Content area
Full Text
The United States Bankruptcy code changed dramatically with the passage of the BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005 ("BAPCPA").1 This statute increased the costs and decreased the benefits of bankruptcy to consumers. Supporters of the law claimed that it would benefit consumers as well as creditors, because reducing the losses faced by creditors would lower the cost of credit to consumers. Critics of the law depicted it as special interest legislation designed to profit credit card companies. This study tests whether BAPCPA: (1) reduced the number of bankruptcies; (2) reduced credit card company losses; (3) lowered the cost to consumers of credit card debt; and (4) increased credit card company profits. The data suggests that although bankruptcies and credit card company losses decreased, and although credit card companies achieved record profits, the cost to consumers of credit card debt actually increased. In other words, BAPCPA profited credit card companies at consumers' expense.
This study values data over assumptions. It does not assume on faith that markets are competitive and transparent; that consumers are rational and well informed; that transactional costs are minimal; or that regulations are always inefficient. Nor does this study assume that markets are oligopolistic or monopolistic; that there are significant information asymmetries; that consumers have limited information and rationality; that large corporations manipulate consumers; or that the interests of large corporations and consumers are necessarily at odds. Instead, this study analyzes data to determine the effect of a legal change on the credit card market. The data will reveal whether the legal change benefited consumers, which will reveal whether the credit card market is price-competitive. This data-driven, ideologically neutral approach will, it is hoped, inform future debate about regulation of consumer credit and optimal bankruptcy policy.
I. BACKGROUND ON BANKRUPTCY REFORM
President George W. Bush signed BAPCPA into law on April 20, 2005, and most of its provisions came into effect 180 days later, on October 17, 2005. With regard to consumers, the statute made it more difficult to discharge debt.2 In particular, BAPCPA broadened, the categories of debt that are non-dischargeable and adopted a "means testing" requirement that limits access to Chapter 7 and thereby forces debtors to file for Chapter 13 instead.3 The statute also imposed...