Congressional Record, Volume 146 Issue 6 (Tuesday, February 1, 2000)

[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

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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

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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.

____________________