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April 16, 2005

the legislative sausage machine

Don Herzog: April 16, 2005

Zipping through the House debate over our brand spanking new bankruptcy bill didn't quite give me a migraine.  But close enough.

Democrats protested that the Republican majority had adopted rules designed to steamroll the bill right on through.  (The bill has been bouncing around for a leisurely seven years, but House leaders were suddenly in a hurry.  Apparently they wanted an up-or-down vote on the Senate's version to avoid further delays in conference committee.  President Bush's pen is poised.)  Here's Rep. Tom Udall (D-NM):

The majority has, once again, passed a rule that stifles debate and blocks serious and substantive amendments.  There were more than 30 thoughtful amendments brought before the Rules Committee, yet they did not allow a single one to be brought before the full House.  These amendments would have addressed the impact that this bill would have on groups such as disabled veterans returning from Iraq, single parents, families experiencing a catastrophic medical event, and people who are victims of identity theft.  This continued smothering of the democratic process by the majority is shameful and must stop.

One of those amendments, offered by Rep. Adam Schiff (D-CA), would have protected those in debt because of identity theft.  (The technical definition was "a debtor with respect to whom not less than 51 percent of the aggregate value of allowed claims is a result of identity theft using the personally identifiable information of the debtor.")  Here's Rep. Schiff's plaintive plea:

Mr. Speaker, a few years ago, the manager of the identity theft at the FTC commented on how identity theft was becoming rampant in this country, that it wreaks havoc on the credit of the victim and can even force them into bankruptcy.  Since then, the problem has grown even worse, and an estimated 27.3 million Americans have fallen victim to identity theft in the last 5 years.

We have all heard of recent breaches of massive databases holding personal information.  On Monday, the parent company of the Lexis-Nexis reported that 310,000 people, nearly 10 times more than the original estimate reported last month, may have had their personal information stolen, including names, addresses, Social Security numbers, and driver's license numbers.

And this is not an isolated incident.  Identity thieves have gained access to Choicepoint's database and personal information has been stolen and compromised from a major bank, department of motor vehicles, and a number of universities.  Added together, these recent incidents in the last several weeks alone have exposed more than 2 million people to possible ID theft.

During the Judiciary Committee consideration of my amendment, I cited two recent examples of identity theft victims who were forced to declare bankruptcy, one young woman defrauded out of $300,000 and another woman who was wiped out financially when her identity was stolen, forcing her to file for bankruptcy right before Christmas.

When I offered the amendment in the Judiciary Committee it provoked quite a debate as well as a disagreement between the Chair of the full committee and the Chair of the subcommittee.  The Chair of the subcommittee argued that my amendment would somehow do harm, while the Chair of the full committee argued that the problem with my amendment was that it did nothing at all.  The chairman of the subcommittee then argued that the problem was that this issue had never been explored.  However, the chairman of the full committee argued that this issue, and every other, had already been explored.

Well, Mr. Speaker and Members, it cannot be both.  The chairman of the subcommittee even pondered what would happen if a person had their identity stolen, but then later became wealthy and had the ability to pay off their debt.  While admitting that he was stretching, he still urged his colleagues to reject the amendment because it would "clearly disrupt the whole process of moving forward the bill"....

This is now the third session in a row where essentially no amendments have been entertained in committee and no amendments have been allowed here on the floor.

Rep. Phil Gingrey (R-GA) dismissed the issue as "a red herring," arguing that you're not legally liable for debts fraudulently incurred by others in your name.  Rep. Louise Slaughter (D-NY) shot back, "if my colleagues in the majority do not agree that protecting Americans from identity theft is an important issue, why will they not let the body debate it?  If they want to, they can always vote against it."  Gingrey has to know better:  the problem with identity theft is demonstrating that the debts in question are not in fact yours.  But hey! don't trust me on the matter.  Trust our president:

An identity theft — thief can steal the victim's financial reputation.  Running up bills on credit card accounts that the victim never knew existed, the criminal can quickly damage a person's lifelong efforts to build and maintain a good credit rating.  Repairing the damage can take months or years.

I don't doubt that legislative minorities can and do use endless amendments to grind legislative proceedings to a halt.  But the Republican decision on this one looks not just overweening but wacky.  I'm market-minded enough to think that credit card issuers ought to be more careful deciding whom to extend credit to in the first place.  Infants and pets get invitations for preapproved credit cards.  Are the banks pleading with the nanny state to save them from their own wretched judgment?  Or are they addicts?  "Please, Congress, we know we're destroying ourselves by constantly pushing credit on unreliable consumers, but we just can't help ourselves.  Stop us before it's too late!"  Then again, looks like the industry has been recording healthy profits.  Are they after a legislative handout that will secure them obese profits?  Or do you think their lobbying was driven by the desire to cut interest rates, so those dutifully paying off their debts wouldn't have to subsidize those declaring bankruptcy?  We'll see what actually happens.

Meanwhile, the Notification of Risk to Personal Data Act has bipartisan support.  It imposes a duty to disclose security breaches to individuals.  Better than nothing, I suppose.  I'll try to remember to check up on its progress now and again.


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Posted by: john t

Suddenly in a hurry after seven years,what's the matter with those Republicans? I looked for the word "deadbeats" in the post but didn't come across it but then I remembered that's a word used only for people who cheat on their income taxes.

Posted by: john t | Apr 16, 2005 10:25:00 AM

Posted by: Don Herzog

john t, the deadbeat question goes to whether bankruptcy reform was appropriate. My concern here isn't that. My concern is whether it made sense to stampede through a bill and refuse to consider problems like identity theft. People who discover they are $250,000 in the hole with no way of climbing out because unnamed others have been ripping them off are surely not deadbeats.

Posted by: Don Herzog | Apr 16, 2005 11:29:28 AM

Posted by: D.A. Ridgely

Unless, of course, they left their credit cards lying around where their cats could find them and run up huge charges for catnip and gourmet cat food. (Dogs, by contrast, can be trusted, but only because they'd chew up the cards before they got to the store.)

Posted by: D.A. Ridgely | Apr 16, 2005 11:58:01 AM

Posted by: detached observer

More details on the various amendments to the Senate version of this bill are on Kos.

Posted by: detached observer | Apr 16, 2005 12:35:29 PM

Posted by: Josh Jasper

You mean there are cat owned people who don't run up huge bills in pet needs just because they cats ask them to? Horrible.

Posted by: Josh Jasper | Apr 16, 2005 3:25:57 PM

Posted by: john t

Don H thanks for the return post. Do you detect something that might be inadvertently ironic in your use of the word "stampede"? Seven years! Neither in credit card or identity theft do I think there would be any kind of broad based practice to hold the hapless and innocent consumer's feet to the fire. For the first banks already have policies to excuse debt and for the second it would be to easy for the card holder to prove non actionable liability,please take my word on this,banks do not want to go to court. It is also another reason why banks carry bad debt insurance {fraud }. And why insurance companies are possibly active on this bill as well. Just wanted to raise a few points,nothing more.

Posted by: john t | Apr 17, 2005 9:36:24 AM

Posted by: Jeff Licquia

I will not speculate on the worthiness of the other amendments or the wisdom of the expedited process. But the specific example of identity fraud, I think, hurts the case Mr. Herzog is making.

It would seem that bankruptcy would only be an appropriate response to having one's cash accounts cleaned out, since other forms of fraud can conceivably be defended against without immediate harm. However, I wonder how a victim would afford the fees. If the victim can afford the fees, certainly the victim can afford to buy necessities while protesting the fraud through more approprate (and quicker) channels.

Moreover, assuming that one is up to date on one's bills, a phone call to one's creditors explaining the situation should give one a respite from payments without the mess or expense of bankruptcy court. In many cases, such a short respite should be all one needs.

And if the case is such that proving fraud may take longer than the creditors' patience will allow, what prevents victims from filing at that point? At minimum, the victim will at least have had a chance to earn enough money by then to afford the bankruptcy process. And it would seem that if people can file just because they can't pay their debts, they can file because their money has been stolen.

Posted by: Jeff Licquia | Apr 17, 2005 1:12:01 PM

Posted by: Perseus

If Don Herzog's concern isn't whether bankruptcy reform is appropriate, why the gratuitous bashing of the credit card industry because it stands to gain "obese profits" from the reform?

Why should the Republican majority treat the amendment as anything other than an obstructionist tactic in light of the history of staunch Democratic opposition to the bill, which has included a veto by Clinton and a filibuster in the Senate?

Posted by: Perseus | Apr 17, 2005 4:56:44 PM

Posted by: Don Herzog

Perseus, us market-minded types are ever suspicious of industries going to Congress to do what your public choice guys call rent-seeking: that is extract privileges from the legislature instead of doing productive work on the market. You can't justify bankruptcy reform on the theory that it would enhance the industry's profits. You can't justify it on the theory that those profits are too low.

Since you are always fond of high-minded erudite references, I direct your attention to Teddy Roosevelt's 1906 speech on muckraking, applauding the exposure of corruption where it actually exists and demanding that the state be absolutely fair as between workers and firms.

As to why the Republican majority might want to permit debate on such an amendment after all these years, let me remind you that identity theft is a far more common problem than it used to be.

Posted by: Don Herzog | Apr 17, 2005 5:05:53 PM

Posted by: Thomas

It's particularly sad when someone's identity is stolen and the thief runs up extensive medical bills.

Apparently that's a pretty common scenario.

Posted by: Thomas | Apr 17, 2005 7:25:11 PM

Posted by: Perseus

I wouldn't justify bankruptcy reform because it would enhance industry profits. While self-interest is undoubtedly involved in the industry's support for the reform, self-interest is likewise involved in those groups hostile to the reform such as debtors, bankruptcy lawyers, the National Bankruptcy Review Commission, etc. I didn't see you exposing their corrupt influence on the legislative process. And despite your amusing anecdotes to the contrary, there are plenty of market-minded types (Todd Zywicki, Becker, Posner, etc.) who think that, generally speaking, the industry is not being irresponsible in extending credit, but that people are being irresponsible in their use of the bankruptcy laws. So it's not obvious as you seem to think that the reform would provide the industry with artificial rents/"obese profits."


Substantively speaking, it's not altogether clear that allowing people to file bankruptcy as a result of identity theft is as good an idea as it sounds since identity thieves also file bankruptcy using other people's information. That is, the change in the presumption of abuse may also prevent identity thieves from filing bankruptcy. I think it would be better to address the issue more directly.

Posted by: Perseus | Apr 17, 2005 8:05:27 PM

Posted by: Don Herzog

Reading comprehension, my dear Perseus, please: I raised the pursuit of obese profits as a possible explanation, that's all.

Meanwhile I am wondering if you use the following epistemic principle: if I read something in a right-wing source, I believe it. Or, more weakly but still damningly, I will believe things if and only if they have right-wing source support. On this blog, you constantly treat various Straussian authors, volokh, Posner, James Q. Wilson, and so on, as sterling authorities. Oh, they're all fine in their way. But isn't there a much of a muchness here? Don't you get tired of swallowing facts and arguments straight-up from one side of the aisle? Wouldn't a more varied and independent-minded intellectual and political diet be good for you?

Posted by: Don Herzog | Apr 17, 2005 8:46:26 PM

Posted by: D.A. Ridgely

Bankruptcy? Bankruptcy? Are there no prisons? Are there no workhouses?

Posted by: D.A. Ridgely | Apr 17, 2005 9:42:49 PM

Posted by: Don Herzog

I've been tempted to write up a little historical sketch of how the treadmill moves from terror device of the workhouses, to keep those shiftless and idle poor working and make sure no malingerers sponge off the parish, to expensive hi-tech device for keeping yuppies in shape. Mr. Ridgely, if I publish by private subscription, how many will you take?

Posted by: Don Herzog | Apr 17, 2005 9:46:13 PM

Posted by: D.A. Ridgely

It depends on the binding. If the volume is sized properly for holiday stocking stuffers, I might be interested in a quantity purchase. (I trust, of course, since this would be support of scholarly research it would also be tax deductable?)

Posted by: D.A. Ridgely | Apr 17, 2005 10:12:03 PM

Posted by: Don Herzog

Gosh, I don't know. I'm sure I'm not a 501(c)(3) organization, anyway.

But enough bantering about my inconsequential scholarship. Mr. Ridgely, you've shown a rare flash of True Conservatism. Yes, yes, we need debtors' prisons again, you're quite right, it was the wisdom of our ancestors, and we've fallen far astray. No talk of gay marriage back then, no dioxin, and no terrorists killing thousands at one blow. The good old days! and I bet their secret linchpin was the treadmill, the workhouse, and debtors' prisons.

Traditionalists unite! Why o why is the GOP slow to affirm this crucial agenda?

Posted by: Don Herzog | Apr 17, 2005 10:18:09 PM

Posted by: D.A. Ridgely

In fact, True Conservative or not, I oppose debtor's prisons, if only because they are counterproductive. Then again, I have similar problems with many crimes against property whereby the criminal is incarcerated but the debt to the property owner is never paid. (Now workhouses, on the other hand... hmmmmm....)

I do have qualms about both easy credit and liberal bankruptcy, but in a rare acknowledgement of ignorance, I'll plead I really don't have enough information for an informed opinion on pending legislation.

Really, Mr. Herzog! First you rise to defend against poor Mr. Koons’ failed attempt at witty punditry (unlike Falstaff, Mr. Koons’ post has only been a cause of wit in others), and now you take my little Dickensesque quip seriously enough that I must now rise to defend myself? Oh, the ignominy of it all!

Posted by: D.A. Ridgely | Apr 17, 2005 10:35:29 PM

Posted by: Don Herzog

Never fear, Mr. Ridgely, I can readily tell the differences between you and Prof. Koons. But really,

poor Mr. Koons’ failed attempt at witty punditry?

This is the wrong thread to be invoking the good professor's name, but I have to say it is preposterously cruel to think him guilty of a failed attempt at wit. Surely it is infinitely more charitable to suppose he was being serious.

Posted by: Don Herzog | Apr 17, 2005 10:41:58 PM

Posted by: Perseus

Interesting inference about my diet, but I'll bite: which items should I be adding to my diet?

Posted by: Perseus | Apr 17, 2005 11:09:39 PM

Posted by: Terrier

Isn't it more interesting to contemplate the fact that some institutions will actually give you cash without knowing who you are? And that these same intitutions need legislation protect them from fraud? Since the President says that this bill is about ensuring that citizens will be able to get credit when they need it I expect that the fleas on my dogs will now starting receiving offers for low-interest credit-cards. For my dog's sake I hope the fleas are responsible because I would hate for MBNA to place a lein on my dog's backside.

Posted by: Terrier | Apr 18, 2005 11:15:37 AM

Posted by: Abad man

From a reference above to the daily kos I find that democratic Senators Carper and Biden, both from Delaware, have been crossing party lines to vote against the amendments. Could that have to do with the return address on all those mailings by MBNA to my pets?
As far as motives, you do manage to question the republician's, while giving the Dems an pass. And the question seems more daming than even faint praise. Surely it is fair for Perseus to raise questions about Democrat's motive's as well. Maybe a better post would be to examine if bankrupcy law reform is needed, who benefits under the current system, and why if reform is needed 7 years have passed without any appreciable action. Call me a cynic but I imagine everyones hands are dirty. Or are not legal fees protected under the current system, (do lawyers have lobbies)? I do not know for sure but I have my suspicions.

Posted by: Abad man | Apr 18, 2005 11:45:56 AM

Posted by: Sebastian Holsclaw

I know I don't have a good criminal imagination, but why should identity theft cause bankruptcy? If the debts incurred by the thief are not imputed to the victim (after the theft is discovered) why would the victim want to declare bankruptcy?

Posted by: Sebastian Holsclaw | Apr 18, 2005 6:03:46 PM

Posted by: Don Herzog

The parenthesis is the giveaway. It can be extremely difficult to demonstrate that you are the victim of identity theft, and not just a lying debtor. Meantime your creditors are coming after you to attach assets....

Posted by: Don Herzog | Apr 18, 2005 6:23:08 PM

Posted by: Sebastian Holsclaw

But if you can't prove you were a victim of fraud, you aren't going to be eligible for the exemption, correct?

Posted by: Sebastian Holsclaw | Apr 18, 2005 7:16:33 PM

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