Congress passed and the president signed legislation earlier this year that made filing for personal bankruptcy a much more difficult proposition. At the urging of the financial industry, particularly credit card providers and banks, new legislation was drafted and passed, laying the groundwork for more stringent requirements governing personal bankruptcy. There is a flip side to the new law, which is actually hurting creditors more than they expected; please laugh with me as you learn what that other side is.

When President Bush signed legislation that made personal bankruptcy a more difficult proposition, credit card providers and banks hailed it as a significant move to reduce the number of slackers who evade their financial obligations by filing for personal bankruptcy. . However, the mood has quickly changed for creditors, as a negative face of the new bankruptcy law has appeared: people are paying off their debts faster than ever! Realizing that there is no second chance with the new law, consumers react in fear and pay their debts. So why is this ugly for creditors? For two reasons:

1. Consumers aren’t using their credit cards as much, so their debt levels are now lower.

two. Consumers are paying off existing debt at faster rates than ever before.

The result? Less income for creditors as consumers have taken notice. MBNA and Capital One, two big credit card providers, are seeing their profits plunge. Other credit card providers are reporting similar results. Heavily dependent on their desire to borrow, these companies are now seeing their profit margins drop dramatically. Bottom line: Big consumer debt equals big profits; low levels of consumer debt equals low benefits.

I’m sure by now you’re laughing just like me. Keep laughing paying your debt and buying what you want in cash. Oh, by the way, ignore the increasing flood in your mailbox of credit card applications: you don’t want to change the mood of the financial community, do you?

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