WASHINGTON - Automotive finance companies haven't broken out the champagne just yet but they are close to a big victory in the nation's capital.
Bills passed by the House and Senate to overhaul federal bankruptcy law include provisions that would curtail drastically a practice called cramdown. It's a change the lenders have been seeking for years.
With cramdown, a car buyer who goes into bankruptcy is responsible only for the market value of his vehicle, not the amount of the loan on the vehicle, which is often more.
With personal bankruptcies soaring, losses to automotive lenders because of cramdown have skyrocketed, lobbyists for the finance companies and their parent automakers say.
'It was good news for us, good news and a good win,' said Janet Mullins Grissom, Ford Motor Co.'s vice president for Washington affairs, after the Senate voted 83-15 for its version of the legislation on Wednesday, March 15. Lobbying was a long-term team effort by automakers and credit companies, she said.
A conference committee is expected to resolve differences between Senate-passed and House-passed versions of the legislation. President Bush has indicated he'll sign the final bill. President Clinton vetoed similar legislation last year.
The main difference in the new versions on cramdown is that the House version would count the full value of the vehicle debt for the first five years of an auto loan. The Senate bill says three years.
Sen. Richard Durbin, D-Ill., wanted to disallow cramdown only in the first six months of a loan. He contended the change would eliminate fraudulent use of bankruptcy laws - by people who take on huge debts with the intention of declaring bankruptcy - but would help vehicle owners who go bankrupt because of misfortune. The Senate cut off debate and passed the bill without considering the Durbin alternative.
Car dealers also succeeded in attaching a provision they want to the voluminous bankruptcy legislation.
It would give dealers 30 days instead of the current 20 to perfect liens on vehicles they sell - that is, to get all the paperwork on liens in order.
Lobbyists for the National Automobile Dealers Association said that if a lien isn't perfected and a buyer enters bankruptcy, the auto loan becomes unsecured credit and may be more difficult to collect during a bankruptcy proceeding.