Regardless of what your credit card agreement or mortgage loan documents might say, federal, state, and local laws strongly determine your obligations to your lender. There's a paper version of the obligations vs. the real obligations; they're disaggregated from each other, and the relationship between your paper obligations and your real obligations continues to change.
A couple of years ago credit card companies, after years of handing out credit cards like candy to children, faced the typical aftermath: rising defaults and bankruptcies resulting with lower profits. The companies adopted a novel approach to the problem: they persuaded Congress to alter the laws of bankruptcy filing. Your debt, which you'd assumed under one set of rules, was suddenly governed by a very different set of rules, and this helped prop up the profits of the lenders.
Now the wheel has turned again. Today's Wall Street Journal (page A6) reports that Congress may consider another round of reforms in bankruptcy laws; for example, judges may be allowed to re-write the terms of a mortgage loan and bankrupt borrowers might once again be allowed to write off certain debts. Lenders, as might be imagined, are attempting to defend the gains they made two years ago.
I find the interplay of the various type of disaggregation in the mortgage and credit industry to be quite complex. In this particular case, the authority to alter the terms of debt obligation — the collection practices, the maximum legal rates, and the use of bankruptcy to dissolve debt — is shared between the government and the lenders, and this sharing relationship isn't a partnership but a contest. It's an unusual situation that's worth watching.
Topics: · finance · government
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