income and working-
income families, this bill punishes them. I hope my colleagues reject 
this legislation. I strongly urge the Senate to at least provide some 
balance to this legislation and to accept my amendments.
  I have also a document from the Department of Labor, written by an 
officer, Capt. Robert W. ``Andy'' Andersen, and I believe this was 
written to Senator Lieberman. In this letter, he is talking about these 
payday loans. What he is saying is we have this problem in the 
military. We have our military people who are underpaid--we know all 
about this--so they end up having to rely on these payday loans, and 
the same thing happens to them, to men and women in the Armed Forces. 
We do not pay them enough, we don't reward their work, we don't provide 
them the salaries they and their families deserve--just like other low- 
and moderate-income people--and then they rely on these payday loans. 
They are desperate. They take out a loan for $100 which then gets 
rolled over and over and over again or have liens put on their car, 
they lose that car, they get charged interest rates of 300, 400, 500 or 
600 percent a year, and it is a living hell for their families, because 
of the same practices by unscrupulous

[[Page S174]]

lenders who are making billions of dollars. I think we ought to be on 
the side of these men and women in our military who are confronted with 
this.
  But you know what, I am not going to use this as the big emotional 
argument in this debate. It is not just the military. It is low- and 
moderate-income people. It is men and women in the Armed Forces. It is 
a lot of single-parent families, I am sorry to say most of them headed 
by women. It is some of our senior citizens. Contrary to the 
stereotype, the income profile of elderly Minnesotans and elderly 
people in Utah and around the country is not very high. It is basically 
the most vulnerable citizens in our country.
  I will speak to this payday loan. I would like to know why in the 
world there would be opposition to this amendment. We are saying if you 
are charging over 100 percent interest a year, you are not going to be 
at the table. I thought we were on the side of consumers when it comes 
to people being charged exorbitant fees and interest rates. It says you 
cannot use these coercive practices that the State of Illinois is going 
after these consumers on wherein they threaten people and tell them 
they are going to cash their checks and then they are going to end up 
going to prison.

  I believe the vote on these amendments--and I am going to focus on 
the payday amendment--is a test case. This is a test case vote. 
Whatever you think about the overall bill--I have laid out my case 
against it--on this amendment this is a test case as to whether or not 
we can at least provide some protection to the most vulnerable 
citizens, whether or not we are on the side of the most vulnerable 
people, women and children, whether we are on the side of low- and 
moderate-income, working-income families, whether we are on the side of 
hard-pressed people, whether we are on the side of regular people, 
whether we are on the side of ordinary citizens, or whether we are on 
the side of unscrupulous loan shark companies that have no conscience 
and no soul and exploit people.
  I urge my colleagues to support this amendment, and I yield the 
floor.
  The PRESIDING OFFICER (Mr. Hatch). Who seeks recognition? The Senator 
from Iowa.
  Mr. GRASSLEY. Mr. President, it is always a pleasure to listen to the 
Senator from Minnesota because whether he is right or wrong, he always 
speaks with a great deal of passion. I want people who have ideas to 
have passion for those ideas. Senator Wellstone is a person who speaks 
with a great deal of passion and conviction.
  I disagree with a lot of the points he has made; otherwise, we would 
not have this legislation before us. On the other hand, on the subject 
of concentration, which he brought up, I have some sympathy for what he 
has said. The solution to the concentration problem is we should get 
this administration to vigorously enforce the antitrust laws both 
within the Justice Department and the Federal Trade Commission. There 
is a general feeling among people about whether the marketplace is 
working adequately and, consequently, support the antitrust laws. The 
antitrust laws are well written and have withstood a period of time, 
but enforcement is very much an issue.
  We are not talking about concentration, and we are not talking about 
enforcement of the antitrust laws when we deal with bankruptcy. We have 
a very real problem. We have seen a dramatic increase in bankruptcies 
over the last 6 or 7 years. In 1993, we had 875,202 bankruptcies, and 
in 1998, it shot up to 1,442,549.
  We have seen this dramatic increase in the number of bankruptcies 
during one of the most prosperous times in the history of our country. 
It has been the most prosperous for several reasons: One, information 
technology is helping to expand our economy and make it more efficient 
than ever before.
  The globalization of our economy has also reduced consumer costs, 
giving consumers more money to expend on other things. We have seen 
Congress balance the budget in the last 3 years, and it worked toward 
that for the last 6 years and made considerable progress. Now we are 
paying down the national debt for the third year in a row. All that has 
contributed to it.
  We are in the 18th year of economic expansion, which started in the 
second year of Ronald Reagan's administration. We had a turnaround in 
the economy after the stagflation of the seventies, and except for a 6-
month period of time in 1992, we have had 18 years of economic 
expansion. During that period of economic expansion, we have had this 
very dramatic increase in bankruptcies.
  Why? I wish I could say there is just one reason, as the Senator from 
Minnesota seems to imply; that it is credit being extended too easily, 
too many credit cards. I agree that is a reason, but that is only one 
of the reasons.
  Another reason is we have a bankruptcy bar that has, quite frankly, 
encouraged bankruptcies. We have shown during previous debates on this 
bill where bankruptcy lawyers in California advertise in the media how 
to get out of paying alimony and child support by going into 
bankruptcy. These types of practices, obviously, are not ethical but 
are still being used.
  We also have the bad example set by the Federal Government of 30 
years of deficit spending. If Uncle Sam can borrow money into the 
trillions of dollars over a period of 30 years, isn't it all right for 
Mary Smith and Tom Jones or the people who are working in Anywhere USA 
to go into debt as well? Uncle Sam did not set a very good example. 
Congress, doing the fiscal policy for Uncle Sam, did not set a very 
good example. It says to others: Yes, it's OK for you to go in debt.
  The Federal Government has turned that around in 3 years by balancing 
the budget and paying down some of the national debt and is on the road 
to paying down the national debt very dramatically over the next 10 to 
15 years.
  We also have a situation where somehow financial responsibility is 
not considered a personal responsibility anymore. In other words, it is 
OK to go into debt and not pay your bills. There used to be a certain 
amount of shame connected with bankruptcy that does not seem to be 
there now.
  I gave four reasons--and there may be a lot more--of why we are 
probably in this situation where we have had 18 years of economic 
expansion since the second year of the Reagan administration and yet 
have a historically high number of bankruptcies, and during the best 
years of our economy, we have seen bankruptcies almost double in a 
period of 6 or 7 years.
  Consequently, we have this legislation before us. I do not disregard 
the words of the Senator from Minnesota that there are some people who 
are vulnerable and for whom we need to be concerned, but I say to the 
Senator from Minnesota, we are not extinguishing the principle that has 
been a part of the bankruptcy law for the last 102 years, permanent 
bankruptcy legislation. There are segments of our population in bad 
financial trouble, through no fault of their own, who need the help of 
bankruptcy. That could be death, divorce, a lot of medical expenses, a 
natural disaster, for instance, if you are a farmer or some other small 
businessperson, or maybe even a homeowner who had a natural disaster 
that was not properly insured.
  Our code says there are select groups of people who are in a bad 
financial situation, through no fault of their own, who should have a 
fresh start. I say to the Senator from Minnesota and all the other 
Senators who question this legislation, we keep that principle, but we 
also say this Congress has to send a clear signal to the 270 million 
people in this country that if you have the ability to repay some or 
all of your debt, you are not going to get off scot-free. There are 
large numbers of people who are getting off scot-free, albeit they may 
be a minority, but they are a significant minority, and it does not set 
a very good example for some people to be able to use the bankruptcy 
code as part of financial planning.
  We are saying to those who can repay that they have to repay, but we 
are also sending a signal through this legislation to credit card 
companies that are willy-nilly sending out credit cards that encourage 
bankruptcy or even a lack of personal responsibility.
  We are saying it has to be a new day. We want to discourage those 
people who maybe are low income, who should not have gotten, through 
their own fault, into debt, and are not in the classification of people 
who I say are entitled to a fresh start--that somehow they should think 
again about going into bankruptcy and only use bankruptcy as a last 
resort.

[[Page S175]]

  We find that the 1978 law, obviously, has contributed some to the big 
increase in bankruptcies. This legislation passed by a very wide 
margin. So I do not think it was intended that the 1978 law ought to 
make it easier to go into bankruptcy. But, obviously, it sent that 
signal to a lot of people in America, as we have seen that the number 
of bankruptcies in 1980 was only 331,000 and now 18 years later, in 
1998, the figures are 1,442,000.
  Something has happened recently. Again, I do not pretend to stand 
before the American people, or my colleagues in the Senate, and say 
passing a law is going to solve all these problems. I wish it would. It 
is going to be a combination of several things: the credit card 
companies or credit-granting companies to be more careful in who they 
grant credit to; a Congress to be financially responsible and, hence, 
set a good example for every taxpayer and citizen in this country that 
debt isn't OK; the bankruptcy bar to be a little more careful about 
encouraging people to go into bankruptcy and not to advertise that 
bankruptcy is OK as a way out; and then the law itself, by discouraging 
people who can repay to use the bankruptcy code for financial planning.
  In this whole process, I hope we then enhance personal 
responsibility. By enhancing personal responsibility, then we can 
reduce these numbers of bankruptcies and then reduce the economic 
problem we have--because we are not talking about something that does 
not make an impact upon everybody.
  Some people have put this at a $40 billion problem--$40 billion owed 
by those who go into bankruptcy and do not pay. Then every other 
consumer in America picks up part of that tab. We have no doubt about 
it, if you are shoplifting, the honest consumer, who does not shoplift, 
is going to pay the cost of shoplifting. This is somewhat the same. If 
you are a businessperson, and somebody does not pay their bills by 
declaring bankruptcy, the honest person buying goods from that same 
business is going to pick up the tab. And $400, on average, for a 
family of four, is what we pay for other people who do not pay.
  We hope to enhance personal responsibility. We hope to help the 
economy in the process. But most importantly, this is something that 
must be dealt with, and I think this legislation deals with it.
  That is the background for this legislation. I think it is necessary 
to give some of that background, as I respond to some of the specific 
issues that the Senator from Minnesota brought up.
  First of all, he mentioned the point that there has been some decline 
in the rate of growth of bankruptcies in recent years. We think that is 
true. It is a little bit too early to make that judgment. I hope it is 
true. I think it is a direct result of Congress talking about this 
horrible economic problem we have of $40 billion and the lack of 
personal responsibility which goes with that economic problem. Perhaps 
it is sending signals to some of the consumers to think twice about 
whether bankruptcy is the right direction to go in. Maybe it sent a 
signal to some of the bankruptcy lawyers in America to counsel people 
not to go into bankruptcy.
  I hope the leadership of this Congress over the last 3 years, in 
discussing this legislation--actually having passed it in the last 
Congress in both Houses, but not getting the final product to the 
President in time before adjournment--has done some good.
  So we have had a very modest decline in bankruptcies in 1999 as 
compared to 1998. But if you take the historical look--and I have 
referred to some of those figures since 1980--Senator Wellstone's point 
that the bankruptcy crisis is going away turns out to be false. I have 
referred to the 330,000 bankruptcies we had in 1980, the year the new 
code went into effect. But that has gone up to just under 1.4 million 
in 1999. Unlike the Senator from Minnesota, I think 1.4 million 
bankruptcies per year is a real crisis.
  In the past, in the middle 1980s, and even once during the 1990s, we 
have had some minor dips in the bankruptcy filings; but since then, as 
I have referred to, we have had this dramatic increase, almost 
doubling, in the last 6 or 7 years.
  I ask unanimous consent to have printed in the Record a table of the 
total filings, business filings, nonbusiness filings, and the 
percentage of consumer filings of total filings.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                    U.S. BANKRUPTCY FILINGS 1980-1998
                     [Business, Non-Business, Total]
------------------------------------------------------------------------
                                                               Consumer
                                                              filings as
                           Totals     Business      Non-          a
          Year             filings     filings    business    percentage
                                                   filings     of total
                                                               filings
------------------------------------------------------------------------
1980                        331,264      43,694     287,570        86.81
1981                        363,943      48,125     315,818        86.78
1982                        380,251      69,300     310,951        81.78
1983                        348,880      62,436     286,444        82.10
1984                        348,521      64,004     284,517        81.64
1985                        412,510      71,277     341,233        82.72
1986                        530,438      81,235     449,203        84.69
1987                        577,999      82,446     495,553        85.74
1988                        613,465      63,853     549,612        89.59
1989                        679,461      63,235     616,226        90.69
1990                        782,960      64,853     718,107        91.72
1991                        943,987      71,549     872,438        92.42
1992                        971,517      70,643     900,874        92.73
1993                        875,202      62,304     812,898        92.88
1994                        832,829      52,374     780,455        93.71
1995                        926,601      51,959     874,642        94.39
1996                      1,178,555      53,549   1,125,006        95.46
1997                      1,404,145      54,027   1,350,118        96.15
1998                      1,442,549      44,367   1,398,182        96.92
------------------------------------------------------------------------

  Mr. GRASSLEY. The Senator from Minnesota also made reference to some 
changes in the bankruptcy code that were made by Senator Dole in 1984 
which allowed judges to dismiss chapter 7 cases in cases of--these are 
the words from the statute--``substantial abuse'' of the bankruptcy 
code.
  I spoke to this point a week ago. Obviously, the Senator from 
Minnesota did not have an opportunity to hear my remarks. But he would 
have heard me state, in detail, how the 1984 legislation has not worked 
at all, regardless of its good intentions. Because under the 1984 
legislation, creditors are banned by law from bringing evidence of 
abuse to the attention of the judge.
  Here we have a law that says if there is substantial abuse of the 
bankruptcy code, then the judge can determine that that certain 
bankrupt does not have a right to be in bankruptcy court. But then we 
have another section that says creditors who might know about this 
abuse cannot bring evidence of that abuse to bankruptcy court.
  So it seems that the 1984 legislation was designed not to work. We 
correct that in this legislation by making it possible for people to 
bring evidence of such substantial abuse to the bankruptcy judge, for 
it to be considered, and if the judge agrees, then that person cannot 
continue to abuse the public at large by making misuse of the 
bankruptcy courts to get out of paying debt.
  I also remember the Senator saying that tightening bankruptcy law 
will not reduce the costs of bankruptcy. All I can say is, the Clinton 
administration's own Treasury Secretary, Larry Summers, said in one of 
our hearings that reducing bankruptcies could help reduce interest 
rates. And what helps lower-income people more in America than reducing 
interest rates?
  It really helps the very people the Senator from Minnesota speaks of 
as being vulnerable and as a class of citizens about whom we should all 
have concern, and I believe all do have concern.
  I have an example of a vulnerable person at the other end, a person 
who has been substantially harmed by somebody who went into bankruptcy. 
It isn't just people who go into debt who are vulnerable and can be 
hurt by bankruptcy; there are a lot of other hard-working people who 
are hurt by other people who go into bankruptcy. I hope this body will 
remember that every abusive bankruptcy hurts scores of Americans.
  I will read, without using names, from a constituent in Keokuk, IA, 
writing to me about the need for the passage of this legislation. She 
had read a headline in the local paper that said: The Senate may 
toughen bankruptcy laws.
  ``My son''--I will not use the name--``works for a local electric 
company as a meter reader full time during the day and then goes right 
to work nearly every evening and on Saturdays with his own growing 
washing, vacuuming business. He works so hard to do a good job for his 
customers. He takes his responsibilities as a father of five very 
seriously. During the last 3 to 4 months, he has been doing a job for 
an out-of-town gentleman.'' Then the last name is given. ``I believe he 
is in the Des Moines area. I have learned that he has several 
businesses and is known to be a crook.'' That is why I don't want to 
use the names; I don't know whether

[[Page S176]]

he is a crook or not, but that is the writer's judgment.
  ``Of course--then she uses the name of her son--'' had no idea about 
this person's background, but he eagerly wanted the work and took the 
work. He felt especially good about it because one of his men is very 
poor, one of the workers he hires for his moonlighting business, and so 
he turned the job over to him so he could make extra money.
  ``The sorry ending of this story is, as you might have guessed, just 
last week Kenny called the original hiring company where Kenny works 
directly doing cleanup jobs. And before he could talk to the manager 
about not being paid by this gentleman from Des Moines, Mike told Kenny 
that he had just called to inform him that he had declared bankruptcy. 
He owed Kenny over $3,600. To him, this might as well have been $36,000 
because of some new, very expensive equipment purchased to be able to 
handle the additional work.
  ``Something must be done to keep crooks from sticking hard-working 
people like my son, who associate with him in good faith, from dropping 
the hatchet--you know the numbers when it comes to poor management--and 
then take the easy way out at everyone else's expense.'' Then in 
capital letters: ``It is wrong and it should not be allowed.''
  So there are hard-working mothers and fathers in America, I say to 
the Senator from Minnesota, who are vulnerable and hurt by other people 
who take advantage of them and go into bankruptcy.
  On another point the Senator from Minnesota made, perhaps he isn't 
aware that the organization of prosecutors who enforce child support 
says this bill, S. 625, will help women and children who are owed child 
support. On this point, in fact, there is no point. Both parties have 
worked hard on this legislation in the compromises that have taken 
place over the last 2 or 3 years. We are not going to let people use 
the bankruptcy code to get out of paying child support. Yet we 
are still hearing, this very day, that old argument that may have had 
some credibility 2 or 3 years ago but that we had taken care of almost 
that long ago because it was a very important point raised. But those 
points are still being made.

  So I ask my colleagues, as they consider that point made by the 
Senator from Minnesota, to whom are you going to listen: The people who 
actually collect child support--that is, the organization of 
prosecutors who enforce child support who say this is a good bill and 
will help women and children--or are you going to listen to Washington 
special interest think tanks that are using smoke and mirrors to say 
this bill will make it more difficult to collect child support? I think 
those who prosecute know the difficulty of collecting that. I hope my 
colleagues will listen to the prosecutors who get child support who say 
this bill will help women and children.
  Finally, I wish the Senator from Minnesota had at least mentioned 
title II, subtitle A, which is entitled: Abusive Creditor Practices. We 
know creditors can be abusive, and we address that problem to make sure 
there is a level playing field between creditors and debtors when it 
comes to the bankruptcy courts. We have numerous new consumer 
protections. Understand, there are some customers who don't want to go 
into bankruptcy, and they try to negotiate with their creditor to avoid 
going to court. That is a good step we want to preserve and encourage. 
But if that customer then has to declare bankruptcy because of not 
being able to negotiate, then the creditor is severely limited in his 
ability to collect that debt. To me, this is real consumer protection 
that should not be forgotten as we vote on this legislation.
  I will now turn to a specific amendment the Senator from Minnesota is 
offering as well and to oppose his amendment that is referred to as the 
payday loan. For those who don't know, this type of loan happens when a 
borrower gives a personal check to someone else and that person gives 
the borrower cash in an amount less than the amount of the personal 
check. The check isn't cashed if the borrower redeems the check for its 
full value within 2 weeks. The fact is that payday loans are completely 
legal transactions in many States. If a financial transaction is 
explicitly legal under State law, to me, it isn't wise that we use the 
bankruptcy code to try to undo that transaction.
  First of all, using the bankruptcy code for this purpose leads to 
perverse results because the only people who will receive any benefit 
or relief will be those who file for bankruptcy. Then you have all 
those other people who are using payday loans who never file for 
bankruptcy. These people who have taken out loans but don't take the 
easy way out in bankruptcy court will still have to pay back their 
loan. So if this is a problem, it seems to me the Senator from 
Minnesota ought to work to help everybody, not only those who go into 
bankruptcy court. Then you also have the perverse result of people who 
don't have the money to file for bankruptcy who will have to pay the 
loan as agreed. Even if you share Senator Wellstone's distaste for 
payday loans, this amendment won't benefit the poorest of the poor 
because most of the poorest of the poor don't seek bankruptcy relief.

  Earlier during the course of the debate, my colleague from Utah, 
Senator Hatch, sought to include language in an amendment that would 
have changed the Fair Debt Collection Practices Act. This act is in the 
jurisdiction of the Banking Committee. At that very time, the ranking 
Democrat on the Banking Committee, the Senator from Maryland, indicated 
that he would not consent to allowing changes to the Fair Debt 
Collection Practices Act on a bankruptcy bill. So to be fair, then, the 
portion of Senator Wellstone's amendment changing the Fair Debt 
Collection Practices Act should be stricken out in deference to the 
jurisdictional objections that have been lodged by the ranking Democrat 
on the Banking Committee. So I am asking Senator Wellstone to listen to 
the arguments of his fellow Democrat about jurisdiction and respect the 
jurisdiction of the particular committees.
  If the Senator from Minnesota doesn't want to honor this objection, I 
think his proposed changes to the Fair Debt Collection Practices Act 
represent poor policy at least. His amendment would not say that 
lenders can't offer payday loans. His amendment would say that you 
aren't allowed to use State courts to collect the debt, even if the 
debt is completely legal under that same State law. In fact, the State 
of Minnesota specifically allows payday loans, as does my home State of 
Iowa. I don't think the Federal Government has any business telling 
State judges they can't enforce debts that are fully legal under the 
laws of that particular State. I would have confidence in my State 
legislature correcting this economic and social problem, if it is one 
in our State. I haven't studied it enough to know whether it is, but I 
have confidence that my State legislators would correct that. I hope 
the Senator from Minnesota has the same confidence that his State 
legislators know what is best for Minnesota, not those of us in the 
Congress of the United States.
  I also think this amendment would have the effect of making it harder 
for the poor and those with bad credit histories to gain access to 
cash--the very people the Senator from Minnesota is so concerned about 
because, in his words, ``they are so vulnerable.'' People who use 
payday loans simply can't get loans through traditional sources because 
they are too risky, so a payday loan may be the only way they can get 
quick cash to pay for family emergencies or essential home and auto 
repairs.
  I know the intentions of my good friend from Minnesota are honorable, 
but the effect of this amendment would be to make it harder for poor 
people to get help when they need that help the most. I hope this 
amendment by the Senator from Minnesota will be defeated.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Burns). The Chair recognizes the Senator 
from Utah.
  Mr. HATCH. Mr. President, I rise to speak in opposition to the 
amendments offered by the distinguished Senator from Minnesota. His 
amendment is, in fact, two amendments--one to the bankruptcy laws and 
one to the Fair Debt Collection Practices Act.
  The debt collection amendment would prohibit anyone, such as a 
grocery store or a hotel, who cashes

[[Page S177]]

checks for a fee and defers depositing the check from notifying the 
writer of a check which is later bounced that they will seek civil or 
criminal penalties for that bounced check. It is important to keep in 
mind that under most State laws writing bad checks is a crime and many 
States allow for civil and/or criminal penalties against those who 
write fraudulent checks.
  The other part of this amendment would disallow in bankruptcy claims 
arising from a deferred deposit loan--a so-called payday loan--if the 
annual percentage rate of the loan exceeds 100 percent.
  Although well intentioned, this amendment is misplaced. So-called 
payday loans are made when a borrower writes a check for the loan 
amount plus a fee. The lender typically gives the borrower the loan 
amount and holds the check until a future date. In making payday loans, 
these lenders provide a vital service to the poorest borrowers. Because 
sometimes it is more convenient to go to a hotel, grocery store, gas 
station, or other similar businesses that may keep longer hours than 
banks, many consumers choose to cash a check at these types of places 
when they need small amounts of money to overcome an emergency.
  With this check cashing service, borrowers can get the emergency cash 
they need without telling the boss they need a cash advance or giving 
up their televisions and furniture. This is a legitimate service that 
many honest consumers use and in which established businesses engage.
  If adopted, this amendment may operate to the detriment of the very 
people it is intended to help. So I urge colleagues to vote against 
that amendment.
  The lifeline account amendment would disallow the bankruptcy claims 
of certain banks and credit unions. In particular, it would disallow 
claims by larger institutions, such as banks with more than $200 
million in aggregate assets that offer retail depository services to 
the public, unless they offer the specific services required by this 
amendment. First, these institutions would be required to offer both 
checking and savings accounts with ``low fees'' or no fees at all. 
Second, they would have to offer ``low'' or no minimum balance 
requirements for checking and savings accounts--and to any consumer, 
regardless of income level. Further, the ``penalty'' for not providing 
these particular services is the disallowance of the bank's claim in 
bankruptcy. That is a harsh penalty, indeed, and a windfall for 
bankrupts.
  Let me explain what this means. It means someone with the resources 
of, let's say, Steve Forbes can walk into one of these banks, and if he 
is denied a ``low fee'' or no fee account, then any claim that bank has 
in any bankruptcy proceeding--not just Steve's bankruptcy--then the 
bank's claims are disallowed. I emphasize that any claim in any 
bankruptcy will be disallowed because the bank did not offer Steve 
Forbes a ``low'' or no fee checking account. Let me substitute Bill 
Gates' name for Steve Forbes here.
  I should also note that this amendment does not describe what a ``low 
fee'' account is. Whose standard of low are we to base this dictated 
fee on? This is bad policy that would effectively dictate to banks the 
specific services they must offer, whether or not consumers need or 
want them. This is Government interference with free markets at its 
worse. Whenever such rules are forced on businesses, the offsetting 
costs inevitably occur. In other words, consumers will end up paying 
for mandated low fee or free checking in the form of higher prices for 
other services. Alternatively, other services by banks may be 
discontinued to offset the costs of these new requirements, not to 
mention the costs of the penalties. I don't believe this kind of 
regulatory interference with the markets is either warranted or wise. I 
urge colleagues to oppose this amendment.
  Mr. LIEBERMAN. Mr. President, I thank the Senator from Minnesota for 
raising this important consumer issue. Seven weeks ago, I held a forum 
on payday lending to help educate myself and the public on this 
troubling consumer credit practice. At the forum, we heard from 
representatives of the payday industry, consumer advocates, state 
regulators, and a credit union representative. We also were fortunate 
to hear from two Navy servicemen, one a payday borrower and one a 
commander who provides financial counseling to his sailors. Their 
stories of military personnel caught in cycles of debt to payday 
lenders helped me realize the impact this issue can have on 
individuals' lives. For example, Captain Robert W. Andersen, commanding 
officer of Patrol Squadron 30 in Jacksonville, FL, testified that 
sailors who take payday loans are often victims of a ``snowball effect 
or financial death spiral they cannot recover from.''
  For those who aren't familiar with payday lending, let me explain how 
it works. Someone who is short of cash can borrow money using his or 
her future paycheck as security. The borrower usually writes a check 
for the loan amount plus a fee, and then the lender agrees not to cash 
the check until after the borrower's next paycheck comes in.
  Payday lenders commonly promote their product as quick and easy cash. 
But what they don't usually advertise is that this is one of the most 
expensive consumer credit products in existence. Interest rates on 
payday loans average about 500 percent annually, with some loans going 
well over 1000 percent APR. Among the frequent borrowers who pay these 
high fees are those with particularly limited ability to repay the 
loan, including enlisted military personnel, college students, and 
senior citizens on fixed incomes.
  Despite the fact that payday loans are marketed as short-term credit, 
intended to help people get through one rough pay period, a 
disturbingly high number of payday borrowers apparently soon discover 
that they can't pay their loan off immediately, and so they end up 
rolling their loan over for another--and another, and another--term. 
According to a study by the Indiana Department of Financial 
Institutions, 77 percent of all payday loan transactions are rollover 
transactions, and the average annual number of renewals per borrower is 
over ten. As a result, consumers can end up paying amounts in interest 
and fees that dwarf their initial loans--and make it very difficult for 
them to repay the principal. One borrower in Kentucky, for example, 
ended up paying $1,000 in fees for a loan of only $150 over a period of 
six months--and the borrower still owed the $150. It is cases like 
these that has led the Consumer Federation of America to call payday 
lending ``legal loan sharking.'' As the American Association of Retired 
Persons (AARP) stated in written testimony provided for the forum:

       It is not difficult to see how a borrower could become 
     mired in debt. A person so desperate for money that he or she 
     is willing to pay a three-digit APR is not likely to have the 
     cash--plus the fee--two weeks after taking out a loan. . . . 
     Taking out a loan at 391% APR, with the obligation to repay 
     the principal and interest charge in two weeks, is not going 
     to help consumers who do not have the cash to cover the 
     checks they write. (emphasis in original)

  And that's not the worst of it: state efforts to control rollovers 
appear to be failing; lenders and customers find any number of ways to 
roll over a loan, even if rollovers are limited or prohibited. The 
Illinois Department of Financial Institutions has concluded that 
rollover rules have ``been ineffective in stopping people from 
converting a short term loan into a long term headache.'' At the forum, 
Mark Tarpey, Consumer Credit Division Supervisor with the Indiana 
Department of Financial Institutions, testified:

       The problem with renewals is that you have an incentive for 
     the lender to continue to collect fees as long as the 
     customer pays them. There is no incentive to limit renewals/
     rollovers. Even if you statutorily prohibit or limit 
     renewals/rollovers, you have the problem of a customer coming 
     in and paying cash and the lender then giving them the same 
     funds back and calling it a new loan. There are other 
     practices to conceal transactions from being deemed a 
     renewal/rollover.

  The industry acknowledges that loan renewal is a problem, although 
there is dispute over just how big a problem it is. Both of the trade 
associations represented at the forum I held in December have adopted 
``best practices'' guidelines that attempt to address this issue, but 
because the borrower drives the decision to renew a loan, it would be 
difficult for the industry guidelines to succeed.
  Equally disturbing are the practices that some in the payday industry 
have used to collect on delinquent loans--and I recognize and 
appreciate that the

[[Page S178]]

amendment offered by the Senator from Minnesota addresses this problem. 
At the forum in December, Leslie Pettijohn, the Consumer Credit 
Commissioner in Texas, testified:

       From a regulator's perspective, one of the most 
     objectionable practices of these transactions is the threat 
     of criminal prosecution against the consumer. When a check 
     bounces, lenders frequently file charges against consumers 
     with law enforcement officials and attempt to collect this 
     debt by means of criminal prosecution. In a single precinct 
     in Dallas County, more than 13,000 of these charges were 
     filed by these kind of companies in one year.

  As I mentioned, payday lending uses as security a live check that 
both the borrower and the lender know is no good at the time it is 
written. Just as we don't imprison people for failure to pay their 
credit card bills or meet their mortgage payments, I do not believe 
that a borrower--unless he committed fraud--should be subject to threat 
of such severe measures for failure to make good on a payday loan, 
particularly because the very premise of the loan was the borrower's 
willingness to write a bad check. The amendment offered by the Senator 
from Minnesota would prevent the misuse of these ``bad check'' laws, 
but it would still permit a fraud prosecution where appropriate. That 
is an important step.
  Again, I thank the Senator from Minnesota for raising this important 
issue, and I look forward to working with him to address it further in 
the future.
  Mr. President, I 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. LEVIN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Enzi). Without objection, it is so 
ordered.
  The PRESIDING OFFICER. Under the previous order, the next amendment 
has 2 hours equally divided.
  The Chair recognizes the Senator from Michigan.
  Mr. LEVIN. I thank the Chair.


                           Amendment No. 2658

(Purpose: To provide for the nondischargeability of debts arising from 
            firearm-related debts, and for other purposes.)

  Mr. LEVIN. Mr. President, I call up amendment No. 2658.
  The PRESIDING OFFICER. The clerk will report.
  The bill clerk read as follows:

       The Senator from Michigan (Mr. Levin) for himself, Mr. 
     Durbin, Mr. Wyden, Mr. Kennedy, Mrs. Feinstein, Mr. 
     Lautenberg, and Mr. Schumer proposes an amendment numbered 
     2658.

  Mr. LEVIN. 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 124, between lines 14 and 15, insert the following:

     SEC. __. CHAPTER 11 NONDISCHARGEABILITY OF DEBTS ARISING FROM 
                   FIREARM-RELATED DEBTS.

       (a) In General.--Section 1141(d) of title 11, United States 
     Code, as amended by section 708 of this Act, is amended by 
     adding at the end the following:
       ``(6) Notwithstanding paragraph (1), the confirmation of a 
     plan does not discharge a debtor that is a corporation from 
     any debt that is--
       ``(A) related to the use or transfer of a firearm (as 
     defined in section 921(3) of title 18 or section 5845(a) of 
     the Internal Revenue Code of 1986); and
       ``(B) based in whole or in part on fraud, recklessness, 
     misrepresentation, nuisance, negligence, or product 
     liability.''.
       (b) Automatic Stay.--Section 362(b) of title 11, United 
     States Code, as amended by section 901(d) of this Act, is 
     amended--
       (1) in paragraph (27), by striking ``or'' at the end;
       (2) in paragraph (28), by striking the period at the end 
     and inserting ``; or''; and
       (3) by inserting after paragraph (28) the following:
       ``(29) under subsection (a) of this section, of--
       ``(A) the commencement or continuation, and conclusion to 
     the entry of final judgment or order, of a judicial, 
     administrative, or other action or proceeding for debts that 
     are nondischargeable under section 1141(d)(6); or
       ``(B) the perfection or enforcement of a judgment or order 
     referred to in subparagraph (A) against property of the 
     estate or property of the debtor.''.

  Mr. LEVIN. Mr. President, I yield myself 10 minutes.
  Our amendment would change the bankruptcy code so that a firearm 
manufacturer or distributor who is found liable or may be found liable 
for negligence or reckless action cannot escape accountability by 
filing for reorganization in bankruptcy.
  Our amendment has the endorsement of the National League of Cities, 
the U.S. Conference of Mayors, Handgun Control, Inc., which is Sarah 
Brady's organization, and the Violence Policy Center. The amendment is 
cosponsored by Senators Durbin, Wyden, Kennedy, Feinstein, Lautenberg, 
and Schumer, and I thank them for their persistence and their hard work 
on this important issue.
  Under the current bankruptcy code, firearm manufacturers are able to 
``take advantage of the system.'' Those are not my words. Those are the 
words of Lorcin Engineering Company, a manufacturer of cheap, 
semiautomatic handguns. Lorcin told Firearms Business, an industry 
publication, that it was ``taking advantage of the system'' by filing 
for chapter 11 bankruptcy protection in 1996. At the time, Lorcin was 
one of the chief producers of Saturday night specials or junk guns. 
Their semiautomatic pistol was number two on the Alcohol, Tobacco, and 
Firearms list of guns traced to crimes. Some of their cheaply 
constructed guns were made so poorly they did not meet basic safety 
requirements to be eligible even for importation.
  Lorcin sought to evade responsibility for the damages caused by their 
negligence by filing for chapter 11. Other manufacturers are following 
their lead, seeking to evade accountability for their wrongdoing by 
filing in bankruptcy court. For instance, Davis Industries, another 
producer of poorly constructed semiautomatic firearms, has also sought 
refuge in bankruptcy court. The New York Times reported on June 24, 
1999, that a spokesman for Davis Industries said, ``I'm sure other 
companies will do the same thing.''
  On July 19, 1999, at a creditors meeting for Davis Industries, the 
owner was asked a few questions by the bankruptcy trustee about his 
chapter 11 bankruptcy petition.

       Question: Now, the reasons for filing sounded to me like 
     you're getting sued by all the municipalities in the United 
     States. Is that pretty close to correct?
       Answer: I think you hit the button on the nose.

  Lorcin Engineering and Davis Industries found a loophole in our 
Federal bankruptcy law and the list of these companies grew and is 
still growing.
  When the bankruptcy code was enacted, its primary goal was debtor 
rehabilitation, to provide a fresh start to ``honest but unfortunate 
debtors'' through the discharge of debts. The code gives debtors the 
opportunity to shed indebtedness, but there are exceptions. These 
exceptions to the discharge of a debtor's liability were based on 
public policy or wrongful conduct of the debtor. Currently, the 
bankruptcy code defines 18 specific categories of debt that are 
nondischargeable. These exceptions have been created because of an 
overriding public purpose.
  A report issued by the National Bankruptcy Review Commission, an 
independent commission established by Congress to investigate and study 
issues relating to the bankruptcy code, says this about 
nondischargeability:

       Debts excepted from the discharge obtain distinctive 
     treatment for public policy reasons. Many nondischargeable 
     debts involve ``moral turpitude'' or intentional wrongdoing. 
     Other debts are excepted from discharge because of the 
     inherent nature of the obligation, without regard to any 
     culpability of the debtor. Regardless of the debtor's good 
     faith, for example, support obligations and many tax claims 
     remain nondischargeable. Society's interest in excepting 
     those debts from discharge outweighs the debtor's need for a 
     fresh economic start.

  Among the debts that we exempt from discharge for public policy 
reasons are debts which arise from death or personal injury caused by 
the debtor's operation of a motor vehicle while intoxicated, debts 
incurred by fraud or falsehood, debts incurred by willful and malicious 
injury, family support obligations, taxes, educational loans, fines, 
and penalties payable to a governmental entity, et cetera. These 
exceptions reflect Congress' intent to carve out exceptions to 
dischargeability for important public interest policy considerations.

  One category of debt that was added not too long ago to the code 
ensures that debtors cannot escape debts incurred by a debtor's 
operation of a

[[Page S179]]

motor vehicle while intoxicated. This change, which was first 
introduced by Senators Danforth and Pell in the early 1980s, was 
considered part of an ``all-out attack on drunk driving.'' Congress was 
persuaded to amend the Federal bankruptcy code with respect to this 
important policy initiative. At the time, drunk driving accidents 
killed tens of thousands of Americans and disabled hundreds of 
thousands of people annually. Senator Danforth argued that drunk 
driving has caused insurmountable human suffering and economic loss, 
and in his words:

       We must assure victims and their families that if they win 
     a civil damage award against the drunk driver, they need not 
     fear that the offender will use Federal law to escape his 
     debt.

  We should do no less for victims of negligence and recklessness and 
wrongdoing of gun manufacturers and distributors.
  Senator Danforth told us:

       It is a national scandal that 50,000 Americans are smashed 
     and slashed to death on our highways and that 2 million 
     people suffer disabling injuries in car accidents every year.

  He went on to say:

       The greatest tragedy is that we have become desensitized to 
     the meaning of these statistics. We have almost come to 
     accept this carnage as the unfortunate price we must pay for 
     the mobility we enjoy. However, if we look behind the mind-
     numbing statistics--if we ask why so many people are 
     suffering--we will see over half of this bloodshed results 
     from our unwillingness to put a halt to the most frequently 
     committed violent crime in America: drunk driving.

  The reduction of alcohol-related driving fatalities was an important 
public policy issue, and by making those debts nondischargeable, 
Congress acted wisely to protect victims of drunk driving and to deter 
drunk driving.
  Congress acted against those endless tragedies and senseless deaths 
and human suffering by amending the bankruptcy code so a drunk driver 
could not escape his debt by going bankrupt. Like debts incurred by 
drunk driving, debts for death or personal injury and costs to 
communities resulting from the unsafe manufacture or distribution of 
unsafe firearms and their negligent distribution should also not be 
dismissed in bankruptcy. The public policy involved here is an 
overriding one, given the damage caused by the unsafe manufacture and 
distribution of guns.
  Senator Danforth's plea to curb drunk driving is very similar to our 
people's plea to reduce gun violence. Week after week, Americans are 
lost to the senselessness of gun violence. Year after year, some 30,000 
of us are lost to murder or suicide or unintentional shootings and tens 
of thousands of Americans are treated for firearm injuries. Many of 
these deaths and injuries are to children. When the carnage results 
from the unsafe manufacture or distribution of a firearm, we should not 
allow the manufacturer or distributor to evade the responsibility for 
its wrongdoing by reorganizing in bankruptcy.
  Cities around the country and their residents are taking on this 
problem on their own. Thirty cities and counties have filed lawsuits 
alleging negligence, wrongdoing, unsafe practices on the part of gun 
manufacturers or distributors. New Orleans started in October of 1998, 
followed by Chicago; Miami; Dade County; Bridgeport, CT; Atlanta, GA; 
Cleveland, OH; Cincinnati, OH; Wayne County, MI; and Detroit, MI; St. 
Louis, MO; San Francisco, and others.
  Citizens want the firearm industry to be accountable for unsafe 
actions on their part. They want firearm manufacturers to be held 
responsible for poorly constructed and unsafe products. Citizens want 
firearm manufacturers and distributors to be accountable for wrongful 
injuries resulting in public outlays for medical care, emergency 
rescue, and police investigative costs.
  The PRESIDING OFFICER. The Senator's 10 minutes have expired.
  Mr. LEVIN. I thank the Chair and yield myself an additional 3 
minutes.
  One way to deter such misconduct is to say that you cannot avoid that 
accountability by filing for reorganization in bankruptcy any more than 
you can evade a judgment for damages resulting from drunk driving.
  Sound public policy also dictates that the debt incurred by a 
company's action should not be ducked by a company reorganizing under 
chapter 11 while the company goes on its merry way and the victims are 
victimized twice.
  This amendment does not judge the merits of any lawsuit or the 
liability of any parties involved in these lawsuits. The amendment 
simply gives our citizens the assurance that if they win a civil damage 
award against a firearm manufacturer or distributor, the damages caused 
by the perpetrator cannot be evaded by being dismissed in bankruptcy 
court.
  Mr. President, I ask unanimous consent that letters from the U.S. 
Conference of Mayors, the National League of Cities, the Violence 
Policy Center, and Handgun Control, which is chaired by Sarah Brady, be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                The U.S. Conference of Mayors,

                                Washington, DC, November 17, 1999.
     Hon. Carl Levin,
     U.S. Senate,
     Washington, DC.
       Dear Senator Levin: On behalf of the United States 
     Conference of Mayors, I am writing to express our strong 
     support for your amendment, No. 2658, to the Bankruptcy 
     Reform Act of 1999 (S. 625).
       For over 30 years, The U.S. Conference of Mayors has 
     supported comprehensive efforts to promote gun safety and 
     help keep guns away from kids and criminals. At our Annual 
     Conference of Mayor in New Orleans this past June, we adopted 
     a strong policy in support of broad gun safety legislation, 
     and on September 9, over 50 mayors, 30 police chiefs and 
     leaders from the interfaith community took our call for 
     action to Washington on ``Gun Safety Day.''
       During our New Orleans Annual Meeting we adopted an equally 
     strong policy opposing any state or federal promotion of 
     local government access to the court system on behalf of 
     local citizens. To that end, gun manufacturers, distributors 
     and dealers should not be allowed to use federal statute to 
     evade legal claims for damages by filing for bankruptcy--
     which would amount to a de factor preemption of local rights 
     to protect public safety and to recoup public revenues. The 
     threat of this action is real with Lorcin Engineering Co., 
     one of the chief manufacturers of ``Saturday Night Specials'' 
     or ``junk guns,'' having filed for Chapter 11 bankruptcy in 
     1996, and several other gun manufacturers recently following 
     the same course of action.
       Currently, 18 categories of debt are nondischargeable under 
     the Bankruptcy Code. The Code makes certain debts 
     nondischargeable when there is an overriding public purpose. 
     We believe that there is no higher public purpose than 
     protecting public safety, and that your amendment will allow 
     these judicial proceedings to continue without the improper 
     use of federal law to preempt this important process.
       Therefore, The U.S. Conference of Mayors strongly supports 
     adoption of amendment No. 2658.
           Yours truly,

                                           Wellington E. Webb,

                                                        President,
     Mayor of Denver.
                                  ____



                                    National League of Cities,

                                Washington, DC, November 16, 1999.
     Hon. Carl Levin,
     U.S. Senate,
     Washington, DC.
       Dear Senator Levin: On behalf of our 135,000 municipal 
     elected officials, the National League of Cities strongly 
     supports your amendment, S. AMT. No. 2658, to the Bankruptcy 
     Reform Act of 1999 (S. 625). In prohibiting manufacturers, 
     distributors and dealers of firearms from discharging debts 
     which are firearm-related, incurred as a result of judgments 
     against them based on fraud, recklessness, misrepresentation, 
     nuisance, negligence, or product liability, this amendment 
     effectively stops an abuse of the bankruptcy system. More 
     importantly, the measure helps insure that municipal lawsuits 
     against the gun industry, are not undermined by firearms 
     companies seeking to potentially avoid their culpability 
     through the use of the bankruptcy code.
       While NLC does not support some amendments to the 
     Bankruptcy Reform Act (particularly the Ross-Moynihan 
     Amendment, S. AMT. No. 2758) that would preempt state and 
     local government interest rates that apply to Chapter 11 
     corporate repayments, we believe that this particular 
     amendment helps cities and towns recover monies expended for 
     numerous criminal investigations, litigation fees, health 
     costs, and other resources needed to address incidents of gun 
     violence. The National League of Cities has a long history of 
     supporting legislation to reduce gun violence and gun-related 
     criminal activity. Like debts incurred by drunk driving, 
     Congress must send a clear and convincing message that it 
     will not permit debtors to escape debts incurred by improper 
     conduct. It is crucial that the federal government do all 
     that it can to help local law enforcement effectively address 
     gun violence with common sense legislation that curtails 
     access to firearms including altering the bankruptcy code.
       An unfortunate example of such abuse occurred in 1996 when 
     Lorcin Engineering Co.,

[[Page S180]]

     a manufacturer of cheap handguns, filed for Chapter 11 
     bankruptcy protection. Lorcin was one of the nation's chief 
     manufacturers of ``Saturday Night Specials'' or ``junk 
     guns,'' and in 1998, their inexpensive semiautomatic pistol 
     was number two on the list of guns traced to crime scenes by 
     the Bureau of Alcohol, Tobacco and Firearms. Lorcin's low 
     quality and unsafe firearms caused innumerable deaths in our 
     nation's cities and towns because of their cheap construction 
     and easy availability in urban areas.
       Moreover, Lorcin's weapons were the basis of more than two 
     dozen product liability lawsuits. Once Lorcin decided they 
     could not defend their practices against the multiple 
     liability claims filed against them, they decided to protect 
     themselves by using the bankruptcy system to settle these 
     lawsuits for pennies on the dollar and be exempted from an 
     additional lawsuit filed by the city of New Orleans.
       Senator Levin, we support this amendment, and strongly 
     advocate its inclusion in any final bankruptcy reform measure 
     enacted that does not undermine municipal finances. 
     Additionally, you will find an enclosed resolution passed by 
     the National League of Cities' Public Safety and Crime 
     Prevention Steering Committee that supports your proposed 
     amendment.
           Sincerely,
                                              Clarence E. Anthony,
                             President, Mayor, South Bay, Florida.
       Enclosure.

   Proposed Resolution--PSCP #9--Cities Lawsuits Against the Firearm 
                                Industry

       Whereas, gun violence results in great costs to cities and 
     towns, including the costs of law enforcement, medical care, 
     lost productivity, and loss of life; and
       Whereas, it is an essential and appropriate role of the 
     federal government, under the Constitution of the United 
     States, to remove burdens and barriers to interstate commerce 
     and protect local governments from the adverse effects of 
     interstate commerce in firearms; and
       Whereas, firearm manufacturers, distributors, and 
     retailers, and importers have a special responsibility to 
     take into account the health and safety of the public in 
     marketing firearms; and
       Whereas, to the extent possible, the costs of gun violence 
     should be borne by those liable for them, including negligent 
     firearm manufacturers, distributors, and retailers, and 
     importers; and
       Whereas, the firearm industry has generally not included 
     numerous safety devices with their products, including 
     devices to prevent the unauthorized use of a firearm, 
     indicators that a firearm is loaded, and child safety locks, 
     and the absence of such safety devices has rendered these 
     products unreasonably dangerous; and
       Whereas, the firearm industry has potentially engaged in 
     questionable distribution practices in which the industry 
     oversupplies certain legal markets with firearms with the 
     knowledge that the excess firearms will be potentially 
     distributed not nearby illegal markets; and
       Whereas, it is fundamentally the right of local elected 
     officials to determine whether to bring suits against firearm 
     manufacturers on behalf of their constituents to best serve 
     the needs of their city or town; and
       Whereas, across the nation, cities are bringing rightful 
     legal claims against the gun industry to seek changes in the 
     manner in which the industry conducts business in the 
     civilian market in their communities: Now, therefore, be it
       Resolved, That cities and towns be able to bring suits 
     against manufacturers, dealers, and importers to determine 
     their possible culpability for firearm violence; and be it 
     further
       Resolved, That the National League of Cities opposes any 
     federal preemption that would undermine the authority of 
     state and local officials to bring suits against firearm 
     manufacturers on behalf of their citizens; and be it further
       Resolved, That the National League of Cities urges better 
     cooperation between firearm manufacturers and local elected 
     officials to prevent firearm violence and ensure less firearm 
     injuries and costs to cities and towns.
                                  ____



                                       Violence Policy Center,

                                                   Washington, DC.

      Don't Let Gun Manufacturers ``Take Advantage of the System''


 support the levin amendment to the bankruptcy bill to hold gunmakers 
                     responsible for defective guns

       The Levin amendment to S. 625 will ensure that gun 
     manufacturers cannot discharge debts incurred as a result of 
     consumer lawsuits for defectively designed and manufactured 
     firearms.
       The Levin amendment is necessary to ensure that firearm 
     manufacturers--which are exempt from federal health and 
     safety regulation--remain accountable for civil liability to 
     consumers injured by negligent or reckless industry behavior. 
     Lack of health and safety regulation means that the civil 
     justice system is the only mechanism available to regulate 
     the conduct of gun manufacturers.
       At least three major gun manufacturers have sought 
     bankruptcy protection specifically to protect themselves from 
     product liability claims.
       Lorcin Engineering arrogantly stated in 1996 that it was 
     filing for bankruptcy to protect the company from at least 18 
     pending liability suits. Lorcin officials stated to Firearms 
     Business--a gun industry trade publication--that the company 
     chose to ``take advantage of the system'' when it decided 
     that it could not defend against liability claims. 
     Furthermore, at a 1996 meeting of creditors, the U.S. 
     Bankruptcy Trustee posed the following question to Lorcin's 
     attorney, ``The triggering factor [of the bankruptcy] was the 
     Texas lawsuit, but there were three or four others that could 
     also be a problem?'' Lorcin's lawyer responded, ``Yep.''
       In 1993, Lorcin was the number one pistol manufacturer in 
     America, churning out 341,243 guns. Many of Lorcin's handguns 
     are of such poor quality they are ineligible for importation 
     under the Bureau of Alcohol, Tobacco and Firearms (ATF) 
     ``sporting purpose'' test. Lorcin's .380 pistol regularly 
     tops the list of all guns traced to crime by ATF.
       Davis Industries, also motivated by pending product 
     liability claims as well as lawsuits filed by U.S. cities 
     including Chicago, New Orleans, Miami, Atlanta, Cleveland, 
     Los Angeles, and Detroit filed for bankruptcy protection in 
     May 1999. Davis manufactured nearly 40,000 guns in 1997, the 
     last year for which figures are available.
       Sundance Industries also sought bankruptcy protection in 
     August 1999. As a result, the Superior Court of California 
     enjoined the City of Los Angeles from pursuing Sundance in 
     the city's lawsuit to recover costs inflicted on the city as 
     a result of gun violence.
       Many more gun manufacturers may soon choose to follow in 
     the footsteps of Lorcin, Davis, and Sundance to escape 
     responsibility for suits filed recently by U.S. cities.
       More than 25 cities and counties have filed lawsuits 
     against the gun industry. These lawsuits allege that firearm 
     manufacturers have produced and sold defectively designed 
     firearms, and engaged in negligent marketing and distribution 
     practices resulting in countless deaths and injuries in 
     America's cities. The NAACP has filed a similar lawsuit. 
     Lawyers for the cities are very concerned that bankruptcy 
     will become a common gun industry defense tool.
       Many other consumer lawsuits are pending against gun 
     manufacturers.
       For example, Glock is the defendant in a case recently 
     certified as a nation-wide class action. The class includes 
     individuals and police officers injured by unintentional 
     discharges of Glock handguns. The suit alleges that Glock 
     handguns, including those used by many police departments, 
     contain design defects long known to the manufacturer.
       Gun manufacturers must not be allowed to use bankruptcy to 
     escape accountability when their reckless or negligent 
     conduct causes death and injury. Vote to protect victims of 
     gun violence. Support the Levin amendment to S. 625.
                                  ____



                                              Handgun Control,

                                 Washington, DC, November 9, 1999.
     Hon. Carl Levin,
     U.S. Senate,
     Washington, DC.
       Dear Senator Levin: I am writing in support of the 
     amendment to S. 625, the Bankruptcy Reform Act of 1999 
     sponsored by Senators Levin, Durbin, Wyden, Kennedy, 
     Feinstein, Lautenberg, and Schumer. This amendment would 
     prevent firearm manufacturers, distributors and dealers from 
     filing for Chapter 11 bankruptcy protection to evade wrongful 
     death and personal injury lawsuits caused by their dangerous 
     products.
       As you know, several cities and their residents have filed 
     suits against the gun industry to recover some of the costs 
     of gun violence and to attempt to encourage more responsible 
     conduct by the industry in the future. These suits attack two 
     basic problems caused by irresponsible practices of the gun 
     industry. One is the failure to make guns as safe as possible 
     and failing to include many simple, live-saving safety 
     devices in their guns. The other is the irresponsible 
     distribution of guns which enables and fosters the criminal 
     use of guns.
       Gun manufacturers, distributors, and dealers should not be 
     able to evade these legitimate claims for damages by filing 
     for bankruptcy. In 1996, Lorcin Engineering Company, one of 
     the chief manufacturers of ``Saturday Night Specials'' or 
     ``junk guns'' filed for Chapter 11 bankruptcy to protect 
     itself from multiple product liability lawsuits. Other gun 
     manufacturers, like Davis industries and Sundance Industries, 
     have followed Lorcin's lead and have filed for bankruptcy to 
     avoid liability. We must not allow other firearms companies 
     to take advantage of the bankruptcy system.
       I urge you to support this important amendment.
           Sincerely,
                                                      Sarah Brady,
                                                            Chair.

  Mr. LEVIN. My friend from Illinois is not here, so I simply yield the 
floor.
  The PRESIDING OFFICER. The Chair recognizes the Senator from Utah.
  Mr. HATCH. Mr. President, I rise to speak in opposition to the 
amendment offered by the Senator from Michigan. This amendment makes 
debts owed by a corporation on account of firearms non-dischargeable in 
a chapter 11 reorganization bankruptcy proceeding if the debt arose out 
of an action for fraud, misrepresentation, negligence, nuisance, or 
product liability. In addition, this amendment excepts such

[[Page S181]]

debts from the automatic stay protection provided in a bankruptcy 
proceeding.
  This amendment effectively singles out both gun manufacturers and 
those who legally transfer guns, including major retailers who sells 
guns in compliance with all laws, and prevents them from successfully 
reorganizing under the bankruptcy laws, if they should need such 
reorganization. If a large product liability suit succeeds against a 
gun manufacturer, this amendment virtually ensures that the companies 
affected will be driven out of business and its workers will lose their 
jobs.
  In addition to being just bad policy, the amendment is also self-
defeating. Here is why: it effectively assures that only a fraction of 
the judgment against the affected company will be paid, if at all. That 
is because those manufacturers that could pay off the judgment over 
time will not be able to do so, and will be forced into liquidation. 
This is neither good for the lawful business, nor for those other 
investors or creditors with legitimate claims against the company.
  I also want to point out to my colleagues that as a matter of 
longstanding bankruptcy policy in the United States, it has been 
universally recognized that if a company with manufacturing expertise 
suffers an unexpected financial setback--whether from a huge products 
liability judgment or business reverses--everyone is better off if it 
can at least try and restructure the business to preserve its 
legitimate business lines. Workers can save their jobs and creditors 
can be paid off over time from the operating revenues of the 
restructured company, receiving much more than they would from 
liquidation. It is not as if this amendment, much to the dismay of its 
supporters, will wipe out the second amendment's protection to bear 
arms. What this amendment will do is ensure that the manufacture of 
legal arms, and the corresponding jobs it creates, will move overseas.
  Longstanding bankruptcy policy in this country has been that 
bankruptcy laws should apply to all lawful products and industries in a 
similar fashion; not pick and choose between unpopular, but legal, 
industries. This amendment unfairly singles out one industry for 
unfavorable treatment, and does so in an unprecedented fashion. In my 
view, Congress should be loathe to single out companies that legally 
manufacture or sell lawful products for unfavorable treatment, simply 
because they are unpopular. Which industry will be targeted next?
  We should not be setting the precedent that lines of business that 
are unpopular with some in the Congress, but legal, will be denied the 
ability to reorganize in bankruptcy. If we do this to firearms 
manufacturers, what about companies involved in other industries, such 
as medical devices, drug manufacturing, or automobile makers? The basic 
social policy that it is better to keep the company operating and 
paying off the judgment than liquidating it should not be narrowed 
company by company, industry by industry.
  Plain and simple, this amendment is designed to encourage lawsuits by 
trial lawyers against gun manufacturers and retailers who sell guns. 
And I think this amendment is part of an effort to put the firearms 
industry out of business.
  Let me emphasize that I am very concerned about the gun violence our 
country has experienced in recent years. However, I am a firm believer 
in second amendment rights. The amendment encourages the new wave of 
lawsuits we have all been hearing about, in which gun manufacturers are 
being sued for the conduct of third-party criminals. Liberals have been 
unable to eliminate the second amendment or the gun industry through 
direct legislation, so they are attempting to eliminate it through this 
kind of backdoor ``policy through litigation'' approach.
  This amendment promotes an issue that has nothing to do with real 
bankruptcy reform and sets an undesirable precedent. Accordingly, I 
urge my colleagues to vote against this amendment.
  It is time for us in the Congress to grow up with regard to firearms 
matters in our country. There is no use kidding ourselves. We have 
passed some 20,000 rules, regulations, and laws in this country against 
the use of firearms that have limited our second amendment rights and 
privileges. There are some legitimate arguments against this type of 
legislation. I believe it is far preferable for us to uphold second 
amendment rights and privileges and get tougher on criminals.
  Our problem in this country, and especially over the last 7 years, is 
that this administration has not been serious about getting tough on 
criminals. Under Project Triggerlock, the number of gun prosecutions 
under that approach, which was working very well under President Bush, 
has now dropped by 50 percent. No wonder the President in his State of 
the Union Address said: We are going to start doing something about gun 
crimes.
  They caught 12,000 people illegally taking guns to school in the last 
few years, and there have been only 13 prosecutions. Last year, up to 
January 1, they caught 100,000 people under the instant check system. 
They call that Brady, as if that were a victory by the administration. 
Brady was first a 7-day waiting period which devolved into 5 days. In 
order to not prevent decent, law-abiding citizens from purchasing their 
guns, we instituted the instant check system, and it has worked 
magnificently.
  Of the 100,000 people they caught last year trying to illegally 
purchase weapons, I do not recall one single prosecution. I understand 
that 200 have been recommended for prosecution, one-fifth of 1 percent. 
I could go on and on.
  This administration has not been serious about gun crimes, and we 
have not had a lot of help from people who are opposed to the second 
amendment in helping to resolve these problems. The juvenile justice 
bill is caught up in a conference that is impossible to resolve unless 
we get rid of this issue and do what has to be done in the interest of 
juvenile justice.
  The fact of the matter is, there is always going to be somebody 
trying to--and sincerely so--make political points on the issue of guns 
and weapons. This is not the bill on which they should be making those 
political points. This would be a very disastrous approach towards 
bankruptcy law. It means that anytime you find enough popular business 
a majority of Members of Congress can stick it to, they are going to be 
able to do it under the bankruptcy laws. That is ridiculous. When we 
start showing preferences for certain political points of view in 
bankruptcies to the exclusion of common sense, then it seems to me we 
are all going to suffer. Sooner or later, it is going to affect 
something that each one of us treasures or thinks is particularly 
important.

  I speak in opposition to this amendment. This amendment would do an 
injustice to the bankruptcy laws. In the process, I think we will not 
accomplish what my friends on the other side, who are sincere about 
it--at least I believe most of them are sincere about it--really want 
to do. It is better for us to battle out these issues in Congress. I, 
for one, will be opposed to any diminution in our second amendment 
rights and privileges. If you want to diminish the second amendment, 
then you ought to do it by constitutional amendment. You shouldn't be 
doing it by bits and tatters. It ought to be done straight up, and it 
ought to be done in a way that is constitutionally justifiable, and not 
in these bits and pieces that literally make political points but do 
not belong in something as important as this bankruptcy bill.
  I yield the floor.
  The PRESIDING OFFICER. Who yields time?
  Mr. LEVIN. Mr. President, I yield 10 minutes to the Senator from 
Illinois.
  The PRESIDING OFFICER. The Senator from Illinois.
  Mr. DURBIN. I am more than happy to rise in support of what I 
consider to be a very important and valuable amendment in this debate 
on the bankruptcy bill.
  I am not one who is in favor of abolishing the second amendment, nor, 
I am sure, is the Senator from Michigan. What we are attempting to do 
in this bill is address a very serious problem. For those who believe 
the second amendment is somehow an absolute right to bear arms, I will 
just tell them, there are no absolute rights under the Constitution of 
the United States. Each and every right that is guaranteed to us as 
individual citizens can be limited. Whether it is the right

[[Page S182]]

of free expression limited by the libel laws or even the right to life 
limited by death penalties that are imposed in many States, all of 
these things suggest that no right is absolute, and certainly the right 
to bear arms is not either.
  We have had regulations throughout our modern history that have 
limited the rights of those who care to bear arms in the interest of 
the public good. That is what this amendment is all about.
  Why are we debating guns on a bankruptcy bill? It gets down to the 
very basics. The bankruptcy law is designed so a person who has reached 
an economic position in life where they can't see a good future can go 
to the court and ask for relief from their debts, whether that is an 
individual or a family or a business. We say, for almost two centuries 
in this country, that bankruptcy is a right of individuals under our 
Federal court system. Again, we make exceptions and say that some 
people who come to court will be limited in the types of debts they can 
discharge.
  We make a list, a pretty lengthy list, of some 17 or 18 exceptions. 
They include such things as debts incurred by fraud that can't be 
discharged in bankruptcy court, alimony and child support, student 
loans, debts from death or personal injury resulting from driving while 
intoxicated, court fees. There are several others. It suggests that 
when the Congress wrote the bankruptcy laws and continued to amend 
them, we said there are certain things in a bankruptcy court from which 
you cannot escape. If you have been guilty of certain conduct, if you 
have not met certain obligations, the bankruptcy court will not be your 
shield or your shelter.
  What the Senator from Michigan is doing with his amendment is saying 
that the gun industry, the gun manufacturers, if they have engaged--and 
I will quote directly from the amendment--if they have engaged in 
fraud, recklessness, misrepresentation, nuisance, or product liability, 
they cannot race to the bankruptcy court and escape their 
responsibility to the American people. It is just that straightforward.
  Those who are arguing that we should carve out some special exception 
for these gun manufacturers are the same people who are loath to 
regulate these businesses in the first place.
  Several firearm manufacturers have recently been sued in cases that 
have been brought by cities and municipalities and counties and other 
local governments that have, frankly, been victimized by gun crimes. 
These people, in their lawsuits, are alleging that the gun 
manufacturers have been guilty of misconduct beyond selling the gun, 
that they have been involved in marketing practices, for example, that 
end up putting guns in the hands of those who commit crimes. Those 
lawsuits are still pending, but the interesting response from the gun 
manufacturers is: So what, sue us if you want to. Ultimately, if you 
win your verdict, we will go to bankruptcy court, and we are going to 
escape any liability to the citizens of these cities and counties and 
States which are bringing these lawsuits.
  Two companies have already sought bankruptcy protection: Lorcin 
Engineering and Davis Industries. The Lorcin .380 pistol tops the list 
of all guns traced by the Bureau of Alcohol, Tobacco and Firearms for 
its involvement in crime. By virtue of the bankruptcy law, these 
manufacturers are able to make millions of dollars flooding the market 
with low-quality firearms of little appeal to legitimate sportsmen and 
hunters but of great appeal to criminals and gang bangers.

  Once these companies are sued, because they are flooding the market 
with these cheap Saturday night specials, they simply declare 
bankruptcy and walk away free from any financial responsibility for 
their misconduct. The owners of these companies remain free to start up 
a new company under a new name making the same weapons, wreaking havoc 
across America because they are flooding us with these guns.
  Lorcin officials stated to Firearms Business, a magazine that is 
published by the gun industry, that the company chose to ``take 
advantage of the system'' when it decided it couldn't defend against 
liability claims. What Senator Levin is doing--and I am happy to join 
him--is to say to Lorcin and other companies: Not so fast. If you are 
going to flood the markets of America with these cheap Saturday night 
specials, if you are going to be liable for increasing crime and 
increasing violence in America, you cannot use the Federal law as your 
shield or shelter when it comes to our bankruptcy court. I think 
Senator Levin is on the right track.
  For those who would argue, as I have already heard on the floor, we 
already have too many laws when it comes to guns, they are just not 
enforced, let me be quick to add that when it comes to standards for 
the manufacture of firearms in this country, we virtually have no laws 
whatsoever. The Consumer Product Safety Commission has the 
responsibility of regulating virtually every product for household or 
recreational use. In fact, the toy guns sold for Christmas and birthday 
gifts are subject to regulation by the Consumer Product Safety 
Commission. But the real guns, the Saturday night specials and the 
firearms that could be the subject of these lawsuits, are not subject 
to any Federal safety regulations at all. The gun industry, by its 
power in Washington, has successfully lobbied to keep a law in place 
that protects them from any regulation on the safety of their product.
  So for those who are supporting the gun industry, they want it both 
ways. They don't want the Government to impose any standard on the 
product that is sold, and they don't want the companies held liable if 
that product turns out to be dangerous, if that firearm leads to crime 
and violence and death across America.
  Senator Levin has said if these manufacturers come to court and they 
are found guilty of recklessness, fraud, misrepresentation, nuisance, 
or product liability, they cannot escape that liability because of the 
bankruptcy law.
  How important is it to America? It is important because the costs of 
gun violence in both human lives and health care continue to escalate. 
All those who argue that the laws Congress has contemplated in the past 
are somehow restricting gun ownership in this country cannot answer the 
most basic question: If gun ownership is so restrictive in this 
country, how do we happen to have over 200 million firearms already in 
a nation of 275 million people?
  The fact is, these guns are readily available, and on the average 
almost 90 people are killed, including 12 children, every day because 
of the proliferation of firearms and the fact that they get into the 
wrong hands. Gun manufacturers understand that they are finally going 
to be held accountable. These lawsuits are going to accomplish what 
legislatures across the Nation and this Congress have failed to face; 
that is, the fact that American families are fed up with this gun 
violence. They expect Members of the Senate and the House to come 
forward with reasonable suggestions to make their neighborhoods safe 
and take guns out of the hands of those who would misuse them and out 
of the hands of children.
  Senator Levin has a valuable amendment here. He is saying to these 
companies: You will be held responsible. Even if this Congress cannot 
muster the courage to regulate the safety of a firearm that is sold in 
the United States, we will not let these manufacturers escape their 
liability in a court of law. Cities around the country--Chicago, New 
York, New Orleans, Atlanta, Bridgeport--have initiated suits against 
the industry to try to force changes to make guns safer and less likely 
to end up in the hands of criminals. Certainly, automobile 
manufacturers have faced a spate of lawsuits that really challenge them 
to use the most modern technology to make our cars safe.
  Why are we not holding this industry to the same standard of 
responsibility? And why, if they are found guilty of fraud or 
recklessness in the products they sell, should they be able to get off 
the hook in a bankruptcy court? That is the gist of the Levin 
amendment--to hold these companies accountable. To say there are no 
privileged classes--if you engage in this conduct, you will be held as 
responsible as any other company or person for their wrongdoing.
  The gun industry has long placed profits above the safety of America. 
I think it is interesting that an industry that can cause politicians 
to cower before them are scared to death to face a

[[Page S183]]

jury in a courtroom in our country. I strongly support Senator Levin's 
amendment. By adopting it, we will further the goal of reducing abuses 
of the bankruptcy system. Remember, that is why this debate is 
underway. We are considering bankruptcy reform because many came to us 
and said that folks are abusing the bankruptcy system. Don't let the 
gun manufacturers abuse the bankruptcy system. Make certain that they 
are held accountable for the wrongdoing and the violence and death that 
results from their recklessness and fraud and the negligent use of 
their products. We should be on record as opposing bankruptcy abuse, 
whether it is the result of individual misconduct or the misconduct of 
gun manufacturers.
  I yield the balance of my time.
  The PRESIDING OFFICER. Who yields time?
  Mr. LEVIN. Mr. President, I would be happy to alternate back and 
forth. If nobody is seeking recognition on that side, I will yield 6 
minutes to the Senator from Massachusetts.
  The PRESIDING OFFICER. The Senator from Massachusetts is recognized.
  Mr. KENNEDY. Mr. President, I commend Senator Levin for taking the 
initiative to close a gaping loophole that allows gun manufacturers, 
distributors, and dealers to use the Bankruptcy Code to avoid judgments 
against them based on fraud, recklessness, negligence or product 
liability. Firearms manufacturers and dealers should not be able to use 
bankruptcy to escape liability.
  Under current law, many types of debt are dischargeable under the 
Bankruptcy Code. However, the Code makes certain debts 
nondischargeable, due to public policy concerns, such as debts incurred 
by the operation of a motor vehicle while legally intoxicated.
  Recently, private citizens and local governments have sued the gun 
industry to hold it accountable for deaths and injuries caused by 
firearms. The current litigation can be an effective way of assessing 
responsibility and providing remedies for obvious harm, in accord with 
the long-standing traditions of the law.
  Many of these lawsuits have been brought by federal and state 
governments against firearms manufacturers. Opponents of these lawsuits 
argue that the industry cannot afford them, and that the suits may well 
force some firms into bankruptcy.
  The entire focus of the current lawsuits is the wrongdoing of the 
defendant corporations. The authority of the court to award damages 
against these defendants requires a judicial finding that the company 
engaged in misconduct in the manufacturing or marketing of its product. 
In the absence of such a finding, there is no liability.
  At long last, the American people are getting their day in court 
against the gun industry, and the gun manufacturers and the NRA fear 
that justice will be done.
  Everyday, 13 more children across the country die from gunshot 
wounds. Yet, the national response to this death toll continues to be 
grossly inadequate. The gun industry has fought against reasonable gun 
control legislation. It has failed to use technology to make guns 
safer. It has attempted to insulate itself from its distributors and 
dealers, once the guns leave the factory door.
  Studies estimating the total public cost of firearm-related injuries 
put the cost at over one million dollars for each shooting victim. 
According to the Centers for Disease Control, cities, counties and 
states incur billions of dollars in costs each year as a result of gun 
violence--including the costs of medical care, law enforcement, and 
other public services.
  Communities across the country are attempting to deal with the 
epidemic of gun violence that claims the lives of so many people each 
year. Law enforcement officials, community leaders, parents and youth 
are struggling to deal with this continuing epidemic of gun violence. 
But the gun industry, and Congress, and most state legislatures have 
persistently ignored these concerns.
  Now, when the courts are likely to hold them accountable, some gun 
manufacturers are attempting to avoid their responsibility by filing 
for bankruptcy. One example is Lorcin Industries. During its heyday, 
Lorcin was one of the largest manufacturers of ``affordable'' guns. Law 
enforcement and gun-control advocates call them ``Saturday night 
specials''--the inexpensive, easily concealed handguns often used in 
crimes.
  Lorcin is one of several companies that sprang up after a 1968 law 
banned imports of ``Saturday night specials'' but permitted domestic 
manufacturing. Studies have found that these products are characterized 
by short ``time to crime''--the brief period between sale and the time 
when the guns are used in criminal acts.
  Lorcin Engineering Co. has been named as a defendant in 27 lawsuits. 
The suits charge that Lorcin and other firearm manufacturers do not 
provide adequate safety devices, and that they negligently market their 
products, so that their weapons are too easily accessible to criminals 
and juveniles. Lorcin was also the subject of at least 35 wrongful-
death or injury claims involving people killed or wounded when their 
Lorcin pistols accidentally discharged. Lorcin settled at least two 
dozen of the 35 claims, ranging from a few thousand dollars to 
$495,000.
  Lorcin sought refuge from these product liability lawsuits by filing 
for Chapter 11 bankruptcy in October 1996. In bankruptcy, Lorcin was 
able to settle its lawsuits for pennies on the dollar, when tens of 
millions of dollars in damages were at stake. One of the major issues 
raised by creditors in the Lorcin bankruptcy case was whether the 
company was using the ability to reorganize its operations under the 
bankruptcy code as a way to avoid paying large sums to plaintiffs if it 
lost the suits.
  Last January, Lorcin was released from a lawsuit filed by the City of 
New Orleans. It petitioned the court to be removed from another lawsuit 
filed by the City of Chicago, because the company was reorganizing 
itself under Chapter 11 of the Bankruptcy Code when the cities filed 
their lawsuits.
  The litigation has prompted two other gun manufacturers to seek 
refuge in bankruptcy. Sundance Industries of Valencia, California filed 
for Chapter 7 bankruptcy. The owner said he has been worn down by the 
legal assault on the gun industry. In addition, Davis Industries of 
Mira Loma, California sought Chapter 11 protection in the U.S. 
Bankruptcy Court on May 27, 1999.
  According to a lawyer who represented creditors in the 1996 
bankruptcy of Lorcin, ``Bankruptcy is a very useful negotiating tool 
and predictably the more suits that are filed, the more these gun 
companies are going to file for bankruptcy.''
  A lawyer for one of the cities suing the gun-makers said that 
bankruptcy ``is going to be a huge pain,'' because it will require much 
more time and expense for the cities, limit the amount of damages they 
can collect, and, perhaps most important, put the litigation in federal 
bankruptcy court.
  Litigation may well be the only means to hold gun manufacturers 
accountable for the harm caused by their products. As we have seen with 
litigation against the tobacco industry, manufacturing secrets and 
marketing secrets often come to light in a courtroom. Public interest 
lawsuits have changed the balance of power between the public and the 
mammoth industries long thought to be invincible. The Levin amendment 
supports the citizens harmed by these powerful industries. It deserves 
to be supported by the Senate, and I urge the Senate to approve it.
  Mr. President, in summation, I congratulate my friend, the Senator 
from Michigan, Mr. Levin, for the development of this particular 
amendment, and I join with others to recommend it strongly to the 
Senate. I am hopeful that it will be successful.
  The Levin amendment, as has been pointed out, takes the initiative to 
close a gaping loophole that allows the gun manufacturers and 
distributors and dealers to use the bankruptcy code to avoid judgments 
against them based on fraud, recklessness, and negligence, or product 
liability. Firearm manufacturers and dealers should not be able to 
abuse the bankruptcy laws to escape liability.
  We can ask ourselves, is this a problem? The answer is yes. Do the 
gun manufacturers intend to utilize bankruptcy to basically avoid 
responsibility to families across the country and because of the basis 
of negligence, recklessness, or fraud? The answer is yes to that, too, 
which undermines the importance of this particular amendment.

[[Page S184]]

  America has a gun problem and it is massive. The crisis is especially 
serious for children. Every day, 13 more children across the country 
die from gunshot wounds. For every child killed with a gun, four are 
wounded. Yet the national response to this death toll continues to be 
grossly inadequate.
  The gun industry has fought against reasonable gun 
control legislation. It has failed to use the technology to make guns 
safer. All we have to do is remember the debates we had on the violence 
against youth legislation at the end of last year. We saw the efforts 
to try to provide common sense solutions to those who make these 
weapons available to individuals in our society who should not have 
these weapons, and how that was frustrated in important ways by the gun 
manufacturers. They were able to keep that piece of legislation that 
was passed with regard to gun show loopholes tied up in conference. How 
many weeks and how many months have passed when we have been unable to 
address this issue either in conference or back on the floor of the 
U.S. Senate? Those efforts continue to go on even today.

  Here we find in the bankruptcy legislation another attempt by the gun 
manufacturers to exercise their muscle by giving them a special 
consideration at a time when the problems they foist on the American 
families are so significant.
  The gun industry has attempted to insulate itself from its 
distributors and dealers once the guns leave the factory door. Guns are 
the only consumer product exempt from safety regulations.
  Cities, counties, and States incur billions of dollars in costs each 
year as a result of gun violence, including the costs of medical care, 
law enforcement, and other public services. Studies estimating the 
total public cost of firearm-related injuries put the cost at over $1 
million for each shooting victim.
  Communities across the country are attempting to deal with the 
epidemic of gun violence that claims the lives of so many people each 
year. Law enforcement officials, community leaders, parents, and youth 
are struggling to deal with this continuing epidemic of gun violence. 
But the gun industry, Congress, and most State legislatures have 
persistently ignored these concerns.
  At long last, the American people are getting their day in court 
against the gun industry. Individuals, organizations, and 
municipalities are making progress in their effort to hold the industry 
liable for its failure to incorporate reasonable safety designs in the 
guns they sell, including features that would prevent gun use by 
children and other unauthorized users. Personalizing or childproofing 
guns would dramatically reduce the number of unintentional shootings, 
teenage suicides, and criminal offenses using stolen weapons.
  One such lawsuit was filed in Massachusetts on behalf of the parents 
of Ross Mathieu, a 12-year-old boy who was killed in 1996 when a friend 
the same age unintentionally shot him with a Beretta pistol, believing 
that the gun was unloaded. In 1997, a suit was filed against Beretta in 
Federal court in Boston alleging that Beretta caused the death by 
failing to include with the pistol either a magazine disconnect safety 
device, a chamber-loaded indicator, or a locking device that would have 
``personalized'' the gun.
  Last summer, the city of Boston filed a suit against gun 
manufacturers, distributors, and trade associations whose manufacturing 
decisions, marketing schemes, and distribution patterns have injured 
the city and its citizens. Boston is one of 30 cities and counties to 
have filed groundbreaking lawsuits to reform the gun industry.
  When the courts seem likely to hold the industry accountable, some 
gun manufacturers are attempting to avoid their responsibility by 
filing for bankruptcy. We have heard the example that the Senator from 
Illinois pointed out, Lorcin Industries, one of the largest 
manufacturers of the Saturday night specials. We heard how they have 
attempted to use the bankruptcy laws to their financial advantage and 
to the disadvantage of the families who have legitimate interests in 
pursuing their rights in a court of law.

  As a result, Lorcin was able to settle its lawsuit for pennies on the 
dollar when tens of millions of dollars in damages were at stake. One 
of the major issues raised by creditors in the bankruptcy case was 
whether the company was using the ability to reorganize its operations 
under the bankruptcy code as a way of avoiding paying large sums to 
plaintiffs if it lost the suits.
  That has been replicated by Sundance Industries of Valencia, CA, who 
filed for chapter 7 bankruptcy. The owner said he had been worn down by 
the legal assault on the gun industry. In addition, last May, Davis 
Industries of Mira Loma, CA, sought protection in the U.S. bankruptcy 
court.
  According to a lawyer who represented creditors in the 1996 
bankruptcy of Lorcin, ``Bankruptcy is a very useful negotiating tool, 
and predictably the more suits that are filed, the more these gun 
companies are going to file for bankruptcy.''
  A lawyer for one of the cities suing the gun manufacturers said that 
bankruptcy ``is going to be a huge pain'' because it will require much 
more time and expense for the cities.
  Litigation may well be the only means to hold the gun manufacturers 
accountable for the harm caused by their products. Public interest 
lawsuits have changed the balance of power between the public and the 
mammoth industries long thought to be invincible.
  At long last, the American people are getting their day in court 
against the gun industry. The gun manufacturers and the NRA should not 
be allowed to hide behind the bankruptcy laws to prevent liability. The 
Levin amendment supports the citizens and cities harmed by this 
powerful industry. It deserves to be supported by the Senate, and I 
urge the Senate to approve it.
  The PRESIDING OFFICER. Who yields time?
  Mr. LEVIN. Mr. President, I yield 4 minutes to the Senator from 
Oregon.
  Mr. WYDEN. Mr. President, I commend our colleague from Michigan for a 
very important amendment which I think has one central point. Pass the 
Levin amendment and we will end the legal gymnastics that gun 
manufacturers have used to dodge their responsibilities. Pass the Levin 
amendment and the U.S. Senate sends a clear and simple message to these 
gun manufacturers that have played games with bankruptcy. Our message 
is the game is over. There is absolutely no reason to allow fraudulent 
activity by gun manufacturers to go without sanction. I am very 
troubled as I read through the history of what my colleagues have 
talked about--the Senator from Illinois and the Senator from 
Massachusetts-- what it says about the nature of this debate. There are 
gun manufacturers who are actually bragging that they are taking 
advantage of the system when they know they cannot win on the merits.

  We have a situation where as we debate the bankruptcy law and talk 
about making sure it is fair to all sides--good people may have fallen 
on hard times--and at the same time sensitive to the needs of business 
and others who otherwise wouldn't be able to get the funds they need 
that are so central in a marketplace kind of system, all of those 
people, it seems to me, end up without the treatment they deserve. They 
are, in effect, put in an unfavorable light when, in fact, the gun 
manufacturers are given a free ride.
  Let us make sure that everybody is treated fairly--small businesses 
that have these claims, and many people we are seeing who have fallen 
on hard times and need a fresh start. But let us not send the worst 
possible message, which is that if you engage in the kind of 
reprehensible conduct my colleagues have documented, in effect, you 
will get a free ride if you are a gun manufacturer.
  It is important to vote for this bankruptcy legislation. I voted for 
it last year, as did 96 of my colleagues. It is important to ensure 
that we have fairness for all parties.
  Unless the Levin amendment is adopted, it seems to me that we allow a 
continuation of these legal gymnastics that are being practiced by gun 
manufacturers. That is wrong.
  I urge my colleagues to support the Levin amendment.
  The PRESIDING OFFICER. Who yields time? The Senator from Iowa.
  Mr. GRASSLEY. Mr. President, I yield myself such time as I may 
consume.
  The PRESIDING OFFICER. The Chair recognizes the Senator from Iowa.
  Mr. GRASSLEY. Mr. President, I had a chance to listen very closely to 
what

[[Page S185]]

the Senator from Michigan said. As the sponsor of the amendment, he 
ought to have the attention of those of us who oppose his amendment.
  I say that this amendment detracts some from the purpose of the 
legislation. Maybe it is meant to. To the extent it is, I hope people 
will vote against it. To the extent that people see this as a 
legitimate part of what we are debating, then I would offer this point. 
I am going to offer more than one point very central to the amendment, 
and then I will stick to my remarks. But the fact is there is a way to 
handle this problem to make sure that these companies don't get off 
scot-free.
  I am going to refer to a product that Senator Heflin from Alabama--
before he retired from the Senate--and I worked very closely on, which 
was bankruptcy legislation. During the years he and I served together--
I think 14 or 16 years--during that period of time when we were in the 
majority on this side, I chaired the committee and he was the ranking 
minority member. When his party was in control, he was chairman and I 
was the ranking minority member. I am going to refer to some 
legislation we were able to get passed in 1994 when he was chairman of 
the committee. I think it is a thoughtful and bipartisan way to deal 
with this.
  First of all, I believe this amendment proposed by the Senator from 
Michigan is unsound as a matter of policy. Congress has previously 
dealt with difficult questions of what to do about companies facing 
massive tort liability and then filing for bankruptcy. We dealt with 
this, as I indicated, in a bipartisan way, and I think in a way that 
had a great deal of thought behind it.
  In 1994, I worked with Chairman Heflin to create a very specific 
process for asbestos companies that were filing for bankruptcy as a 
result of a massive number of lawsuits against asbestos manufacturers 
by those people who had asbestosis. Senator Heflin and I wanted to help 
these companies continue as an ongoing business concern, but we also 
wanted to ensure that the victims of asbestos-related illnesses 
wouldn't be left out in the cold.
  In the 1994 bankruptcy bill, we created a process where asbestos 
companies could be discharged of their tort liabilities but only if 
they created a trust fund, under the control of a bankruptcy judge, to 
pay victims. This process has worked well and has received favorable 
comment by the National Bankruptcy Review Commission.
  This amendment from Senator Levin, however, doesn't use a similar 
approach. This amendment merely provides that gunmakers and sellers 
can't discharge their tort liabilities. As a result, the amendment has 
no concern for the employees of the makers or retailers of guns. Under 
this amendment, retailers from giants such as Wal-Mart and Kmart all 
the way down to the small family-owned stores could face massive 
liabilities and be forced to lay off workers.
  In the case of the Heflin-Grassley legislation of 1994, as I 
indicated, we allowed the companies to continue to operate and to 
continue to have their employment, and in the process victims were not 
harmed in any way because of the trust fund. It seems to me, unless 
there is some ulterior motive other than helping victims with this 
legislation, that we should think about that approach--an approach that 
protects victims, an approach that makes the person who is guilty of 
wrongdoing have tort apply to pay that tort. Consequently, if that is 
not the approach, I think it reveals the real purpose of the amendment. 
I question that the amendment might be about making sure that tort 
plaintiffs receive compensation if any of the questionable antigun 
lawsuits were to succeed because that is not what is going to happen. 
This amendment is merely an effort to drive all segments of American 
industry involved with guns out of business, even if thousands of 
innocent, hard-working American employees have to pay the price.
  Consequently, I urge my colleagues to vote against this amendment.
  One other thing about the amendment is the presumption is so stated 
by the Senator from Michigan that this is just one addition--I think he 
would say that this is the 19th addition --to a long list of exceptions 
that are nondischargeable through the bankruptcy court.
  I think he is mistaken about how bankruptcy works for corporations 
and chapter 11 because his amendment applies just to corporations.
  Section 1141 of chapter 11 has two separate discharge provisions. It 
has one section for corporations and it has one for individuals. The 
discharge provision for corporate debtors discharges all debts. The 
discharge provision for individuals lists nondischargeable debts.

  So the idea this exception to discharge is just one more of a long 
list of 18 is flatout wrong.
  From this standpoint, then, the amendment by the Senator from 
Michigan is unprecedented, and I will be glad to share the code 
sections with my colleagues, if they desire. But subsection (a) 
discharges a debtor from any debt that arose and that applies to the 
corporations. But subsection (2) says the confirmation of a plan does 
not discharge an individual debtor. From that standpoint, this is not 
one of a long list of things that are nondischargeable.
  The PRESIDING OFFICER. Who yields time?
  Mr. CRAIG. Mr. President, will the Senator from Utah yield time to 
the Senator from Idaho?
  Mr. HATCH. I am happy to yield time to the distinguished Senator.
  Mr. CRAIG. Mr. President, I thank the Senator from Utah, and let me 
also thank the Senator from Iowa for bringing what I think is necessary 
to bring to this debate as it applies to the Levin amendment, and that 
is common sense. Is, in fact, this amendment the kind of legislation we 
want to see? If you support the bedrock policy of bankruptcy law, I do 
not know how you can support the Levin amendment because it undermines 
basically all of those policies.
  The bankruptcy code establishes a structure that ensures everyone who 
is owed money by the debtor will be treated fairly when the debtor is 
given, in essence, a fresh start under the law. The main purpose of the 
bankruptcy reform measures we are working on is to get more debtors to 
pay back more of the debts they owe to more of their creditors. That is 
a rather simple principle before this Senate. This issue has been with 
us. The Senator from Iowa and the Senator from Utah and others have 
struggled with it mightily for the last good number of years, to bring 
fairness and equity in it, but also to say to debtors there is a 
credibility here and a responsibility you owe to your creditors. There 
needs to be a greater sense of fairness and balance brought. I think 
the fundamental underlying bill offers that.
  The Levin amendment is a carve-out, and I think it flies in the face 
of those general policies. The supporters of the Levin amendment say 
they are trying to prevent firearm manufacturers from escaping 
accountability for bad acts that result in a civil judgment against 
them. That is rather straightforward.
  It is not only manufacturers; it is retailers and it is corporations. 
So it is a broad brush. While they would like, I am sure, to create the 
image that there is a manufacturer out there who produces a firearm and 
somehow it is evil, are Wal-Mart and Kmart and hardware stores that 
sell legitimately as federally licensed firearms dealers evil? In the 
eyes of some, they probably are. That is not the debate, nor is that 
the issue. Let's look at what the amendment does. It is unfair because 
it picks out a specific industry and it restricts the bankruptcy relief 
available to that industry.
  In other words, if we in the Senate have now decided we are going to 
pick winners and losers who are politically correct or politically 
incorrect based on your particular philosophy or point of view, that is 
what the Levin amendment, the Levin carve-out does. Is this Senate 
going to start picking winners and losers amongst businesses in our 
country? We never have. We created certain conditions or certain things 
that are special within the law but never politically have we said: You 
are a winner, you are safe under the law; you are a loser, you lose. 
That is not what we do. We let the marketplace generally do that, and 
we let consumers generally do that.
  Today it is the firearm manufacturers and tomorrow is it an industry 
that produces alcohol; or a fatty product, and we have decided in our 
society that

[[Page S186]]

fat consumption is no longer good for the American consumer, even 
though as free citizens they ought to have a right to choose.
  ``That sounds silly, Senator Craig. You ought not be saying things 
like that.''
  When I watched the trial lawyers organize and convince the attorneys 
general that going after the tobacco companies was good because the 
tobacco companies had fallen out of favor and it was a politically 
correct thing to do, I said, ``And next will be firearms.'' There were 
some who chuckled. Of course, guess what. Next were the firearm 
manufacturers. That is what is going on out there today. Municipalities 
that do not enforce the law but, most important, municipalities that 
arrest people who illegally use firearms do not have a Justice 
Department that backs them up.

  The Clinton administration ran from enforcement for 7 years. Of 
course, just this year they got a new religion out there because they 
have seen the polls and they have seen what the American people have 
said: Enforce the laws, Mr. President.
  I wonder how my friends across the aisle would react if I proposed a 
similar amendment making bankruptcy relief unavailable to former 
Presidents of the United States? ``That would be foolish, Larry. You 
should not do something such as that.''
  That spells the intent of this amendment. I think the Senator from 
Iowa was a little kinder than I am, suggesting maybe there was an 
ulterior motive and it was probably more political than it was legally 
substantive. I think he is right.
  It is also unfair because it would have the effect of putting the 
interests of some creditors ahead of others. The lawsuits we are 
talking about are not claims for real injuries resulting from 
somebody's bad acts. Instead, they are treasure hunts. We saw the 
hundreds of millions of dollars the trial attorneys made, and now 
States are getting, from the settlements from the tobacco industry. The 
treasure hunt resulted; the treasures were found. They are looking for 
multimillion-dollar verdicts or settlements to go to the trial lawyers 
and municipal governments they represent.
  If there are legitimate creditors out there in a bankruptcy 
settlement, they are no longer protected because we have taken those 
companies out and they simply fall away. The effect of the Levin 
amendment would be that lawyers and government bureaucrats get paid 
first. Remember that: Lawyers and government bureaucrats get paid 
first. If there is anything left in this kind of bankruptcy of these 
multimillion-dollar verdicts, then and only then will a creditor get a 
dime.
  The Levin amendment would also hurt the very people it claims to help 
because it would make it unlikely that more than a fraction of the 
judgments, if that much, would ever get paid off. This is because it 
would prevent more companies from taking a reorganization bankruptcy. 
Instead, it would simply, in all reality, force them into liquidation, 
where the creditors get nothing. Is that the intent of the Levin 
amendment? My guess is, if it is not the intent, it clearly is the 
result.
  What is the practical effect of all of this? It means instead of a 
company continuing to exist, a company being allowed to stay in 
business, to reorganize, to keep its employees intact, they close their 
doors, they lay off their employees, and their creditors go wanting. 
Not only are the creditors not going to be there to get the benefit of 
it, the jobs are lost.
  It means there will be no business-generating income to continue to 
pay the debts it created. Whatever you can squeeze out of a business 
today is all you are going to get. That is the result of this 
amendment. Maybe that is the intent of the amendment. If it is, why 
don't we be honest with ourselves? This amendment is not substantively 
charged, it is politically charged. I think all of us understand that. 
My guess is that is how the vote breaks out on an issue such as this. 
In short, the amendment turns bankruptcy policy on its head.
  It is designed to destroy legitimate and law-abiding businesses. It 
injures consumers, and it destroys jobs. The Levin amendment is clear 
and simply bad policy for this country, and I hope the Senate will 
choose to defeat it. We should not mix that kind of politics with this 
kind of constructive policy change that these Senators have worked to 
bring to the floor. I yield the floor.
  The PRESIDING OFFICER. Who yields time? The Senator from Michigan.
  Mr. LEVIN. I yield 5 minutes to the Senator from New York.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. SCHUMER. I thank the Chair, and I thank my colleague from 
Michigan for yielding time and for his leadership on this outstanding 
amendment.
  Before I speak to the substance of the amendment, whenever we talk 
about gun issues, it seems some who are opposed say that is making it 
political. I do not quite get that. People on this side have as firmly 
held beliefs as the people on the other side. Most Americans seem to 
support what we are for, and if that is political, so be it. That is 
democracy.
  Mr. HATCH. Will the Senator yield?
  Mr. SCHUMER. I will be happy to yield.
  Mr. HATCH. I ask the Senator, since he is just starting his remarks, 
if he will yield to the distinguished Senator from Alaska who has a 
very short statement.
  Mr. SCHUMER. I will be happy to yield as long as the rest of my time 
is reserved.
  Mr. HATCH. We will go right back to the Senator from New York. I 
thank my colleague for his courtesy.
  The PRESIDING OFFICER. The Senator from Alaska.

                          ____________________