Card Issuers Focus on Bankrupt Consumers: Report

An aging Michael Corleone raged, ‘Just when I thought I was out, they keep pulling me back in’ in the third Godfather movie as he attempted to put his past ties with the mob behind him. A report from a University of Iowa law professor finds that consumers attempting to come back from bankruptcy may be facing a similar struggle.

Credit card issuers send more than twice as many card offers per month to consumers exiting Chapter 7 bankruptcy than to average Americans, according to "Bankrupt Profits: The Credit Industry’s Business Model for Postbankruptcy Lending," a study by Katherine M. Porter, an associate professor at Iowa. Porter is a principal investigator for the Consumer Bankruptcy Project.

The study interviewed families at the one-year and three-year mark after emerging from bankruptcy. Porter found that nearly all the families had been offered new credit cards within a year after completing Chapter 7 bankruptcy. Of 341 families, nearly 88 percent received letters that mentioned their bankruptcy status. Twenty percent received solicitation letters from card issuers they had failed to pay as they went through the bankruptcy process.

Philip Corwin, a consultant to the American Bankers Association, told the Associated Press that consumers just out of bankruptcy need credit to establish a fresh start. These consumers can throw the solicitation letters away, Corwin noted.   

Porter contends that the aggressive attempt to issue credit cards to bankrupt consumers is counter to arguments made by card issuers as they successfully lobbied for tougher bankruptcy filing requirements in the federal bankruptcy law enacted in October of 2005. Issuers at that time said that the stricter standards were needed to stop consumers that maxxed out on their cards, then declared bankruptcy and wrote off their debts, according to Porter.

The Consumer Bankruptcy Project says that card issuers deliberately target consumers that have difficulty meeting their monthly payments because these consumers mean greater revenues from various penalty fees.