Pointing to a recent Democratic Party presidential primary debate as a backdrop, Darby describes a tense confrontation between Joe Biden and Elizabeth Warren over creation of the Consumer Financial Protection Bureau.
However, their debate appearance was not the first time these two had clashed over treatment of American consumers. To be sure, they have a long and bitter history over this issue– reaching all the way back before Biden was vice president and before Warren was elected to the senate. That history began with Biden’s support for and fulfillment of a GOP fever-dream for so-called “bankruptcy reform” in the late 1990s and early 2000s, when he was a powerful senator from Delaware and Warren was still a lowly Harvard law professor.
At that time, Warren and Biden locked horns over the differences between and utility of the two kinds of bankruptcy then available to individuals: Chapters 7 and 13 of the federal bankruptcy law.
Chapter 7, otherwise known as “liquidation” bankruptcy was primarily used by low to moderate income people, and allowed them to sell assets in order to pay creditors, and then discharge most of their remaining debts, all under the watchful eye of the bankruptcy court.
Chapter 13, on the other hand, was used as a reorganizing tool, which placed the debtor on a payment plan, guaranteeing that at least part of their future income would be used to pay creditors — a sort of negotiated garnishment. For creditors, naturally, this was the preferred option because it assured that they would recover at least some of the debt owed to them. And, even more to their liking, in most cases, as interest on the outstanding debt continued to accrue, creditors could and would, over time, recoup even more real dollars than they were originally owed.
2005 changed all of that. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was ostensibly meant to stanch abuse of Chapter 7. BAPCPA established a strict means testing regimen, making it harder for people to declare Chapter 7 bankruptcy versus Chapter 13 bankruptcy.
The new law worked like this: When a debtor’s income exceeded a predetermined amount, he or she lost eligibility for Chapter 7 bankruptcy. That bill/law also required credit counseling no more than 180 days before declaring bankruptcy.
Most crucially, though, BAPCPA limited the types of debts eligible and available and subject to discharge. The principal exclusions covered by BAPCPA were those debts incurred via purchase with a credit card of “luxury goods” (as defined by the bankruptcy judge), and/or the withdrawal of too much in cash advances. (“Too much” was, again, to be determined by the judge).
And, perhaps most critically, the bill/law completely eliminated the discharge in bankruptcy of any and all student loan debt. This law, therefore, became the single most significant factor which precipitated and perpetuates to this day the current student loan crisis.
Enter Senator Joe Biden…of Delaware
Darby provides some much needed detail as to whom (and what) the former thirty-plus-year senior Senator of Delaware really represented and why:
Senator Joe Biden was one of the bill’s major Democratic champions, and he fought for its passage from his position on the Senate Judiciary Committee.
But, as Darby also informs us, this was not Biden’s first bite at the bankruptcy apple. He continues:
He [Biden] had pushed for two earlier bankruptcy reform bills in 2000 and 2001, both of which failed. But in 2005, BAPCPA made it through, successfully erecting all kinds of roadblocks for Americans struggling with debt, and doing so just before the financial crisis of 2008. Since BAPCPA passed, Chapter 13 filings went from representing just 24 percent of all bankruptcy filings per year to 39 percent in 2017.
Melissa Jacoby is a University of North Carolina law professor who specializes in bankruptcy. As to the effectiveness of the 2005 Act, Professor Jacoby is quoted in Politico thusly: “I doubt that the bill reined in the abuses that the bill was premised on, in part because they didn’t necessarily exist in the first place.”
An exhaustive list of consumer protection groups, unions, women’s groups (including the National Organization for Women) — all vigorously opposed and lobbied against BAPCPA. To no avail. The new proposal/bill/law was also vigorously supported and lobbied for by the nation’s most powerful banks and credit card companies.
One of the first things would-be tax lawyers learn in law school (or paralegals like me learn in paralegal school, and which every “business law” course teaches) is that virtually since its entry into the union in 1787, the state of Delaware has happily served as a domestic tax dodge, tax haven and tax oasis for both large and small corporations — but especially for large, multi-state, and international conglomerates. Thus, since this nation-state’s founding, financial institutions of all varieties, but particularly banks and credit card companies of late, wield inordinate power within the state of Delaware, and by proxy, throughout the country, and indeed across the globe.
Darby quotes political writer Alexander Cockburn on this point:
The first duty of any senator from Delaware is to do the bidding of the banks and large corporations which use the tiny state as a drop box and legal sanctuary. Biden has never failed his masters in this primary task. Find any bill that sticks it to the ordinary folk on behalf of the Money Power and you’ll likely detect Biden’s hand at work.
Today, of course, Biden denies that banks and corporations have ever exercised any undue influence over him. But as Matt Ygelsias writes over at Vox, Biden’s presidential electoral camp claims now that BAPCPA was a sort of “lesser of evils” compromise with Republicans who would have completely crushed consumers had he not — reluctantly — come around to save the day by supporting BAPCPA.
But! Biden’s critics like to point out that there were any number of unexplained anomalies and red flags associated with Biden’s efforts to pass this law. A particularly giant and billowing red flag was the not so curious fact that the biggest credit card company in Delaware, MBNA, hired Joe Biden’s son Hunter in 1996. (Yes, Hunter again).
Hunter became a registered federal lobbyist in 2001; yet he remained at MBNA as a $100,000 per year “consultant.” This means, of course, that son Hunter was still on MBNA’s payroll at the same time his father was ramrodding through congress one of its major (and most profitable) projects.
The good Senator Biden was so besieged with criticism and critique over this obvious exemplar of both nepotism and conflict of interest that in 1999 he was forced to publicly declare that, “I am not the senator from MBNA.”
Elizabeth Warren to the Rescue
During her tenure as a Harvard law professor, Elizabeth Warren specialized in bankruptcy law. When Joe Biden was escorting BAPCPA through congress, Warren was questioning the whole idea of bankruptcy reform. In 1998, The Washington Post quoted her as offering this pithy analogy:
Those who want to say the way to solve rising consumer bankruptcy is by changing the law are the same people who would have said during a malaria epidemic that the way to cut down on hospital admissions is to lock the door.
And, Warren co-wrote a little regarded tome with her daughter in 2003 entitled, The Two-Income Trap. There, she homed in on Biden and his moves to cripple Americans’ ability to declare bankruptcy. She used as her starting point the deleterious and disproportionately bad effects this new bankruptcy regime would have on women.
This year, more women will file bankruptcy papers than will receive college diplomas. More women with children will search for a bankruptcy lawyer than will seek subsidized day care. And in a statistic with special significance for Senator Biden, more women will be victimized by predatory lenders than will seek protection from an abusive husband or boyfriend…The point is simply that family economics should not be left to giant corporations and paid lobbyists, and senators like Joe Biden should not be allowed to sell out women in the morning and be heralded as their friend in the evening. Middle-class women need help, and right now no one is putting their economic interests first.
Nevertheless, and despite Warren’s best efforts, the bill eventually sailed through congress and President George W. Bush signed it into law.
The Great Recession of 2008 pretty much proved Warren right and Biden wrong, however. Millions of people, particularly black and poor people have yet to “recover” from that corporate- and bank-induced debacle.
And, here we are again today facing yet another “great” recession with credit card and student debt leading the way — at a record $870 billion. We can soon expect that millions more Americans are, could, and likely will end up struggling with mountains of debt, much more than they would otherwise have faced had Joe Biden not fought so hard to strip them of bankruptcy protection.
Finally, according to the Federal Reserve Bank of New York, outstanding student loan debt clocks in at somewhere between $902 billion and $1 trillion. Embedded within those astronomical numbers is a documented $864 billion in federal student loan debt — not one penny of which is dischargeable under the Joe Biden-backed “bankruptcy reform” law of 2005.
Joe Biden has and continues to rightfully receive criticism for his support for the odious 1994 Crime Bill which sicced 100,000 new police officers on the black community; instituted the federal “three strikes you’re out” regime; and doubled-down on the racist “War on Drugs” — all of which stimulated an obscene state and federal prison-building orgy throughout the land, and a feverish rush to roundup and mass incarcerate as many black and poor people as possible in order to fill these new “state of the art” public and private gulags.
These critiques of Joe Biden and Bill Clinton’s crime “reforms” are well placed. But, as this essay hopefully helps to expose, not enough notice has been given to Biden’s central role in bankrupting students and other low and moderate income folks to the point that student debt alone now threatens to sink the national economy into a raging sea of red ink.