In tomorrow's Washington Post, V. Dion Haynes reports on today's Senate Judiciary subcommittee hearing that "heard debate on a measure that would wipe out credit card debt for people in bankruptcy." According to the article, "the [proposed] bill would apply to companies that raise rates higher than 15 percent plus the current yield on the 30-year Treasury bond. That combined rate currently is 18.5 percent."

The US Senate Committee on the Judiciary, Subcommittee on Administrative Oversight and the Courts held a hearing today on "Abusive Credit Card Practices and Bankruptcy". See this Wall St. Journal story for more coverage of the hearing. A webcast of the hearing is also available (1 hour 45 minutes long).

Cristin Frederick has written an article titled "Gift Card Value when Issuers Go Bankrupt" which is included in the Winter issue of the Federal Reserve Bank of Boston's Communities & Banking quarterly.

Donald P. Morgan, Benjamin Iverson and Matthew Botsch of the staff of the Federal Reserve Bank of New York have published a paper titled "Seismic Effects of the Bankruptcy Reform" .

We conclude that the bankruptcy abuse reform of 2005 (BAR) contributed to the rise in subprime foreclosures because it shifted risk from credit card and auto lenders to mortgage lenders. The means test under BAR gives credit card and other unsecured creditors a stronger claim on borrowers’ cash flow, and that weakens secured lenders’ (implicit) claim on that cash flow."

The obvious implication is that US credit card issuers' credit losses would be even higher at the moment if the old bankruptcy law was still in place. See also this article titled "U.S. mortgage meltdown linked to 2005 bankruptcy law" by Dan Morgolies of the Kansas City Star.

[Hat tip: Taking Charge's Twitter feed!]

Elizabeth Williamson reports for the Wall St. Journal that Citigroup has agreed to a deal with top Democratic senators that would "would allow judges to set new repayment terms for millions of mortgage holders who wind up in bankruptcy court." Williamson notes that the deal represents a change in direction by the financial services industry who have historically resisted efforts to allow judges to adjust mortgage loan principal amounts for consumers in bankruptcy.

Continuing its series titled "The Debt Trap", Brad Stone writes in today's New York Times about how some credit card issuers target potential borrowers - including those who may have just exited bankruptcy - by using personal data provided by a number of information providers. Stone writes that "this marketplace for personal data has been a crucial factor in powering the unrivaled lending machine in the United States. European countries, by contrast, have far stricter laws limiting the sale of personal information."

Bob Lawless writes on the Credit Slips blog that that "U.S. bankruptcy filing rate climbed again in August, reaching a new post-2005 high of 4,476 filings per day." At this year's average rate of 4,160 bankruptcy filings per day per day, he forecasts a total of 1,049,000 filings for 2008.

Michael Simkovic, a former James M. Olin fellow in Law and Economics at Harvard Law School, has published a paper titled "The Effect of 2005 Bankruptcy Reforms on Credit Card Industry Profits and Prices" . His conclusion: "the 2005 bankruptcy reforms profited credit card companies at consumers' expense." READ MORE »

TransUnion has announced newly updated TransUnion Account Management and TransUnion New Account scoring models claiming that "both models experienced improvements, over the previous versions, in their ability to identify bankrupt accounts -- in some cases by as much as 32 percent." READ MORE »

Frontier Airlines and First Data have announced "an agreement with respect to the continued processing of Frontier's Visa and MasterCard charges without any interruption. The agreement provides First Data with appropriate protection for continuing its processing work for customer credit card purchases on a "business as usual" basis." READ MORE »

In an article titled 'First Data: We were surprised, too', David Milstead reports for the Rocky Mountain News that First Data spokeswoman Staci Busby said today that "we [First Data] were taken by surprise when Frontier Airlines filed for bankruptcy. In our numerous conversations with them, they never informed us that filing for Chapter 11 was even a consideration."

Bob Lawless writes on the Credit Slips blog: "The March 2008 bankruptcy data showed that the U.S. average filing rate went over 4,000 per day for the first time since the 2005 bankruptcy law's effective date."

Felix Salmon writes for Conde Nast Porfolio about credit card holdbacks, merchant acquirers and Frontier Airlines. READ MORE »

Chris Walsh writes for Denver's Rocky Mountain News about the Frontier Airlines bankruptcy filing late last week and the need to move quickly to resolve a dispute with its credit card processor, First Data Corp. Walsh writes that "the carrier initially will look to resolve a dispute with its credit-card processor, First Data, over the amount of money the company can withhold on Frontier's ticket sales."

Aldo Svaldi writes for the Denver Post about Frontier Airlines chapter 11 bankruptcy filing which resulted from what Svaldi reports as a significant increase in the reserve requirements that First Data, as Frontier's merchant acquirer, was imposing. [Editor's note: We first reported the Frontier/First Data news last Friday morning here on Payments News.]

Frontier Airlines this morning announced it had voluntarily filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code late last night. The airline is continuing normal flight operations today. READ MORE »

The New Yorker's regular financial columnist, James Surowiecki, writes this week about the US bankruptcy laws - suggesting that the changes to US consumer bankruptcy law made in 2005 'ended up making the economy less dynamic and less flexible.' Surowiecki mentions a recent paper by John Armour and Douglas Cumming that 'found a close correlation between the nature of a country’s bankruptcy laws and its rate of self-employment.'

Visa and Experian announced an alliance to create unique risk management products for financial institutions. According to the companies, "the alliance intends to deliver a series of jointly developed risk management products designed to help financial institutions reduce credit and fraud risk losses."

Katherine M. Porter, Associate Professor at the University of Iowa's College of Law, has written an article titled "Bankrupt Profits: The Credit Industry's Business Model for Postbankruptcy Lending" that "examines what the credit industry's behavior toward recently bankrupt families reveals about its internal profit models and the likely causes of consumer bankruptcy."

In an Op Ed piece in today's New York Times titled "Banks Gone Wild", Joe Lee and Thomas Parrish write about how credit card issuers are seeking “revolvers” - people "who are likely to pay little more than the monthly minimum — and who eventually find themselves in thrall to mushrooming interest payments, abundantly garnished with late fees." They go on to ask whether anyone can afford to pay debts charged a 30 percent interest rate?

Richard Piersol writes for the Lincoln (NE) Journal Star about the experiences of local credit counselors who conclude that "it’s not so much wild spendthriftiness and irresponsible abuse of credit card debt" that leads to personal bankruptcy - rather, "medical costs from health troubles almost always lead to misfortune in employment and loss of income. Then comes bankruptcy." A new report from the Nebraska Appleseed Center for Law in the Public Interest titled "Debt Trends in Nebraska" (PDF) examines some of the issues in more detail.

Bloomberg reports that the Federal Reserve issued a report (PDF) yesterday "downplaying assertions that the banking industry contributed to bankruptcies by offering credit cards to customers who may be unable to repay the debt."

Payment experts at Auriemma Consulting Group (ACG) suggest that by mid-year, bankruptcies should settle back to 2004 levels, thus significantly lower than the 2005 experience. So much for the good news. The firm is also convinced that overall bad debt levels are unlikely to decline simply because of stricter bankruptcy tests.

Helen Mirza of the Chicago Federal Reserve Bank has written an overview article about the new bankruptcy law (PDF) that took effect last fall.

Almost one-half of all U.S. adults (45%) say their household does not have enough money in liquid savings to cover at least three months of living expenses, according to a new survey conducted by Harris Interactive and commissioned by LexisNexis Martindale-Hubbell's lawyers.com.

Christine McManus reports for the Coloradoan (Ft Collins) about the rate of US bankruptcy filings following the effective date of new bankruptcy laws last October and the surge in filings that preceeded it.

Andrew Ellison reports for the The Times on a forty percent growth in the number of personal bankruptcies in the UK during the last quarter of 2005.

Timothy Egan reports for the New York Times on how credit card issuers are pursuing newly bankrupt consumers - because it's harder for them to escape new credit card debt.

Liz Pulliam Weston reports for MSN Money on how credit card issuers and other lenders may be finding the recently enacted changes to the bankruptcy law costing them more.

The Financial Services Roundtable has announced new consumer education efforts, including a new Web site to provide consumers with additional resources and accurate information on financial management and the new bankruptcy system and guidelines.