MINIMUM WAGE TO JOIN BANKRUPTCY REFORM
Byline: Joanna Ramey
WASHINGTON — Retailers have seen bankruptcy reform legislation take an array of turns this year, and now there’s a new twist: a $1 minimum wage hike amendment, to be introduced next week when the bill hits the Senate floor.
Sen. Edward Kennedy (D., Mass.) has failed in attempts this session to attach his wage bill to other legislation. However, given the approaching election year, it’s a prominent issue that is showing signs of dividing Republicans.
While Senate Majority Leader Trent Lott fiercely opposes increasing the $5.15 wage floor, House leadership has conceded support for an increase if it’s spread over several years and is offset by some tax breaks.
Three moderate Senate Republicans have voted for the wage hike in Kennedy’s previous attempts this year, and the senator is counting on others moving his way. “He will continue to push until he sees it happen,” a spokesman said. As for Lott, a spokesman wouldn’t detail how Republicans will handle Kennedy’s minimum wage maneuver on bankruptcy reform.
“When the Kennedy proposal sees the light of day, we’ll respond,” the Lott spokesman said.
For retailers who want bankruptcy reform to help curb record bankruptcy filings, Kennedy’s minimum wage amendment, which they oppose, is simply another element to deal with.
“It may be a debate we have to get through in order to get bankruptcy done,” said Mallory Duncan, vice president and general counsel, National Retail Federation, who isn’t convinced Kennedy will succeed.
The Senate bankruptcy bill itself has been a vehicle for compromise as sponsors maneuver to head off a threatened presidential veto over consumer provisions. The House passed its reform measure in May, and it is considered even more onerous by the administration. If the Senate bill is approved, further compromise would come in a conference committee where differences in the House and Senate bills would be reconciled.
Other proposed amendments to the Senate bill are likely to include requiring retailers and other credit card issuers to disclose in monthly statements how long it would take to pay off a credit balance. Business has generally opposed such disclosures as unworkable, particularly if they have to calculate every customer’s pay-off date on a monthly basis.
However, according to an amendment being drafted by Sen. Robert Torricelli (D., N.J.), co-sponsor of the bankruptcy bill with Sen. Charles Grassley (R., Iowa), such disclosure statements would be generic in nature, providing a payment scenario, like stating it would take 88 months to pay off a $1,000 balance at 17 percent interest if you were to pay the 2 percent monthly minimum. Consumers would be directed to call a toll-free telephone number to calculate their own payment.
The disclosure plan might quell, in part, uproar among consumer groups that bankruptcy reform is too punitive for those of meager means.
“It’s a step in the right direction, but it might not be enough help for consumers,” said Travis Plunkett, legislative director, Consumer Federation of America.
Still under attack by bankruptcy reform opponents is a key part of both Senate and House bills that requires filers to undergo a means test to determine if a debtor can repay even a portion of what’s owed. Business says such a test is crucial.
Both House and Senate bills use an Internal Revenue Service means test, but business is generally more in favor of the House bill, which allows judges to deviate from the standard only under extraordinary circumstances. The Senate bill is more lenient toward debtors, and in a nod to the White House, Senate bill sponsors plan to propose an amendment requiring the IRS to update its income standards, which the administration and consumer groups consider too lean and causing further hardship.
The 350-page bill is full of proposed changes to bankruptcy law that go well beyond the legislation’s stated goal of curbing the ballooning number of bankruptcy cases.
Among these side issues closely watched by retailers include changes to how debt reaffirmation agreements are reached. Under these agreements, retailers give customers in bankruptcy a choice of not discharging credit card debt in exchange for maintaining credit privileges after bankruptcy or to avoid repossession of purchases. They have come under scrutiny since the Federal Trade Commission reached multimillion-dollar settlements with retailers over what the agency described as stores misleading bankrupt credit card customers as to their reaffirmation rights.
As written, the Senate measure would make it difficult for retailers to approach consumers without their action being interpreted as coercive, the NRF’s Duncan said. However, an amendment may be offered by Sens. Jeff Sessions (R., Ala.) and Jack Reed (D., R.I.) proposing a less-restrictive compromise.
The reform also deals with business bankruptcies, and still on the table for negotiation is a proposed change to the timetable for retailers to relinquish stores after filing for bankruptcy protection.
Current law gives judges broad discretion in giving time to retailers to determine which stores might be viable under a reorganization plan. Retailers would like to maintain this flexibility, but the House bill sets a deadline of 240 days and the Senate version sets a 120-day limit for holding onto a lease. This provision, being furthered by the real estate and shopping center industries, will likely be the focus of negotiations of a conference committee if bankruptcy reform clears the Senate.
Also on the table for conference committee negotiations is the issue of shortening the so-called exclusivity period granted business bankrupts during which they can file a plan of reorganization, according to Senate sources.
Under the Senate bill, the deadline for filing a plan would be shortened to 90 days from 120 days, and a final plan would have to be in place within 150 days.