The Acoustic Separation of Consumer Bankruptcy and Consumer Credit Laws.

• Author: Faust, Abigail

With the COVID pandemic threatening to bring many individuals to the verge of bankruptcy, and with the introduction of a new consumer bankruptcy reform bill in Congress, now is a good time to consider the drawbacks of the current consumer bankruptcy regime. The Article argues that the principal failing of the current legal regime--the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)--emanates from the underlying narrative of the legislation, which insulates consumer bankruptcy from the. larger context of consumer indebtedness and consumer credit markets. This (mis)conception of the problem, I argue, has originated with the consumer creditor industry, which holds a strong interest in separating the regulation of consumer bankruptcy from that of consumer lending. The Article demonstrates that historically, the push by consumer creditors toward insulating consumer bankruptcy policy was facilitated by Congressional rules of committee jurisdiction, which assign consumer bankruptcy legislation and consumer credit legislation to different House and Senate committees. These jurisdictional rules, I argue, have generated 'acoustic separation' between committee deliberations, thereby allowing creditors to lobby for restrictions on bankruptcy access without concurrently having to concede to substantive regulation of their consumer lending practices. The historical analysis suggests that consumer bankruptcy reform should start by relaxing the acoustic separation between the Judiciary and Banking committees. Only then can Congress' deliberative procedure capture the complex, multi-faceted nature of consumer bankruptcy.

Table of Contents Introduction I. Tracking The Origins of BAPCPA's Narrative A. The Competing Narratives of Consumer Bankruptcy Law B. Consumer Creditors' Lobby for Bankruptcy Reform C. Consumer Creditors' Lobby Against a Federal Usury Law II. The Benefits of Acoustic Separation A. Congressional Committees and Acoustic Separation B. Consumer Creditors and Acoustic Separation in the 97th Congress C. BAPCPA as the Upshot of Acoustic Separation III. Implications for the Future of Consumer Bankruptcy Reform. Introduction

In December 2020, Senator Elizabeth Warren (D-Mass.) introduced the Consumer Bankruptcy Reform Act of 2020 (CBRA) (1)--the first substantial consumer bankruptcy legislation brought to Congress since 2005. (2) Warren had previously stated her intention to undo the current consumer bankruptcy regime, namely the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA); (3) and indeed, CBRA's provisions seem to do just that. Notably, while BAPCPA consciously made it harder for consumer debtors to obtain immediate discharge of their debts, (4) CBRA intends to "make it easier for individuals and families forced into bankruptcy to get back on their feet." (5) Furthermore, while BAPCPA refrains from regulating abusive lending practices, which increase consumer indebtedness, CBRA seeks to "crack down on predatory practices" by stipulating that a creditor who violates federal consumer financial law will be barred from making claims against the debtor in bankruptcy. (6)

CBRA is timely. As the foreclosure, eviction and student loan debt moratoria provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act begin to expire, (7) "[the] coronavirus pandemic is set to metastasize into a debt collection pandemic." (8) At this junction, a simple and accessible bankruptcy procedure may be crucial for financially distressed households facing a mountain of delayed debt. (9)

However, to reform consumer bankruptcy law Congress will need more than a new consumer bankruptcy bill; it will first need to reject the faulty narrative that informs the current legal regime. This narrative portrays consumer bankruptcy as strictly a legal problem, instead of viewing it in the wider socio-economic context of consumer credit markets and consumer over-indebtedness. Consequently, it insulates consumer bankruptcy policy from its fundamental counterpart, consumer credit policy.

BAPCPA and its underlying narrative have been widely criticized by bankruptcy scholars. (10) But the history of this narrative and the lessons it holds for the future of consumer bankruptcy reform have been entirely neglected. What this Article argues is that BAPCPA's narrative is, to a great extent, a product of Congress' own legislative procedures, namely the rules of committee jurisdiction which separate the deliberation of consumer bankruptcy law from the deliberation of consumer credit law. Therefore, it argues, doing away with this narrative requires not only the proposal of new consumer bankruptcy legislation, but a relaxation of the jurisdictional rules governing how that legislation will be deliberated.

The Article demonstrates that BAPCPA's narrative can be traced back to the early 1980s, when the consumer creditor industry simultaneously lobbied Congress both for limitations on consumer bankruptcy relief and for federal preemption of state usury laws. Under House and Senate Rules, the consumer creditors' bankruptcy case and their consumer credit case were considered by different committees. (11) Consequently, members of the Judiciary committees (who deliberated consumer bankruptcy legislation) were not exposed to the deliberations of the members of Banking committees (who deliberated consumer credit legislation), and vice versa. Yet since rules of committee jurisdiction apply to legislatures rather than to constituents, consumer creditor organizations that were engaged in lobbying on both issues were well aware of the content of both the Banking and Judiciary committees' deliberations. Following Meir DamCohen's classic terminology, I refer to this situation as one of 'acoustic separation' in Congress. (12)

The Article demonstrates that, understanding the potential advantage of acoustic separation, members of the consumer creditor industry developed alternative narratives to support their case for legal reform in each committee. These alternative narratives, I argue, intentionally obfuscated the causal relationship between irresponsible lending practices and the increasing prevalence of consumer bankruptcy, thus allowing consumer creditors to lobby for restrictions on access to bankruptcy without concurrently having to concede to substantive regulation of consumer lending.

The Article further demonstrates that the consumer creditors' campaign for BAPCPA in the 1990s materially deployed the lobbying strategy they developed in the 1980s, and that the ultimate success of this strategy was at least partly owed to the continued preservation of the rules of committee jurisdiction. Therefore, I argue, consumer bankruptcy reform should begin with a reform of Congress' deliberative procedures. For Congress to properly address the complex, multi-faceted nature of consumer bankruptcy, the acoustic separation between the Banking and the Judiciary committees needs to be relaxed, and inter-committee cooperation should be encouraged.

The Article proceeds as follows: Section I presents the basic features of BAPCPA's narrative. Then, to identify the origins of this narrative, it provides a brief account of Congressional debates over consumer bankruptcy and consumer credit policy in the 1980s. Section II introduces the concept of acoustic separation and explains how it captures the effect of committee jurisdiction on legislative debates. It then demonstrates how acoustic separation provided consumer creditor organizations with the opportunity to insulate consumer bankruptcy policy from consumer credit policy, and how BAPCPA's narrative embodied this insulation strategy. Section III argues that to successfully effectuate consumer bankruptcy reform, Congress should first relax the acoustic separation between the Banking and Judiciary committees, and discusses two measures for doing so: multiple referrals of legislation and overlapping membership between committees. The Conclusion suggests that the case of consumer credit and consumer bankruptcy conveys a broader lesson about the importance of legislative procedure.

1. TRACKING THE ORIGINS OF BAPCPA'S NARRATIVE

   1. THE COMPETING NARRATIVES OF CONSUMER BANKRUPTCY LAW

      For decades, a basic and unique feature of American consumer bankruptcy law has been the lack of a threshold requirement for awarding bankruptcy relief. (13) Filing for consumer bankruptcy simply entails choosing between two alternatives: Chapter 7 bankruptcy, where debtors surrender all their non-exempt assets to their creditors and receive a full discharge of the remainder of their debts; or chapter 13 bankruptcy, where debtors get to keep all their assets, but commit to paying all or some of their debt out of their future income. (14)

      In passing the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), Congress fundamentally changed this basic feature of the law. The "means-testing" provisions, which are considered the core of the legislation, (15) allow access to chapter 7 bankruptcy only to debtors whose 'available income' is below a specific threshold. The size of the available income is determined based on a strict calculus of income and expenses. (16) Debtors whose available income exceeds the means-test threshold can file only for chapter 13 (or avoid filing altogether). The intended effect of introducing means-testing was to reduce the number of chapter 7 filings, and arguably, the number of consumer bankruptcy filings altogether. (17)

      However, the means-testing provisions are only one of many ways in which BAPCPA limited consumers' access to bankruptcy relief. Among other things, the Act substantially increased filing fees for both chapter 7 and chapter 13; (18) obliged debtors to attend credit counseling in order to become eligible for filing, (19) and required that they submit numerous additional documents, the lack of which being grounds for an immediate dismissal of...