Did Bankruptcy Reform Help or Hurt Consumers?
Title: The Effect of 2005 Bankruptcy Reforms on Credit Card Industry Profits and Prices
When the United States Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, it was seen by many as seminal legislation that would make it more difficult for individuals to file for bankruptcy, thereby reducing credit card company losses from bad debt. The financial-services industry argued that lenders would pass on these savings to consumers in the form of lower interest rates on credit cards, reduced fees, and longer grace periods. With three years of quantitative data to draw on, the author set out to test the validity of these and other assumptions about the law.
One finding stands out: The bill was a boon for the credit card industry. Bankruptcy filings fell sharply in the years after the measure was passed and still remain well below 2005 levels, contributing to a US$17 billion increase in profits for credit card companies in the two years following passage.
As to whether the legislation brought down the cost of credit for consumers, the author says that never happened. In fact, although enjoying record earnings, credit card companies increased consumer charges significantly: Over-limit fees ballooned 17 percent between 2005 and 2007, and average late fees rose 5 percent.
According to the author, consumers found themselves in a consolidation squeeze; the relative lack of competition among credit card issuers — the result of nearly a decade of industry rollups — meant issuers did not have to lower prices to attract new customers or keep existing ones.
Bottom Line: The bankruptcy reforms of 2005 have reduced the number of consumer bankruptcy filings, but they have not helped consumers gain easier access to credit, a fact that would have been obvious to legislators if they had more closely examined the relative lack of competition in the credit card industry.
How to Prevent Voluntary Turnover
Title: Understanding Voluntary Turnover: Path-specific Job Satisfaction Effects and the Importance of Unsolicited Job Offers (Subscription or fee required.)
The high costs associated with replacing good workers makes the question of why people leave their jobs a particularly important one for companies to address. To shed light on this topic, the authors pored through a large national survey, called the NLSY79, conducted by the U.S. Bureau of Labor Statistics tracking about 6,000 workers from 1979 until 2000. They found that contrary to popular belief — and a large body of existing research — it’s not just unhappy employees who move on. In fact, only about 50 percent of employees left their jobs because they were dissatisfied.
Instead, two other key reasons motivated employees to take another job: unsolicited offers from competitors and family obligations (for example, a spouse’s transfer or a pregnancy). These results support the authors’ contention that too much emphasis has been placed on job satisfaction as the best way to predict turnover rates. Unsolicited job offers, in particular, represented a surprisingly large part of the sample — 23 percent. This suggests that employers must pay close attention to “talent wars” in their industries.
Bottom Line: Job satisfaction is only one reason that employees leave their positions, and should not on its own be considered a good predictor of turnover. Competitive raids on a rival’s best talent also play a major role and should be watched more diligently.
Georgia Flight is a freelance journalist based in San Francisco. She has written for Business 2.0 and I.D. magazine, and for Web sites such as www.CNNMoney.com, http://earth2tech.com, and www.BNet.com.
Bridget Finn is the Web editor of strategy+business.