Housing, unemployment, bankruptcy

“Housing sales in July plunged to their lowest level in more than a decade, exceeding even the grimmest forecasts.”

That’s from The New York Times, Aug. 24.

Here’s another, also from the same edition of the Times: “The Dow Jones industrial average and the Standard & Poor’s 500-stock index ended lower Tuesday for a fourth consecutive day, unable to rebound from a disappointing report on existing-home sales.”

This one’s from the Wall Street Journal, Aug. 5: “More Americans filed for bankruptcy protection in July, reversing a trend of declining filings over the previous three months and highlighting the continuing financial struggles of many consumers.”

Highest rates since ‘reform act’ of ‘05

“Long-term unemployment and small-business failures continue to propel personal bankruptcy filings,” reports an Aug. 22 article in the Tenneseean (our emphasis added), “with Tennessee in step with a national trend that shows the number of cases spiking in July for the first time after declining for three months.

From the Aug. 18 Economist, we get the following brief (and the following chart, as well, based on data from the Administrative Office of  the US Courts): “Bankruptcy filings rose 20% in the year to June 30th compared with the previous 12-month period, according to statistics released on August 17th by the Administrative Office of the US Courts. This takes quarterly filings to their highest point since tougher bankruptcy laws were introduced at the end of 2005. That change brought a spike of bankruptcies, as companies and individuals rushed to declare themselves broke under the more lenient old regime. The data suggest that an older trend is reasserting itself. This is could be more bad news for America—or it could just mean that creative destruction is alive and well.”

One recent blog mentions that the return to pre-2005 levels may “merely be” a statistical “reversion to mean.”

Election fodder?

That would be some mean-dang revertin’, all right, given that the credit-card lobby’s pure intent in getting the “reform act” of ‘05  was to make it harder for people to file for Chapter 7 protection. They did, and it is–yet, Chapter 7 filings far outnumber Chapter 13 filings.

Perhaps cheekily, the blog ends with the admonition to watch for this chart as the election nears–with the rejoinder to see how many times it appears with the pre-2005 years left off the chart. But, really, that’s a good suggestion: Any candidate from any party who monkeys with the data should be immediately suspect.

Reform fail? Credit-card company hits loophole

Speaking of credit-card companies, it looks as though at least some are definitely reverting to mean. The credit-card reform legislation passed last year was supposed to rein in the heinous practices of the industry. But as this Aug. 21 piece in the St. Louis Post-Dispatch demonstrates, loopholes already are being exploited.

“When Congress passed the credit card reform act last year, it took aim at the sort of high-fee card that sat in Lynne Fischer’s purse until recently. There’s now some evidence that Congress missed.

“Lynne Fischer, 64, lives in St. Louis Hills on about $1,700 a month from a small pension and a disability check. She’s had problems paying some bills. ‘My credit history is not well,’ she says.

“Still, she wanted a credit card for emergencies: ‘What if my car breaks down?’ she asked. When the mail last fall brought an offer from First Premier Bank of South Dakota, she applied.

“It was a costly decision. . . .”

The article describes First Premier as using this business model: The company “offers cards for people with bad credit, and they charge significant up-front fees. They pitch the card as a way for customers to rebuild their credit by making on-time payments.”

The article also says that consumer advocates label such practitioners as predatory “fee harvesters,” a term we will probably see more often in the months to come. At any rate, and perhaps needless to belabor, she finally realized it was a stinky deal: “Fischer sometimes made only the minimum payment, and so she ended up paying interest on those fees. When she called to cancel the card this summer, she says the bank’s representative insisted that she pay $253 — an amount consisting mainly of the fees.”

Oh–but there’s more. The quote next at bat really, truly exhibits the depths of the ether-soaked depravity in which these companies are willing to traffic.

“As of last week, First Premier was offering a card with an annual fee of $75. That’s 25 percent of the $300 credit limit. But it also has a $95 ‘processing fee’ that must be paid before the customer gets the card.

“It’s perfectly legal, says First Premier. ‘The credit card act does not preclude fees charged prior to the account being opened,’ says Darrin Graham, the bank’s vice president for marketing. So, the $95 fee doesn’t count.”

Holy moly and Great Winged-Leaping Lizard-Bats! and whatever other mythical creatures that defy reason. Let’s look at that statement again, with emphasis added:

“The credit card act does not preclude fees charged prior to the account being opened.”

Just imagine if this becomes a trend: Utility companies guess where we’re going to move, then start billing us before we move in; Redbox and Netflix get predictive software, and charge us for movies before we select them. And on and on…

Perhaps First Premier is simply running interference for the rest of the industry, trying an end-around to see how much trouble such tactics will attract. Or perhaps they really are the junkies they appear to be, addicted to cash flow they pump from the least sophisticated, most vulnerable consumers they can bag. We’ll keep following and let you know what we find.

[Next time: Using credit cards under the new law and credit for college-age children.]

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

The good news is that the U.S. Senate is finally moving on two crucial pieces of legislation, credit-card reform and the proposal to grant bankruptcy judges the power to modify loans on primary residences–and the credit-card legislation looks to have significant traction.

The bad news is the mortgage-lending lobby seems to have already persuaded enough senators to move against such “cram-down” powers–even though judges do have the exact same power for luxury items. In other words, judges can now modify terms on such items as yachts, snowmobiles, and even vacation homes but do not have the power to modify terms for consumers struggling to save the houses where they live. (Of course, even without the logical improvement, the bankruptcy code remains a powerful tool for providing relief, including saving a home from foreclosure.)

As CNBC.com reports today: “Senate Majority Whip Richard J. Durbin (D-Illinois) has managed to get a vote scheduled today on his controversial plan to help homeowners avoid foreclosure, but the bill’s chances of approval are slim, say congressional and industry sources.”

The article also says consumer groups and the White House believe the legislation is a crucial factor in “the effort to forestall home foreclosures” and that Durbin has been promoting such legislation for more than two years.

But apparently, he’s made a deal with the devil: Lacking the juice to get the measure introduced as a stand-alone item, Durbin has gotten it to the floor as an amendment to a broader proposal “known as the ‘Helping Families Save Their Homes Act of 2009,’ which the Senate is also expected to vote on.” The concern is that, lacking enough support, the so-called “cram-down” measure would be exposed to GOP filibuster.

Hence, the really bad news–apparently Durbin cut a risky deal:

“If the Durbin amendment fails to get 60 votes Thursday, as is expected, it will be withdrawn altogether and no further cramdown amendments will be allowed, according to terms agreed in advance, said one source.”

If that source is correct, it sounds as though the measure would have to succeed as a stand-alone item, flying in the face of concerted opposition from the mortgage industry and its lobbyists.

In a companion piece, an analysis of the two measures’ chances also written by senior features editor Albert Bozzo, the credit-card legislation is described as a  “reform bill with enhanced consumer protections [that] is progressing fairly smoothly. . . .

“The difference [in support for the two measures] may be as simple as the level of pubic support from the White House at a time when relations between the administration and the financial services industry are deteriorating amid tension over TARP money, bank stress tests and executive pay.”

Bozzo also quotes “a veteran banking analyst” who boils the issue to a matter of sheer numbers; in simple terms more consumers are hurt by abusive credit-industry practices than they are by abusive mortgage-industry practices.

“The cramdown is a much tougher one to do, which is part of what is going into the thinking,” says veteran banking analyst Bert Ely of Ely & Co. “There’s a lot of people who don’t have a mortgage. Credit cards are more of a populist issue.”

The bankruptcy proposal is scheduled for vote today at 2:30 ET, preceded by a four-hour debate.

Credit-card reform is scheduled for a House vote on Thursday, with the Senate expected to take it up as early as next week.

Meanwhile, more homes are headed for foreclosure.