When House Judiciary Committee Chairman Henry J. Hyde (R-Ill.) took to the House floor May 5 to plead for a break for debtors in a major bankruptcy reform bill, he made it plain what he was up against: an "awesome" lobby composed of some of the nation's biggest banks, retailers and credit card companies.
Moments later, as lobbyists for MasterCard, the American Bankers Association and other creditor organizations patrolled outside the chamber, 46 Democrats -- including several with key fund-raising roles -- joined a solid bloc of Republicans to easily defeat Hyde's amendment.
As the Senate prepares to take up the question of overhauling the nation's bankruptcy laws, critics ranging from Hyde to consumer groups say the legislation -- designed to make it more difficult for borrowers to use bankruptcy to wipe out their debts -- presents a case study of the impact of money on the political process.
They say the creditors have drowned out contrary views with a nonstop lobbying campaign and a shower of political contributions to key members, supplemented by advertising, polling and subsidized studies that buttress the creditors' case.
The creditors' lobby rejects that assessment and contends that public opinion, not lobbying, is driving the push for legislation that would make it harder for middle- and upper-income borrowers to abuse the bankruptcy system.
"A lot of lobbyists will be waving [Hyde's comments] around at bonus time, but what's driving this is voters," said Jeffrey A. Tassey of the American Financial Services Association, representing 360 companies, including the credit operations of General Electric Co., General Motors Corp. and Morgan Stanley Dean Witter & Co. In a 1998 AFSA-commissioned exit poll, 70 percent of voters said bankruptcy was too easy, and two-thirds wanted the law tightened.
Opponents, who argue that the creditors' own overly aggressive marketing of credit cards and loans is at the root of soaring bankruptcy rates, say the creditors' money advantage is magnified by the fierce competition between congressional Republicans and Democrats for corporate funds.
While Sen. Edward M. Kennedy (D-Mass.) has denounced the legislation in the Senate Judiciary Committee -- it "stinks," he asserted -- his son Patrick, a Rhode Island representative who heads the Democrats' House fund-raising arm, was among the first co-sponsors of the House version. Also on board the House bill are Patrick Kennedy's predecessor as head of the Democratic Congressional Campaign Committee, Rep. Martin Frost (Tex.), and Kennedy's deputy on the fund-raising committee, Rep. Ellen Tauscher (Calif.).
"It's a misnomer that Democrats are just for poor people in the absence of some accountability," said Kennedy, who has also pointedly been reminding K Street lobbyists that Democrats "might be the crowd that's running this place in two years."
In the Senate, the Democrat negotiating with Republicans over a package of amendments to the Judiciary Committee bill is Democratic Senatorial Campaign Committee Chair Robert G. Torricelli (N.J.), whose goal is to raise $60 million for Senate candidates by next year's election.
Torricelli said the Judiciary Committee bill goes too far to help creditors. But as the Democrat in charge of raising corporate money for Senate races, he acknowledged, "I have some balancing to do."
While many big legislative battles in Washington pit one group of well-heeled corporate behemoths against another, this one matches hundreds of financial companies against a small, loosely organized group of less than a dozen labor unions, consumer groups and women's organizations.
"Nobody's getting paid $500 an hour on the debtor side," said Harvard Law School professor Elizabeth Warren, an adviser to the National Bankruptcy Review Commission, which made 172 recommendations for change before it disbanded in 1997.
Along with banks, credit unions, retail chains and credit card companies, a wide spectrum of special interests is backing the legislation. The 344-page House bill, and a version that cleared the Senate Judiciary Committee April 27, are salted with language benefiting landlords, condominium owners, auto lenders, shopping center owners, and even bond rating agencies and entertainment companies.
Lobbyists for leased housing groups, for example, backed a provision in the House bill that allows landlords to evict tenants during bankruptcy, a change from present law. The Senate bill would require all bankrupt borrowers to repay the full balance on their auto loans, instead of the car's market value, to avoid repossession of the vehicle. The auto provision, which will benefit primarily the lending arms of Detroit-based car manufacturers, was sponsored by Michigan Sen. Spencer Abraham (R).
The scramble has resulted in some unlikely alliances. Bankers groups and labor unions, at odds over most parts of the legislation, both want to eliminate a provision that they claim would speed the demise of financially strapped retailers and give shopping mall operators an undue advantage in collecting debts from those that go under. The provision has been pushed by the International Council of Shopping Centers, whose political action committee handed out $224,000 to Democrats and Republicans in 1997 and 1998.
To promote their cause, creditors last year formed the National Consumer Bankruptcy Coalition, made up of AFSA, the American Bankers Association, the National Retail Federation, the Credit Union National Association, MasterCard, Visa and several others.
The coalition's members reported lobbying expenses last year totaling more than $13 million. According to federal records, AFSA's lobbying costs alone came to $2.44 million, including fees of $1.34 million to the Washington firm headed by former Republican National Committee chairman Haley Barbour, a close ally of fellow Mississippian Trent Lott, the Senate majority leader. Visa reported spending $2.5 million on lobbying.
The coalition's members also contributed nearly $4.5 million in "soft money," individual contributions and political action committee donations in 1997 and 1998. A single company, MBNA Corp., a major issuer of credit cards, contributed $200,000 to the National Republican Senatorial Committee shortly before last November's election.
The creditors' lobby swung into action in April when Hyde, fresh from leading the House effort to remove President Clinton from office, pushed through several pro-debtor amendments. Hyde, concerned that the effort to end abuses by borrowers could cause some needy people to go without basic needs, zeroed in on a proposed requirement to force some bankrupts to live within austere, Internal Revenue Service guidelines -- with everything else going to creditors.
But on April 22, after two days of behind-the-scenes maneuvering by representatives of creditors, the committee reconvened and knocked out most of Hyde's amendments. Members were "wading through the bank lobbyists," said Frank Torres, legislative counsel for Consumers Union.
For the creditors, lobbying costs and campaign contributions are dwarfed by the potential return from the legislation. Creditors lose an estimated $40 billion a year in bankruptcy proceedings, and the number of bankruptcies has skyrocketed to 1.4 million annually, nearly double the 1990 number. Under the House bill, creditors say, they stand to recapture some $3 billion of charges that otherwise would be wiped off the books.
Most credit card debt now is forgiven in bankruptcy so borrowers can make a fresh start. But the House bill would allow credit card companies to collect most charges run up in the 90 days before a bankruptcy filing. Debtors seeking bankruptcy would be subject to a "means test" that could force higher-income applicants to repay more of their debt.
Opponents list dozens of concerns, such as the possibility that divorced women owed child support might have to compete with credit card companies for money from bankrupt former spouses. While there is broad acknowledgment that the system has often been abused by upper-income borrowers, critics argue that a substantial percentage of bankruptcies involve divorced women, recently unemployed individuals or those with sudden medical bills -- not people abusing the system.
Republicans, with the exception of Hyde and a few others, have generally backed a wide-ranging reform of the code, while Democrats have been split between liberals and "New Democrats" who make clear they are receptive to the creditors' case.
In the Senate, a group of liberals led by Sens. Kennedy and Richard J. Durbin (D-Ill.) have proposed a bill that is far more friendly to borrowers than the House Judiciary Committee version. Durbin's bill passed the Senate 97 to 1 last year, but was then changed drastically in a conference with the House. The bill never came up for a final vote.
The liberals' ace-in-the-hole may be first lady Hillary Rodham Clinton, who worked behind the scenes against the legislation last year and could play a key role in President Clinton's decision whether to veto this year's final package, as he threatened the last time around.
However, the issue has given moderate New Democrats a chance to show off their commitment to "personal responsibility," while wooing a well-heeled corporate sector. About 60 percent of the political contributions from members of the National Consumer Bankruptcy Coalition in 1997 and 1998 went to Republicans. But that could change. In April, shortly before the the Senate Judiciary Committee took up the bill, Citigroup donated $100,000 to the Democratic Senatorial Campaign Committee.
Also entering the Senate equation is the fact that the credit card division of Citigroup is based in South Dakota, home state of Minority Leader Thomas A. Daschle. He is still weighing his position on the bill, an aide said.
Sen. Joseph R. Biden Jr. (D-Del.), a key Judiciary Committee member who hails from the home base of credit card issuers MBNA Corp. and First USA, opposes the liberal faction's bill. "I'm not the senator from MBNA," he said, noting that he had threatened to filibuster the creditor-backed version last year. But stressing that Democrats should jettison liberal economic policies of the past, he added, "I'm not the senator from 1979, either."
CAPTION: Rep. Patrick J. Kennedy (D-R.I.), left, was one of the first co-sponsors of legislation to make it harder for bankrupt borrowers to avoid paying debts, while his father, Sen. Edward M. Kennedy (D-Mass.), says the bill "stinks." The son chairs the Democrats' fund-raising committee for House members.