DURHAM, N.C.-Seventeen creditors, including two credit union CEOs and a credit union chairman, have signed onto a letter sent to leaders of the House and Senate opposing the bankruptcy reform legislation (H.R. 333) as anti-consumer. Movement on the bill is expected to hold off until just after deadline. While acknowledging that bankruptcy reform is needed, the signatories, including Self-Help Credit Union (N.C) CEO Martin Eakes, State Employees Credit Union (N.C.) CEO Jim Blaine, and Latino Community Credit Union Chairman John Herrera, believe that H.R. 333 "disproportionately harms vulnerable debtors while rewarding creditors, particularly unscrupulous credit card companies, for providing excessive credit." CUNA Vice President and Senior Legislative Counsel Gary Kohn admitted, "You're never going to get total unanimity on an issue.however, this is only three credit unions." He pointed out that all three credit unions regularly work in close concert with each other and are all from North Carolina, which makes their objection "hardly a blip on the screen." All three are CUNA members. As for the letter, Kohn said, "We don't believe what they say in that letter is accurate." He added that in recent CUNA studies, bankruptcy is the second most important issue to its member credit unions other than preserving credit unions' tax-exempt status. The letter went to Rep. Tom Daschle (D-S.D.), Rep. Dennis Hastert (R-Ill.), Rep. Trent Lott (R-Miss.), and Rep. Richard Gephardt (D-Mo.). According to the `responsible lenders,' "A key principle of bankruptcy is to protect families who legitimately need it in order to remain productive members of society. The vast majority of filings are in fact legitimate. Ninety percent of families declare bankruptcy not because they suddenly decide to avoid their obligations, but because one of three family emergencies strikes – a job problem, an illness or accident, or a divorce." The letter also points out that credit card lenders are already compensating for their losses by charging high interest rates at a time of historically low rates. The letter claims that unscrupulous credit card lenders "seem to want to have it both ways: to keep rates high and underwriting standards loose, while amending bankruptcy law to decrease losses resulting from questionable extensions of credit." The organizations, which also included The Woodstock Institute and several community development groups, pointed out three key issues they had with the bill in its current form. First, if a consumer files under Chapter 13, where some unsecured debts are repaid, and cannot meet the repayment requirements, it is very difficult to then file under Chapter 7, where all unsecured debt is discharged. Another point the letter made was the inflexibility to file under Chapter 7, pushing filers to do so under Chapter 13. The groups cite an independent academic study that found that less than 4% of Chapter 7 filers could afford to repay any of their unsecured debt under Chapter 13. Lastly, the disadvantages for consumers in H.R. 333 may deter cash-strapped borrowers from filing at all, steering them toward potentially predatory home refinancing. Jim Blaine, CEO of the $9.1 billion in assets State Employees Credit Union, commented that the bill specifically needs more consumer protections and changes in lender practices. He added that there are many reasons for legitimate use of the bankruptcy system and abuse is just a minor part. "The demonizing of bankruptcy as a process is wrong in our view," Blaine remarked. He said he had to speak out against the bill because "it looked like Congress was thinking everybody and their brother supported this bill." While saying that reform may be needed for the bankruptcy process, he claimed that the real abuse came from credit card companies with interest rates in the 20s in a 3% rate environment and charging the highest interest rates to those least able to pay. "I'm for individual responsibility," Blaine explained, "but, wait a minute, if I keep giving you drugs for free, I'm somewhat liable." He added that State Employee's credit card was at 9.75% and it is still one of the most profitable programs for the credit union, however he admitted that losses tend to be a bit higher on credit cards. The CEO also pointed out that the charge-off rate at credit unions averages 0.5% and estimated that approximately 60% of those were from bankruptcies, which leaves about 0.3%. Then only about 5% of those are considered fraudulent, leaving a miniscule amount (just 0.015%) of bankruptcy abuse cases. Blaine added that his credit union's charge-off rate is only 0.13%, so the numbers are even lower in State Employee's case. Martin Eakes, CEO of Self-Help Credit Union, went one step further in his opposition to the bill. "I think it's a subtle repeal of the bankruptcy protection completely," he commented. He pointed out that 50%-60% of Chapter 13 filers are unable to repay debts despite their good faith efforts and that H.R. 333 steers consumers away from Chapter 7 but then does not permit them to file under Chapter 7 when the Chapter 13 repayment plan fails. Eakes said his signing on to the letter in opposition to the bankruptcy reform bill was a "moral statement" against the bankruptcy bill that is "punitive and tilted." He added that his credit union has seen a small up-tick in bankruptcy filings lately, which he attributes entirely to the weak economy. Self-Help Credit Union, with $95 million in assets, has a high rate of delinquent loans (9.89%, as compared to NCUA's peer average of 0.81%), but the charge-offs at the credit union are only 0.08% of loans, as compared to half a percent of its peers. Eakes explained that this simply indicates that his members have limited cash resources but when they are able to catch back up, they want to pay off their debts. Latino Community Credit Union Chairman John Herrera agreed that those who abused the bankruptcy system were just a "small number of bad apples" but everyone, including legitimate filers, is being punished by the current bankruptcy legislation. "Our lives can be changed for factors beyond a person's control," he explained. Herrera also said that lenders need to take on some of the responsibility by promoting financial education and savings. "Our society encourages people to consume without knowing the consequences," he observed. Generally, he said, H.R. 333 needs more balance of responsibility between lenders and borrowers. [email protected]