Catalogers hope a new bill will finally curb the number of consumers claiming an inability to pay credit-card debts. On April 2, the U.S. House of Representatives passed a bankruptcy overhaul bill, H.R. 975, that would make it more difficult for customers to discharge debts wracked up from purchases made by credit card. The bill would impose a means test to those seeking to clear debts under Chapter 7 of the U.S. bankruptcy code. The means test would set criteria to determine whether those declaring bankruptcy are able to pay at least part of the money due to the company. Individuals judged able to pay would be put on a five-year repayment plan.
Intended to ease the burden of debt-ridden consumers, the leniency that’s been given to customers claiming bankruptcy has created a hardship for retailers, says Mallory Duncan, senior vice president/general counsel of the National Retail Federation. In 2002 catalogers and retailers lost money from 1.5 million customers who were permitted to not pay their bills after claiming bankruptcy. “Claiming bankruptcy is not as stigmatizing as it was before,” Duncan says. “The [number of personal bankruptcies] has been going up regardless of the state of the economy.”
For consumer catalogs, most of which rely almost exclusively on credit-card payments, passage of this bill would mean a likely increase in profit, says Duncan. And if more consumers paid their debts, they might even benefit from lower-priced merchandise. The number of consumers now exempt from paying their debts means that companies must raise prices on their products to compensate for the higher interest charges imposed on them by banks, Duncan notes.