Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005

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Mr. DURBIN. Mr. President, will the Senator yield for a question?

Mr. KENNEDY. Yes.

Mr. DURBIN. I want to make sure that people following this debate understand what is at issue.

The Senator is talking about someone who, because of the diagnosis of medical illness or treatment of a medical illness, ends up incurring a crushing debt they can't pay back, and their health insurance doesn't cover it. The Senator from Massachusetts is suggesting that those individuals who are facing bankruptcy, at least when it is all said and done, have their homes to return to, to the tune of $150,000, which is a modest home in most places in America. Is that what the Senator from Massachusetts is talking about?

Mr. KENNEDY. The Senator is absolutely correct. The average cost of a home in America is $240,000. We are only talking at $150,000. I am sure the Senator can relate to us the kinds of situations that I see of these three-decker houses, not only in Boston but in many of the older cities and in my State where families have lived there for years and years. They see the increase in the water rate of $50 to $75, and they wonder how they are going to be able to afford it.

What we want to say is to those individuals who are faced with hardship, worked hard all of their lives, more often than not have been able to get health insurance but find out that health insurance is not enough. As a result of cancer, serious heart failure, serious illnesses, diabetes, or a child that needs special kinds of attention, they go in to debt--after it is all said and done, let them list their assets and their liabilities and pay what they need, but don't take their home away from them.

Mr. DURBIN. If the Senator will yield further for a question, as I understand, what the Senator is saying is that in some States you could have a person who was a compulsive gambler who went deeply into debt to the point that they faced bankruptcy, but if they are smart enough to take the remaining assets they owned and put them into a home to the tune of $1 million--if they pick the right State, such as Florida--that compulsive gambler, irresponsible person who goes to bankruptcy court will be protected by the law of Florida, be able to keep their multimillion dollar home. Yet in a State such as Massachusetts or Illinois, if someone faces devastating cancer diagnoses, treatments that costs more than they can ever pay back, they could go to bankruptcy court and loose their homes, but the gambler keeps his multimillion dollar home.

In other States, the person who has a medical diagnosis they never expected ends up losing their home under the current law we are considering.

Mr. KENNEDY. Perhaps the Senator can explain how that meets any definition of fairness, how that meets any requirement of treating people equitably.

We have the proponents in the Senate Chamber; they ought to be able to explain that. They have resisted treating the families the same in all parts of the country. This is one of the fatal failures in this one area, the homestead area.

The Senator is absolutely correct. As the Senator knows, we are talking about individuals who have worked hard more often than not, have gotten health insurance and tried to provide for their families, but then that incident occurs, the cancer occurs, the heart failure occurs, the diabetes occurs.

We have a growing aging population. Increases in bankruptcy among the elderly have risen by two or three times in the last 5 years. The basic projections are increasing because they will have increasing health care needs.

We are saying to these individuals who have been part of this American fabric and have helped more often than not in fighting our wars, they have built this country, saved for their children, now they will end up getting thrown out of their home through no fault of their own because they are blighted with some form of cancer.

Mr. DURBIN. If the Senator will yield for a question, I will give an example of a family in my home State of Illinois and what happened to them. Ten years ago, Randall Lemmon and his wife Mary were living in Champaign, IL, downstate Illinois. His wife was diagnosed with an autoimmune disease, sceradoma, a connective tissue disease which can debilitate very quickly. Within months of her diagnosis, Mary experienced the loss of independent functioning and found herself needing assistance with even the most basic tasks in life. She eventually collapsed and went to a nursing home, which was not covered by the family's insurance. Eventually she died, leaving behind her husband, five children, and a $150,000 nursing home bill. As a result, they were forced into bankruptcy.

Currently, in Illinois you can only protect $7,500, up to $15,000 in the value of your home. What could anyone live in for $15,000? Here is Randall Lemmon with five children, and because he was forced into bankruptcy court he would lose his home.

Senator, you are saying, at the minimum, let him at least protect $150,000 in his home to raise the five children after his wife has died in a nursing home; is that what your amendment says?

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Mr. DURBIN. Mr. President, I commend my colleague from Illinois because he pointed to several issues in our State which dramatized the problem with this bankruptcy bill. This Horizon Mining Company in southern Illinois when it goes out of business not only shortchanges shareholders but leaves retirees in the lurch. We have reports of individuals who worked a lifetime for this mining company, paid in as they were supposed to, expecting to receive health care benefits after they retired, and then the company files bankruptcy and men and women with serious health issues--black lung and emphysema--find themselves without health care protection before they are eligible for Medicare. These are the people falling into the bankruptcy courts.

Our friends on the other side of the aisle say we need to change bankruptcy law because of moral failures in America, immoral conduct by people walking into the bankruptcy court when they should just pay their bills.

We go to the people who are supposed to monitor abuse in bankruptcy courts and they say of all the bankruptcies filed, only 3 percent--3 out of 100--may fall in that category. The credit card companies say it may be as high as 10 percent--1 out of 10--who should not be filing for bankruptcy. But, still, we are going to change the law for everyone walking into the court.

We find in reality--the Senator from Massachusetts has made this point--we are not talking so much about moral failures leading to bankruptcy, we are talking about economic failures leading to bankruptcy.

Professor Warren from Harvard Law School went out and actually asked the people filing bankruptcy, Why are you here today? What forced you into bankruptcy? Almost half of the people said medical bills. Three-quarters of those filed bankruptcy because the cost of their treatment was more than they could pay; three-fourths of them had health insurance when they were diagnosed, but it was not enough, or they lost their job, or the copays overwhelmed them.

If you are following this debate and you say, isn't it a shame these people did not plan for their future--the man who worked in the mine for 35 years planned for his future. He worked every day and he contributed every day to a pension, believing he would have health care.

Guess what. Bankruptcy comes along, and he has no health care.

Take a look at the people walking into bankruptcy court. Did they plan for their future? They had health insurance. But it was not good health insurance. It had limits on it, and a catastrophic illness wiped them out. Is there one of us who believes we are somehow sheltered from this? Well, come to think of it, there may be. It could be Members of Congress believe they are sheltered from this. Do you know why? We have a pretty generous health insurance plan, as most Federal employees do. And when we retire, we are protected by that health insurance plan.

What is the likelihood a Member of Congress or retired Member of Congress will end up in bankruptcy court because of medical bills? Slim to none. So we live in this bubble, those of us in Congress, this bubble of protection, and think the whole world has the benefits we have. They do not.

Senator Kennedy has been arguing for years to take the same health care Members of Congress receive and offer it to America. Whoa, what a radical idea, another Kennedy extremist position, to take the same health care of Congressmen and offer it to America. If we did that, we would not be talking about medical bankruptcy in the numbers we are facing today. But there are these bankruptcies by people who planned, by people who had health insurance, by people who paid a lifetime into the system believing they protected their family. They are that vulnerable.

Along comes the credit card industry that says: We want to change the bankruptcy law so if you get crushed by medical bills, you cannot get out from under. You keep paying and paying and paying for a lifetime. One of Senator Kennedy's amendments says, losing your home because of a medical crisis in your family in bankruptcy is a tragedy we should avoid. He is right. Think about it.

I can give you examples. Let me give you one. I say to Senator Kennedy, I think this illustrates the point you are making. Senator Kennedy is trying to protect at least $150,000 worth of home for someone who goes into bankruptcy because of a medical crisis. Let me tell you about some people in Illinois.

Joyce Owens raised a son and a foster son and took care of her husband. She worked full time as a paralegal. Everything was fine with her family. She lived in Chatham, IL, 20 miles from my hometown. Then, in April 1997, her two sons Chris and Darrell were hit by a drunk driver. Darrell was killed. Chris, 27 years old, had a severed spinal cord and was rendered a quadriplegic.

Joyce was doing paralegal work at home because she wanted to stay there with her son Chris. He was in a wheelchair and needed help all the time. Slowly, working and caring for her son every day got to be too much and she was laid off.

Then, in 2000, 3 years after the accident, her husband died of a heart attack. He had always told her: Don't worry, I have life insurance. He did not. There was no life insurance. She was left to pay $200,000 in medical bills incurred by her quadriplegic son and the death of her husband.

How about that? Is that a moral failure? What did she do wrong morally? She worked her life to help her family, and when her son was in his worst condition, she did everything she could to help. And then she lost her husband as a helping hand. A moral failure? She tried to declare bankruptcy. Do you know why she did not? She would have lost her home--the home that was set up for her quadriplegic son.

So there she faces the dilemma. There is a lien on her home for the medical bills. She will not give it up because she cannot think of another place where her son can be taken care of. So what does it mean? A lifetime of $200,000 in debt for a woman who is doing her level best to take care of her family. She is one of the victims of this bill.

Under this bill, if she went to bankruptcy court, she would lose her home. She would not have enough equity in it to keep it. What is she going to do with that boy? He is now over 30 years old. She has dedicated the rest of her life to him.

Senator Kennedy says, if you face that tragedy in your family, we are going to protect your home. When it is all said and done, you get $150,000 worth of home after your medical bills are wiped out. Is this such an outrage to say to the credit card companies, to say to the financial companies: You ought to be a little bit concerned about Joyce Owens of Chatham, IL?

This is a good woman, a good mother, a good wife, from a good family, struggling every day, who is going to be hammered by this bill. She is no moral failure. She, in my view, is a moral standard for all of us to live up to. And this bill is going to penalize her because some Members of Congress think the credit card industry deserves more profit at her expense.

Mr. KENNEDY. Will the Senator yield for a question?

Mr. DURBIN. I am happy to.

Mr. KENNEDY. Because this is a dramatic family circumstance--I think any of us who have listened have found this is too often not the exception but too often is the rule. But aren't there other provisions in this legislation to preserve those homes that are not just the homes of someone who has sacrificed, as she has, to try to preserve the home for her son, but that this legislation, as it exists now, has protections for homes that are worth many, many, many, many, many more times that will escape any kind of threat from bankruptcy because of the homestead exemption? And could the Senator explain to me how we can possibly pass a piece of legislation that is so unfair to some families and gives such extraordinary benefits to others? Where is, possibly, the equity and the fairness?

As a member of the Judiciary Committee, does the Senator not wonder why in the world those who have been the principal sponsors of this legislation have not tried to address that during all the time we have been considering it, whether it was when we considered it 4 years ago or when we considered it in the committee markup? There was absolutely no attempt to do that. There was a strong effort by our friend and colleague Senator Kohl, who did an outstanding job with our last legislation that was before us. I am very hopeful he will offer a similar amendment this time.

But how could we possibly allow a system that is going to take that home from that family the Senator has outlined, and at the same time permit half a dozen different States to be able to have individuals shelter hundreds of thousands of dollars worth of real estate?

Mr. DURBIN. I thank the Senator from Massachusetts. I think people living in Illinois are some of the luckiest people in the world. I think it is a wonderful State. I am proud to represent it. But for Joyce Owens' situation, if she faced the same tragedy with her family and they lived in Florida, Texas, or Kansas, she could keep her home. You may say, why? Well, because the States have different standards--all the States.

What Senator Kennedy says is, this is national legislation, and we should have a national standard to protect families' homes when they face a medical crisis.

In my State, you cannot protect much, if any, of a home. That is why Joyce Owens will be paying off these bills and facing debt collectors and harassment the rest of her natural life. She has no way out.

The Senator is exactly right; if you happen to live in one of these three States, you hit the jackpot. Do you know what some of the real sharp people do in bankruptcy? Bowie Kuhn--do you remember that name?--former Commissioner of Baseball. A prosperous man, right? Well, he got pretty deeply in debt one day, so he decided to take all of his assets and buy a mansion in Florida and file for bankruptcy. He filed for bankruptcy and got out from under his debts, but they let him keep his multimillion-dollar mansion in Florida. Bowie Kuhn got to keep his mansion. Joyce Owens cannot even keep her home to try to care for her quadriplegic son.

And you say to yourself, my friends on the other side of the aisle, surely in your home States you have people like this. You must be able to find them if you get outside this bubble we live in here and speak to people in the real world. Senator Kennedy is speaking to people in the real world, and this is what he is hearing. This is what I hear, and what Senator Obama and others hear. That is why his amendment is so important.

Yesterday, we lost an amendment that said if you were serving in the Guard or Reserve, activated to duty in Iraq, and you go over there to serve your country and risk your life for America, and you lose your business and go into bankruptcy because you are overseas serving America--I offered an amendment to say, at least give those soldiers a chance in bankruptcy to protect their homes.

Do you know what happened to that amendment? We lost it, 58 to 38. Many of the 58 Senators who voted against that amendment for the Guard and Reserve are the first ones waving the flag in the Fourth of July parade: How much we love our soldiers.

Where were they yesterday? These great lovers of the American military were nowhere to be found when they had a chance to do something for them when they serve their country and face bankruptcy at home.

Here is a chance for some of our colleagues who talk long and hard about feeling the pain of ordinary families to do something. The Kennedy amendment offers them a chance to do something, to say that in the bankruptcy court, we will acknowledge the disasters that families face across America because of medical bills, and we will do something about it.

I salute the Senator for his leadership, and I look forward to passing the amendment.

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Mr. DURBIN. I thank the Senator from Massachusetts.

We let down the Guard and Reserve yesterday. Military families and groups supported my amendment, but 58 Senators voted against it. They decided that the men and women serving in the military, risking their lives, were not entitled to any breaks when it came to filing bankruptcy because as they were overseas their families and businesses failed. That was the decision yesterday. Fifty-eight Senators said, no, they are not entitled to any special help.

Today we have a chance to give a helping hand to people facing medical crises. Over half of the bankruptcies in America involve people who faced a medical crisis and were crushed by it. They turned to bankruptcy court. Senator Kennedy gives them a chance in that court to come out with dignity and to start their lives anew. He gives them a chance to keep their homes. Is this unreasonable? I don't think it is. It is only fair. I gladly support the amendments of the Senator and thank him for offering them both.

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Mr. DURBIN. Mr. President, I would like the people following this debate to understand what is being said. We have spent billions of dollars on the war in Iraq, and I voted for every penny of it. If it were my son or daughter over there, I would give them everything they needed to get their mission accomplished and come home safely. I ask the Senator from North Dakota, how many official committee hearings and investigations have there been in Congress looking into the sole-source, multibillion-dollar contracting the Senator has referred to?

Mr. DORGAN. My understanding is, I believe there was only one in the House, and the bulk of that was to defend the company called Halliburton--and there were no such hearings by the standing committees in the Senate. Essentially, there has been no interest in looking at this kind of abuse. The Senator from Illinois was at a DPC hearing we held. We had a guy there who used to purchase towels. He purchased hand towels for soldiers. He held up the towels. He showed us that they are nearly three times the price of the towels they purchased for U.S. soldiers. Why? Because the company wanted its logo on the towel. So they buy a towel with a company logo on it for the soldiers and nearly double-bill the American taxpayer. This is a small issue in itself, but it is an example of what is going on, pervasively.

Mr. DURBIN. If the Senator will yield for another question, the amendment he is going to offer, which I have worked on as well and am honored to join him as a cosponsor, is modeled after the Truman Commission that was created during World War II. Isn't it true that Harry Truman, a Democratic Senator from Missouri, initiated this investigation into what he called profiteering during the war at the expense of soldiers and taxpayers, and was literally examining the practices of a Democratic President, Franklin Roosevelt, with that commission, so that here he was, a Democrat, saying he had a higher responsibility to the taxpayers and soldiers. He was going to investigate the activities of the War Department under a Democratic President. I ask the Senator, was that not the case?

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Mr. DURBIN. Will the Senator yield for a question?

Mr. NELSON of Florida. Of course, to the distinguished assistant Democratic leader, I yield.

Mr. DURBIN. I must be living under a dark cloud because I not only had my identity stolen several weeks ago, but I am also one of the 60 Senators who, like the Senator from Illinois, was a victim of this apparent theft of a computer tape of official business credit cards of the Senate which compromises our credit cards. In my situation 4 or 5 years ago, I received a phone call from a collection agency in my home in Illinois saying: DURBIN, we finally caught up with you. I do not know if you thought you could get by with this forever. We knew we would find you. You owe our company in Denver, CO, $2,000. I said: I have never been to your company's place in Denver, CO. I have never done business with you. It turned out to be someone using my name and my Social Security number, who had run up several thousand dollars in charges. It took several months to sort it out, but I was lucky. I sorted it out. There are some stories that have come to my office, and I am sure to the Senator's office as well, where it took years before they finally came to the bottom of it.

So I ask the Senator from Florida, for those people who were victims of identity theft, maybe a credit card where charges were run up out of sight, tell me exactly what the Senator's amendment will do to protect them in this new bankruptcy reform we are considering.

Mr. NELSON of Florida. I thank the Senator for his question. Yes, the Senator may well be one of the victims that was not announced until after work on Friday afternoon at 5, but we have identified that it is 60 Senators in this Chamber, along with 1.2 million Federal employees. We are talking about this credit card that is provided for official expenses of Government business, and all your personally identifiable information is on that file. So it may well be that a majority of this Senate finds they could become the victims and experience the similar kind of agony of the six people I just met with in Orlando, that it keeps going on and on and they cannot get their identity back.

I had one who was a truck driver with special permission to drive hazardous materials. His identity is stolen and there is somebody out there driving a truck of hazardous materials who has stolen his identity.

The Senator's specific question is: What does this amendment do? What it does is carve an exemption for the people who have debts that have driven them into bankruptcy because those debts have occurred through no fault of their own. Their identity has been stolen and someone has created a credit card that then runs up bills in their name, that they did not know about, they did not intend, nor could they afford, and as a result, because they cannot get it worked out--and I wish the Senator could hear these victims, how long it takes them to get their identity back--in a timely fashion, they have to file for bankruptcy.

My amendment says this is going to be an exception from all the rigors of the bill that say a person cannot file for bankruptcy.

Mr. DURBIN. If I could further ask the Senator from Florida, this bankruptcy reform is going to affect millions of Americans. About 1 million to 1 1/2 million a year file for bankruptcy, and all of their members of their family, of course, are affected by the bankruptcy so these people filing for bankruptcy have reached a point where their bills are so large they have said: I cannot do it, it is far in excess of what I can ever pay off, and they go into bankruptcy court asking that they have their debts relieved. They give up most of their assets in life and their debts are then paid off partially, as much as they can, and they walk out of the bankruptcy court with a new day ahead of them. That has been the law for a long time.

This bill we are considering says, wait a minute, we may not let you walk out of the court with all of your debts behind you. You may walk out of the court with some of the debts still on your shoulders that you have to keep paying. So if I understand the Senator's amendment, he is saying if the debts we are talking about were incurred not by the person filing bankruptcy but in their name because of identity theft, then for goodness sakes it should not be said at the end of the bankruptcy process that they still have to carry these debts which some criminal has incurred in their name.

Is that my understanding of what the Senator is trying to achieve?

Mr. NELSON of Florida. Indeed, the Senator has put his finger on the problem and the attempted solution to the problem, recognizing that we want to work with the banking industry and the credit card industry so this does not become a loophole that somebody can get out of following the law and be irresponsible about filing bankruptcy. We have even put it in the amendment that there has to be a threshold for the person who would have this exemption because of identity theft. For example, it would have to be a claim against the debtor in excess of $20,000, or 50 percent of all the claims asserted against the debtor, or 25 percent of the debtor's gross income for a 12-month period.

With that reasonable protection, so that somebody is not abusing the law, we come back to the basic issue of fairness.

Mr. DURBIN. If I could ask the Senator from Florida, yesterday we considered an amendment, which the Senator supported and cosponsored, which said take into consideration the members of the National Guard and Reserve who are being activated and sent overseas to Iraq and Afghanistan, risking their lives for America, that if they are gone for a year or more they may have an economic misfortune; maybe that small business they were running fails because they are gone serving their country. So we offered an amendment yesterday which said when it comes to that bankruptcy situation we should be more tolerant, more lenient and more sensitive to these men and women who have risked their lives serving America in the Armed Forces.

When we offered that amendment the Senator from Florida may recall that yesterday some 58 Senators voted against it, many of whom will be the first to welcome these guardsmen and reservists with open arms, thank you for your service to our country. Now Senator Kennedy has an amendment pending which says, what about the category of Americans who have overwhelming medical bills because of a medical condition they never could have anticipated and they get trapped in bankruptcy? Can we take that into consideration and not hit them as hard as others and not take their homes away from them at the end of the day? Now the Senator comes in with another category, which I think is equally legitimate, of victims of identity theft.

If I understand the Senator from Florida, he is following in the same line of argument, and that is the bankruptcy court should not be blind to reality, to the reality of the guardsmen and reservists serving our country and paying a heavy price at home in terms of their personal finances. Nor should this bill be insensitive to a single mother raising children, diagnosed with breast cancer, who as a waitress with another job cannot pay off her medical bills, or in the Senator's case an elderly person whose identity was stolen and charges were run up beyond anything that she could handle.

It is my understanding that what you are saying is this law should be sensitive to the realities of people who are doing the right thing but are being victimized, either by medical illness or by identity theft. Is that the intention of the Senator?

Mr. NELSON of Florida. The Senator is correct. Indeed, this amendment is saying that under the circumstances, where a person, through no fault of their own, because they have been preyed upon by larceny, by a thief, and bills have been run up because their identity has been stolen, and that happens, tragic as it is, to cause them to go into bankruptcy, that they should be exempted the harsh means test provision of this bill and should be allowed to file Chapter 7 bankruptcy under those circumstances. The stolen identity is enough. The debts run up are enough. The harassment of trying to get your identity back is enough. Lord help them, then when they have to file bankruptcy, that ought to be enough. But to say that they cannot file Chapter 7 bankruptcy under this condition? What are we trying to do to our fellow Americans? This amendment perfects that glaring error and inconsistency.

I yield the floor.

Mr. DURBIN. Mr. President, I thank my colleague from Florida for his leadership on this issue. I am happy to join him as a cosponsor. I would like at this time to offer another amendment which I would like to describe.

AMENDMENT NO. 38

I ask the pending amendment be set aside, and I send an amendment to the desk and ask for its immediate consideration.

The PRESIDING OFFICER (Mr. COBURN). Without objection, it is so ordered. The clerk will report.

The assistant legislative clerk read as follows:

The Senator from Illinois (Mr. DURBIN), proposes an amendment numbered 38.

Mr. DURBIN. I ask unanimous consent the reading of the amendment be dispensed with.

The PRESIDING OFFICER. Without objection, it is so ordered.

I yield the floor.

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Mr. DURBIN. Mr. President, there is hardly one of us who has not heard a story that goes as follows: An elderly widow is living in her family home. Her children have moved out. She is getting up in years, but she is happy in her home, exactly where she wants to be. As time goes on, life gets more complicated for her, and someone takes advantage of her. There is a knock on the door and someone says to her: I just took a look at your roof. You must realize it is in terrible condition, and luckily I do roofing. I will be happy to repair your roof. Or, if you put vinyl siding on this old house, you could save so much on your heating bill. Or, did you notice that your basement foundation is starting to crack? That could be dangerous, and luckily I do the work.

You hear the story over and over, that this person--I do not mean to pick on elderly widows; it could be a widower, too--says: Sure, that sounds good. You seem like a nice, bright young man. Why doesn't your company come in and fix my house.

They say: Great. Here is a little contract we would like you to sign to have the home improvements.

They look at it and they say: It is tough for me to read it. I am not a lawyer.

Trust me, it is a standard contract.

They sign on the dotted line.

You have heard this story. Maybe someone in your family has been through this. Then what happens. The work turns out to be shoddy. They do not do what they are supposed to do. The charges are outrageously high. Then you take a look at the contract, and it turns out the contract creates a lien on the property, perhaps another mortgage on the property, perhaps a balloon payment, maybe interest rates that go right through the roof for the unsuspecting person. There are finance companies behind these door-to-door con artists who write out these contracts and end up, when all is said and done, owning the home.

That is not an outrageous story I have told you. It is repeated over and over, day in and day out, in my home State of Illinois and around the country. That is why I am proposing this amendment. This is called predatory lending. You know what a predator is: the animal that goes out trying to devour its prey. Predatory lenders do just that, too. This amendment is designed to penalize the growing number of high-cost predatory mortgage lenders who lead vulnerable borrowers down the path to foreclosure and bankruptcy. It is about balance, something this bankruptcy bill desperately needs.

If we are going to change the bankruptcy laws because too many people go to bankruptcy court, then we must also address predatory lending, which I have described, which is driving too many vulnerable Americans into bankruptcy court. If we are going to make the door to the bankruptcy court harder for consumers to open, then we must also make sure we are not protecting predatory creditors that force consumers to knock on that door.

There is no uniformly accepted definition of predatory lending. It is a lot like the old Supreme Court saying: I will know it when I see it. But high-pressure consumer finance companies have cheated unsophisticated and vulnerable consumers out of millions of dollars using a variety of abusive credit practices. Let me give examples of what they are: hidden and excessive fees and interest rates; lending without regard to the borrower's ability to pay; repeatedly refinancing a loan over a short period of time without any economic gain, known as loan flipping; committing outright fraud and deception, such as intentionally misleading borrowers about the terms of the loan.

Some automobile lenders in the used car industry have gouged consumers with interest rates as high as 50 percent with assessments for credit insurance, repair warranties, and hidden fees, adding thousands of dollars to the cost of an otherwise inexpensive used car. Pawn shops in some States have charged annual rates of interest of 240 percent or more. I could give you a lot more description of these predatory lending practices. Let me just tell you a few stories.

My colleagues who were listening to this debate know I have offered this before. They are likely to say: Here comes DURBIN again with the same old amendment. I am here again as I was in a previous Congress because this problem is still with us today. The last time I called up this amendment on debate on a bankruptcy bill we lost by one vote. This problem has only become worse since Congress defeated that amendment.

As predatory mortgage lending increases, it continues to target lower income women, minorities, and older Americans. In 1998, Senator Grassley of Iowa, my friend and colleague and the author of the bankruptcy bill, held a hearing in the Senate Special Committee on Aging looking into predatory lending. At the hearing, this is what a former career employee of that industry had to say.

Listen to how he described his customers:

My perfect customer would be an uneducated woman who is living on a fixed income, hopefully from her deceased husband's pension and Social Security, who has her house paid off, is living off credit cards but having a difficult time keeping up her payments, and who must make a car payment in addition to her credit card payments.

This witness acknowledged that unscrupulous lenders specifically market their loans to elderly widowed women, blue-collar workers, people who have not graduated with higher education, people on fixed incomes, non-English speaking, and people who have significant equity in their homes.

That statement was made in 1998, 7 years ago. Six years later, February 2004, the Special Committee on Aging held another hearing on the same subject. At this hearing, held just 1 year ago, this is what a witness from the Government Accountability Office said:

Consistent observational and anecdotal evidence, along with limited data, indicates that for a variety of reasons, elderly homeowners are disproportionately the targets of predatory lending. Because older homeowners on average have more equity in their homes than younger homeowners, abusive lenders could be expected to target these borrowers and ``strip'' the equity from their homes. The financial losses older people can suffer as a result of abusive loan practices can result in the loss of independence and security, significant decline in the quality of life.

So has the problem of predatory lending gone away, as my opponents might argue? No, it has gotten worse.

What else has been going on since we first considered this in the Senate?

The AARP Litigation Foundation, which files lawsuits to help seniors, has been party to seven lawsuits since 1998 involving allegations of predatory lending against more than 50,000 elderly Americans. As of February 2004, six of their lawsuits have been settled, and one is still pending.

Minorities are still being targeted by these unscrupulous lenders as well.

According to the Center for Responsible Lending, Hispanic Americans are two and a half times more likely than whites to receive a refinancing loan from one of these lenders. African Americans are more than four times more likely to be targeted.

Let me share a credible article from the Los Angeles Times of February 2004 by Ameriquest, one of the largest subprime lenders. The article includes a story about how they tricked a minority, Sara Landa, from East Palo Alto, CA. She speaks Spanish and limited English.

She entered into a settlement with one of these companies, Ameriquest. After that, it was alleged that Ameriquest employees tricked her into signing a mortgage that required her to pay almost $2,500 a month, far more than her income from cleaning houses. All the negotiations were in Spanish. All the loan documents were in English. The only thing she ever received from Ameriquest in Spanish was a foreclosure notice. It is amazing.

In this same article, you will find statements from many ex-employees of this company, Ameriquest, asserting that while they worked for this company they were engaged in improper and predatory practices.

Mark Bomchill, a former Ameriquest employee, said he left his job because he didn't like the way Ameriquest treated people. He said that the drive to close deals and grab six-figure salaries led many of his fellow employees astray. Listen to what he said. He said:

They forged documents, hyped customer's credit worthiness and ``juiced'' mortgages with hidden rates and fees.

Two other former employees said borrowers were often solicited to refinance loans that were not even 2 years old. This happened even though Ameriquest pledged in 2000 not to resolicit customers for at least 2 years. They completely ignored that pledge.

Nearly one in nine mortgages made by Ameriquest last year was a refinance on an existing loan less than 2 years old. The abuses don't end there.

Former Kansas City Ameriquest employees described another predatory practice by the same company where they would fabricate borrowers' incomes and falsify appraisals.

Lisa Taylor, a former loan agent from Sacramento, said she witnessed documents being altered as she walked around the vending machine that people were using as a tracing board, copying borrowers' signatures on an unsigned piece of paper.

If you think these are isolated examples, exaggerated stories, let me refer you to a 2004 GAO study that found that this is a prevalent problem in the subprime mortgage industry--this predatory lending. They found plenty of indications that predatory mortgage lending was a major and growing problem in the year 2004.

According to the 2004 study, in the past 5 years, there have been a number of major settlements resulting from government enforcement acts. I will mention a few.

Household International agreed to pay up to $484 million to homeowners across America to settle allegations by States that it used unfair and deceptive lending practices.

In September 2002, Citigroup agreed to pay $240 million to resolve FTC and private party charges that Associates First Capital Corporation engaged in systematic and widespread abusive lending practices.

In March 2000, First Alliance Mortgage Company settled with the Federal Trade Commission, six States, and the AARP to compensate borrowers more than $60 million because of their deceptive practices to lure senior citizens. An estimated 28 percent of the 8,700 borrowers in that suit were elderly.

These are documented. While some victims of predatory lending are lucky enough to receive compensation because of these lawsuits, many more have fallen to predatory lenders, and they never can turn to our legal system for help.

Here is an astonishing statistic. Mr. President, 1 in 100 conventional loans ends in foreclosure, but 1 in 12 subprime predatory loans ends in foreclosure. While it might be expected, these loans, because they are made with less creditworthy borrowers, would result in an increased rate of foreclosure, but the magnitude of the differences tells us that there is more at stake here than just the creditworthiness of the borrower.

The Senate Banking Committee held a hearing in July 2001. At that hearing, a report from the Center for Responsible Lending was released which showed the predatory lending practices cost American borrowers an estimated $9.1 billion annually.

Let me tell you why I am offering this amendment. Imagine, if you will, that it is your mother, father, grandmother, or grandfather alone in their home, and they signed this home improvement loan or signed this refinancing, which you learn about months later. You say: Grandma, you didn't tell me that you had somebody come in and do some work, and you didn't tell me you signed these papers. Did anybody read them?

No. He seemed like such a nice man, and he told me it was a standard form.

And you take it over to your family attorney. He says: My goodness. What your grandmother signed here is a remortgage of the property. She owned the home, and now, by buying vinyl siding, she has remortgaged her property and promised to pay back just a few hundred dollars a month to start with, but in a matter of a year or two, it explodes. The balloon pops, and it turns into a $2,000-a-month payment.

How is she going to pay it? Let us assume the worst circumstance--she doesn't pay. The mortgage is foreclosed on. She is about to lose her home, and she files for bankruptcy. She has nothing left on this Earth except a Social Security check, maybe a little pension check, some savings, or meager savings. She goes into bankruptcy court to try to get out from under this burden. Guess who shows up at the bankruptcy court. The same predatory lender shows up saying: We own whatever she owns. She signed this mortgage.

Is it fair? Is it fair for somebody to take in a legal document, a predatory mortgage, that takes advantage of elderly people, and then be protected in the bankruptcy court? I don't think so.

If we are going to hold people coming into bankruptcy court who file for bankruptcy to the high moral standard of paying back their debts, should we not hold the creditors walking into bankruptcy court to a similar high moral standard that they must have followed the law, that they must have engaged in this highly regulated, moral conduct?

The amendment I am offering prohibits a high-cost mortgage lender from collecting on its claim in bankruptcy court if the lender extends credit in violation of existing law--the Home Ownership and Equity Protection Act of 1994, which is part of the Truth in Lending Act.

I am not reinventing the law. I am just saying when you issued this mortgage, you violated the law. You took advantage of a person by violating the law. You cannot then go in court and say protect me with the law. You can't have it both ways. If you broke the law to incur this debt, you can't go in court and ask for the law to protect you to collect the debt.

That seems to me to be just. If you were legal in the way you treated this person, then you can use the law in enforcing your debt. If you were illegal in the way you treated this person, you can't go into court and use the law to collect on that illegally based debt. That is simple.

When an individual falls prey to lenders and files for bankruptcy seeking last resort help, the claim of the predatory lender will not be allowed against a debtor. If the lender failed to comply with the requirements of the Truth in Lending Act for high-cost mortgages, the lender has no claim in bankruptcy court.

The law has long recognized the doctrine of unclean hands where a party to an illegal agreement is not able to recover damages from other parties to such an agreement because the claimant itself was the party to an illegality.

My amendment is not aimed at all subprime lenders. The amendment will have no impact whatever on honest lenders who make loans that followed the law even if the loans carry high interest rates or high fees. Instead, it is directed solely at the bottom feeders, the scumbags, the predator lenders. My amendment reinforces current law and will help ensure that predatory lenders do not have a second chance to victimize their customers by seeking repayment in a bankruptcy proceeding.

Second, this amendment is not aimed at technical violations of the Truth In Lending Act. The violations must be material. I specifically made that change in my language to address some of the concerns raised in the first debate.

Third, the amendment does not amend the Truth In Lending Act. There is no question as to whether the Senate Banking Committee has any jurisdiction. We do not change the Truth In Lending Act. I point out the bankruptcy bill does amend that act in some parts. My amendment absolutely does not.

Some may argue the amendment is unnecessary because current law is sufficient. I disagree. I recognize Congress has passed numerous laws that Federal agents and regulators have used to combat predator lending, but predatory lending is on the rise. Many Americans are being cheated and duped by these unscrupulous business people.

President Bush has attempted to promote home ownership as part of the vision of an ownership society. I applaud him. For my wife and me, the first time we purchased a home was a turning point in our lives. We started to look at the world a lot differently. This was our home, on our block, in our neighborhood, in our town. It is an important part of everybody's life. I support that. But unless we rein in the abusive behavior of some in the lending industry, we will be promoting not an American dream, but an American nightmare for thousands of homeowners.

Let me say one more word. The last time I offered this amendment, the most stunning thing I learned was that the major financial institutions in America, the big boys, the blue chips, the best in the industry, oppose my amendment. You think, wait a minute, why would the best financial institutions in America oppose an amendment to stop people from cheating and violating the law in issuing mortgages? I never quite understood. Maybe their logic is this: If we let this amendment in where some of the worst lenders are held to the standard, then maybe the Government will take a closer look at us, too, so let's be opposed to all amendments. Let's try to protect everybody in the industry even if what they are doing is fundamentally unfair and even illegal. That is the best argument I can come up with.

I urge those in the financial industry who may be following this debate and desperately trying to see this bill pass, please be honest about this. Do you want to protect the subprime lenders, these predatory lenders who are engaged in the worst practices in your business? Why in the world would you want them to stay in business? Why would you want to protect them in court when they give lending a bad name, which is your business?

There are an awful lot of examples I can give. Let me mention a few cases before I close. Alonzo Hardaway owned a home in Pennsylvania for 28 years, raised his family there, went through a divorce there, his parents died there, but he no longer lives there. As of summer, he was living in a homeless shelter. Why? Because in 1999 a home remodeler and subprime lender convinced Mr. Hardaway to take a home equity loan for $35,000 at 13-percent interest to redo his kitchen windows and doors. When this 56-year-old man's trash hauling business faltered, he defaulted on his loan, his home was sold at a sheriff's sale and he was evicted in March of 2004. The loan is with The Associates, a large subprime lender later bought by Citigroup, which 2 years ago paid $215 million in fines for unscrupulous lending. That was documented in the Pittsburgh Post-Gazette.

There are many other examples. I mention one or two of particular interest. Here is one of a victim of appraisal fraud known as ``house flipping.'' Ms. Wragg, a retired school aide, found the home of her dreams in a little neighborhood in Brooklyn. It was a classic brick house with a porch, a backyard. She had not originally set out to be an owner, but her eyes drifted to an advertisement offering the home of her dreams. She began her journey.

Now, 2 years later, she said that journey has turned into a nightmare. Her life savings has been depleted by a house she could never afford. The house was appraised at far more than it was worth and Ms. Wragg was given two mortgages she would never have qualified for, carrying costs more than double her income. She blames the mortgage company, the appraiser, the lawyer who represented her, and United Homes, LLC, of Briarwood, Queens, the company that owned the home, placed the ad, and arranged almost everything about closing. This is what she said: I trusted them, because I had never done this before and I didn't know any better.

These cases go on and on. I will not read them into the RECORD. There is one in your community, in your State. Maybe it happened in your family. You have read about them. You have seen them on television. And I am sure you wondered, Who is going to stop this abuse and exploitation? We only stop it when we tell these companies we will not protect you in bankruptcy court. You cannot take away the home of someone if you have engaged in illegal practices in issuing your mortgage.

When we consider the amendments before the Senate on this bankruptcy bill, I hope we will not only hold those walking in the bankruptcy court seeking relief from their debts to high standards of moral conduct, we will also hold the creditors who are seeking repayment of debts to the same conduct, perhaps just legal conduct, which is the only standard I have included in my amendment.

I yield the floor and suggest the absence of a quorum.

http://thomas.loc.gov