When the Federal Reserve asked for comments
on its proposal to prohibit credit-card issuers from engaging in “certain
unfair or deceptive acts,” it had no idea what it was getting into. The draft rules generated approximately
56,000 comments, most of them from angry consumers. This is an overwhelming response to what is
known in legal jargon as a “Notice and Comment Period,” a regulatory tradition
that is usually about as exciting as it sounds. While many of these were form letters that people had clipped or copied
from advocacy materials, a large percentage were from individuals sharing their
own stories. That is a lot of effort on
the part of a lot of people.

The New York Times has published
a helpful editorial about the proposed rules and the overwhelming
response to them. From a Credit Slips
perspective though, the most interesting part is that it cites guest blogger Ronald
Mann. And the editorial board didn’t just call him up for a quick quote. The editors actually read and digested his
article Bankruptcy Reform and the Sweatbox of Credit Card Debt.  They
even provide a link.  In this article
Professor Mann argues that the real reason credit-card companies benefit from
BAPCPA is that they get more time to collect penalty interest and assorted late
fees as distressed borrowers wait longer to file for bankruptcy. What’s so interesting about this framework is
that it takes something that people used to characterize as a side effect – the
piling on of interest and fees when borrowers default – and places it front and
center, arguing that it is now the distressed borrowers, rather than the paying
customers, who are at the heart of the credit-card issuers’ business model –
and their lobbying efforts.

The paper is quickly becoming a classic
in the field. It’s one of those rare
articles that takes the same events all of us were looking at and frames them
in a completely new way. So it’s especially
exciting to see it prominently featured in the mainstream press. The academic debate is shifting from one
where we think of defaulting borrowers as something lenders need to protect
themselves from to one where we see defaults as something issuers actively solicit and worked to enshrine in
law. If this point can penetrate into
popular discussion, we’ll be making some real progress.