A measure allowing bankruptcy judges to rewrite certain high-interest loans would be difficult for credit unions to comply with, CUNA President/CEO Dan Mica wrote members of the Senate Judiciary Committee.
The panel could consider S. 257 this week that would allow a creditor in a "high-cost consumer credit transaction" to have their claim subordinated to all other claims in the bankruptcy case. Any debtor who filed bankruptcy as a result of a high cost consumer credit transaction would be exempt from the means test that determines eligibility for chapter 7 bankruptcy.
A high-cost transaction would be defined as 15% plus the 30-year Treasury bond rate (a calculation that currently stands at 22.4%) or 36%, whichever amount is less.
"The bill does not even seem to be drafted so that the ceiling can be determined at the time the loan is made but rather would be determined at the time the person files for bankruptcy. This would present an impossible compliance burden for the creditors and an interpretive task for the bankruptcy court that may prove impossible to apply uniformly," Mica wrote.
He also criticized the measure, which is sponsored by Sen. Sheldon Whitehouse (D-R.I.), because it uses the rate caps that federally chartered credit unions are subject to as a justification to extend the cap.
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