Regulating Bankruptcy: Public Choice, Ideology, & Beyond

For almost a decade, members of Congress fiercely debated legislation that would make it harder for people to discharge their debts in bankruptcy. The legislation was finally enacted on April 20, 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) was signed into law. BAPCPA became fully effective for cases filed on or after October 17, 2005. At one of the earliest hearings on the proposed bankruptcy legislation, one of the bill’s sponsors suggested that “it is probably incorrect to suggest this is a credit card versus consumer problem.” Yet throughout Congressional debates on the legislation, and even after BAPCPA was enacted, many argued that BAPCPA was written by, bought, and paid for by the consumer credit industry, especially the credit card industry. Given the vast sums the consumer credit industry contributed both to individual members and political action committees, it is understandable that many used public choice theory—i.e., the application of microeconomic assumptions to help explain how public officials make decisions—to critique the BAPCPA legislative process. This Article presents a fuller, more nuanced BAPCPA story that is designed to debunk the notion that the BAPCPA legislative process is simply the triumph of one powerful interest group—the credit card lobby—over a weaker group—consumer debtors. Part I of the Article describes BAPCPA’s history and the role that the consumer credit lobby played in getting, then keeping, bankruptcy bills before Congress. In generally describing the legislative process, this Part notes that, notwithstanding fierce debates, opponents and supporters of the legislation agreed on a number of key factual matters relating to the bankruptcy “crisis.” This Part notes, though, that legislators disagreed over other core issues, including what people should do to avoid becoming overindebted and what they should do once they are too far in debt. Part II briefly describes public choice theory and explains the appeal of using this theory to explain the bankruptcy reform legislative process. This Part suggests that public choice theory was most often used to explain why Congress passed BAPCPA because the consumer credit industry made such significant campaign and political action committee contributions while past, current, and future individual debtors failed to organize and lobby against the bankruptcy legislation. Part III shows how, over the course of the legislative process, legislators considered the interests of other powerful groups, notably women, retirees, and veterans. This Part stresses that members of Congress agreed on a number of amendments to the bankruptcy legislation to protect these constituents’ interests. Ultimately, this caused Congress to amend BAPCPA in ways that harmed the interests of the consumer credit lobby. While conceding the difficulties in defining the word “ideology” and the additional difficulty of precisely measuring whether a legislator’s ideology influenced a vote on any given bill, Part IV briefly discusses the role that ideology appeared to play in the legislative process. This Part argues that some relevant ideological issues (such as how people reasonably should be expected to govern their personal finances) and other ideological issues that were raised but were at best only tangentially relevant (such as abortion and minimum wage) played crucial roles in shaping the text of the bankruptcy legislation. Part V argues that the single industry capture story is incomplete and that BAPCPA’s legislative process can best be understood as one that required legislators to balance several interests. On one side is legislators’ desire to continue to receive financial support from the consumer credit lobby; this is balanced against their individual worldviews and philosophy toward “personal responsibility” and their desire to avoid alienating large blocs of politically influential voter

Caught in the Trap: Pricing Racial Housing Preferences

In The Two-Income Trap, Harvard Law School Professor Elizabeth Warren and business consultant Amelia Warren Tyagi reach a startling conclusion: a two-income middle-class family faces greater financial risks today than a one-income family faced three decades ago. Middle-class families are caught in an income trap because they budget based on two incomes and face financial ruin if they lose an income or incur unexpected expenses. The authors suggest that most middle-class families cannot quickly adjust their budgets because their largest monthly expense is the fixed mortgage payment. The parents maintained that they had to allocate a significant portion of their income to housing expenses to ensure they could buy a home in a good neighborhood with good, safe schools (pp. 22-23, 29, 32). Moreover, because good schools are located in expensive neighborhoods, parents contend that they must participate in a high priced bidding war for those homes. If their income declines or expenses increase, however, they are trapped: unable to pay the mortgage and unable to quickly reduce their living expenses (pp. 7-8). The book never explains how parents determine what is a good, safe neighborhood or school. Housing and school segregation patterns suggest, however, that some middle-class parents consciously or unconsciously use good and safe as a proxy for predominately or exclusively nonminority. This Review suggests that middle-income parents can no longer afford these racial housing preferences. The Review summarizes the problems middle-class families face then argues that what is viewed as good and safe may be based more on racially biased perceptions than on reality. The Review concludes by arguing that the best way to help middle-class families avoid the income trap is to make school assignments without regard to the student\u27s street address and to allow parents who live in integrated neighborhoods to participate in an auction to buy a slot in their first choice school