CFPB Enforcement Paralyzed

posted by Patricia A. McCoy

Normally we say that a law is as strong as its enforcement. On February 7, however, the Consumer Financial Protection Bureau raised questions about the enduring strength of the consumer financial laws in its third Request for Information under Acting Director Mick Mulvaney. This time, the topic is CFPB enforcement. It is not hard to guess where this third "RFI" is headed, insofar as only two new enforcement orders have been entered under Mr. Mulvaney to date. In contrast, from the CFPB's inception through November 2017 (when Mr. Mulvaney took office), the Bureau brought a total of 200 public enforcement actions.

Continue reading "CFPB Enforcement Paralyzed" »

Savings Plans and Chapter 13

posted by Mitu Gulati

David Jones, Chief US Bankruptcy Judge of the Southern District of Texas, has just posted a nifty empirical study of the effects of savings plans on the success of Chapter 13 filings. And, yes, part of the cool study is figuring out how to measure what counts as success in a bankruptcy filing.  The study takes advantage of a natural experiment in the Texas courts and has a bunch of fascinating findings, including about the impact of lawyers and legal culture on the choices that end up being made by the subjects of the bankruptcy proceedings.

Part of the reason I know about this study is that David was doing a graduate degree at Duke (in the judicial masters program) and I got to see the project at its inception stage in the thesis workshop that I run with Jack Knight. All of the credit goes to David though (and his wonderful advisor, John de Figueiredo) -- a fact that will be obvious to my fellow slipsters who know that I don't know squat about Chapter 13. But this is a fun study in terms of the design and findings regardless of whether you love Chapter 13 (okay, I realize that everyone else who reads this blog probably does in fact like or love Chapter 13).  It takes a basic fact about the inevitable fluctuations in expenses that almost everyone has to deal with, and tests what happens when these provision is made for these fluctuations ahead of time (versus when it is not).  Savings plans do indeed seem to make a difference; but a bunch of other factors also appear to matter - some of them quite surprising.  Clearly, as David emphasizes at the end of the paper, there is a lot here that is worthy of further investigation (and maybe legislative change).

The abstract for the draft on ssrn (that is forthcoming in the American Bankruptcy Institute's journal) reads:

This paper examines the effects of debtor savings on the viability of chapter 13 bankruptcy plans. The paper further examines the impact of lawyer culture, debtor participation in the bankruptcy process, and judicial activism in the use of the savings program by chapter 13 debtors. Using a data set of randomly selected chapter 13 bankruptcy cases filed in the Southern District of Texas, the analysis demonstrates that while savings has a direct positive impact on the success of chapter 13 plans, the degree of that success is significantly influenced by the views held by debtors' lawyers, chapter 13 trustees, and judges.

 

Dunning at the Drive-Thru

posted by Adam Levitin

The CFPB announced the first new enforcement action since Mulvaneyshchina.  It's a settlement with an installment lender, Security Group, Inc. (d/b/a under a lot of different names) over unfair debt collection practices.  We now know just how badly a firm has to behave to get in trouble with the Mulvaney CFPB:  

Screen Shot 2018-06-14 at 12.11.41 PM

If I'm reading this correctly, it sounds as if the debt collectors drove up to drive-thru windows at a fast food restaurants where the consumers worked and dunned them through the drive-thru window.  I imagine it went something like this:  "Where my money, ya lousy deadbeat? Oh, and can I have an Extra Value Meal #2 with a large Coke, please?"  

So now we know:  under the Mulvaney CFPB, there's no dunning at the drive-thru.  And debtor's kids seem to be off-limits too, at least the young ones.  It's good to know that there are still some lines that can't be crossed.    

Continue reading "Dunning at the Drive-Thru" »

The Weinstein Co. Chapter 11 Hearing #5

posted by Melissa Jacoby

The fifth hearing in The Weinstein Co. chapter 11 occurred on June 5, 2018. The hearing included discussion about when the sale to Lantern Capital, approved by the court in early May, will actually close. Among other regulatory and transactional hurdles, TWC's lawyers mentioned that it still is not resolved which contracts will be included in the sale, but they hoped the sale would close within the month.

As for matters that resulted in a ruling, I'll briefly mention two.

  1. Sustaining a United States Trustee objection, the court denied the motion for Harvey Weinstein's October 15, 2015 employment contract to be filed under seal, as the standards of 11 U.S.C. § 107 were not satisfied. That contract is now available on the bankruptcy court docket. The document was filed by the Geiss plaintiffs (stemming from alleged sexual misconduct, discussed below) but TWC was the party advocating for sealing.
  2. The court approved the Geiss parties' motion to lift the automatic stay to permit the Geiss action to go forward against TWC, alongside other defendants, in the Southern District of New York, allowing liquidation of those claims. The SDNY district judge presiding over the Geiss action directed the plaintiffs to file the lift-stay motion; hearing transcripts illustrate his aim to minimize duplication of efforts. Part of TWC's argument against lifting the stay was the classic matter of distraction. Applying the relevant case law to the facts, the court observed that while closing the sale was a complicated matter, TWC was neither reorganizing in a traditional sense or seeking to stabilize its operations at this time. And, as in other cases, the distraction argument may be weakened when separate lawyers are handling the non-bankruptcy litigation. Seyfarth Shaw was representing TWC in the Geiss litigation, at least prior to the bankruptcy (leading the firm to successfully seek payment of its prepetition claim out of an insurance policy, over the creditor committee's objection - seek dkt #1000).

Speaking of professionals, initial interim fee applications for TWC's professionals for March 19-April 30, 2018 were not on the June 5 agenda, but are on the court docket. TWC has NY counsel and local counsel. Just to give you a sense, Cravath's fee application includes over 3,200 hours billed by 27 attorneys (dkt #929). Richards, Layton & Finger's fee application includes over 1,200 hours billed by 16 attorneys (dkt #932). Plus paraprofessionals at these two firms. Billing separately, of course, are FTI Consulting (dkt #870) and Moelis, the investment banker (dkt #946).

The next hearing in TWC's bankruptcy is scheduled for June 22, 2018. The SDNY Geiss action, in the motion to dismiss phase, is also very much worth watching.

The Government-by-Grift Mentality

posted by Adam Levitin

Mick Mulvaney's entirely classless and petty firing of the CFPB's Consumer Advisory Board (CAB) has been amply covered elsewhere. Having served on the CAB from 2012-2015, however, I've got to comment on the statement by Mulvaney's henchman that “The outspoken members of the Consumer Advisory Board seem more concerned about protecting their taxpayer funded junkets to Washington, D.C., and being wined and dined by the Bureau than protecting consumers.”

Put aside that this statement is gratuitously offensive to a bunch of hard working folks who volunteer their time and expertise. The "junkets" I enjoyed from my CAB service involved flying coach with numerous connecting flights, staying at the Days Inn, being transported around in busses, attending full-day working meetings held in windowless rooms at community college campuses in small cities around the US, and then paying for my own dinner. But I sure made out with the free coffee, pastry, and box lunch. 

What's remarkable here is that Mulvaney's flunky believes that people serve in government or on advisory boards for the perks and self-enrichment.  In a world of Pruitt's first class flights, mattress, and security detail, Carson's dining room set, and Mnuchin and his Marie Antoinette jaunting off to see the eclipse on a military flight, not to mention the President and his emoluments plus tax-payer-funded vacations at his Mar-a-Lago timeshare, well, it's just natural to assume that's how everyone operates.  It's a new twist on "government for the people."  It's really sad that it doesn't enter the Mulvaney's dude's head that maybe some of us actually act out of true volunteerism and a desire to make the country a better place. 

The End of Bankruptcy

posted by Jay Lawrence Westbrook

 

 

 

 

Credit Slips/IACCL

The End of Bankruptcy

“Bob Rasmussen, call the Chapter 11 Desk.” Two recent decisions, one on each side of the Atlantic, have enshrined contract bankruptcy—or at least the defeat of bankruptcy law by contract.  Although the context for both was international, in principle they could work for domestic cases as well and at last achieve the demise of bankruptcy law proclaimed in the above-titled 2002 article by Rasmussen and Douglas Baird. The analysis is complex, so this brief note will focus on results and implications.

The cases are Bakhshiyeva in London [Bakhshiyeva -and- Sberbank of Russia, et al., [2018] EWHC 59 (Ch).] and Sun Edison in Manhattan [In re SunEdison, 577 B.R. 120 (2017). Their common ground is that a choice of law clause in a contract may trump the applicability of bankruptcy law to that contract. In the hands of any competent lawyer, the result may be party autonomy in the application of bankruptcy law to contractual obligations, making bankruptcy law largely irrelevant.

Continue reading "The End of Bankruptcy " »

More on "Undue Hardship" and Student Loans in Bankruptcy

posted by Pamela Foohey

Following up on Bob's post earlier this week about the Department of Education's request for information (RFI) regarding evaluating "undue hardship" claims in adversary proceedings to discharge student loans, a group of 23 academics, including myself, also submitted written comments in response. The effort was spearheaded by Slipster Dalié Jiménez. Matthew Bruckner (Howard Law), Brook Gotberg (Missouri Law), and Chrystin Ondersma (Rutgers Law) also were part of the drafting team.

Our primary recommendation is that the Department establish ten categories of borrower circumstances under which the Department would agree to the borrower’s discharge of federal student loans. As with the ABI Commission on Consumer Bankruptcy's comments (and the National Bankruptcy Conference's comments), our categories are designed to offer objective criteria for when the Department should agree to a discharge of student loans. The overall aim of the proposal is to establish clear, easy-to-verify, dire circumstances that merit the Department’s acquiescence to a student loan discharge and thereby promote the efficient use of taxpayer funds. To this end, we also recommend that the Department accept "reasonable proof" that a borrower fits into one of the ten categories without engaging in formal litigation discovery. Our response also calls on the Department to collect and release more data about federal student loans.

OCC Payday Lending Bulletin

posted by Adam Levitin

The Office of Comptroller of the Currency put out a Bulletin this week encouraging banks to make short-term small-dollar installment loans to their customers—basically bank payday loans.  The OCC seems to envision 2-12 month amortizing, level-payment loans, but they're meant to be a payday substitute.  

I suspect many readers of this blog will react with indignation and possibly shock (well, maybe nothing's shocking these days), but I think the issue is more complicated.  Depending on what one sees as being the policy problem posed by payday lending, bank payday lending might make a lot of sense.  Specifically, if one sees the policy issue with payday lending as being its high costs, then bank payday lending (like postal banking) holds out the promise of lower-cost loans. If, however, one sees the policy issue as being about payday borrower’s inability to repay even the principal on their loans, then bank payday lending (or postal payday lending) isn’t a solution at all, but a whitewash. Yet, as we'll see, there's surprising convergence between these positions on the ground in regulatory-land.

Continue reading "OCC Payday Lending Bulletin" »

Student Loans and Other Doings for the ABI Consumer Bankruptcy Commission

posted by Bob Lawless

The American Bankruptcy Institute's Commission on Consumer Bankruptcy has been hard at work (Full disclosure: I am the Commission's reporter.) Yesterday, the Commission submitted written comments to the Department of Education's request for information (RFI) on the "undue hardship" standard for the discharge of student loans in bankruptcy. As the Commissions make clear in the cover letter, our comments respond to the RFI and thus focus on what can be accomplished at the regulatory level. Recommendations for statutory change will appear in our final report. Indeed, we had intended to release only the complete set of recommendations at the end of our work, but given the Department of Education's RFI, the Commission voted to release its recommendations that were responsive.

The Commission's recommendations fall into two broad categories. First, the Commission advocates for the adoption of bright-line rules that will identify persons for whom repayment of student loans will be an undue hardship, such as an existing governmental determination of disability or income below 150% of the federal poverty line. Second, the Commission made a number of recommendations around the judicially crafted Brunner test that courts use to determine undue hardship. You can read the full set of recommendations from the link above.

Continue reading "Student Loans and Other Doings for the ABI Consumer Bankruptcy Commission " »

Shakespeare Meets ALJs: Much Ado About Nothing

posted by Patricia A. McCoy

In a recent oral argument before the U.S. Supreme Court, conservatives urged the Court to outlaw the use of administrative law judges (ALJs) in agency enforcement actions.  The Consumer Financial Protection Bureau is paying notice. On January 31, 2018, the CFPB reprised the ALJ debate in its second Request for Information under Acting Director Mick Mulvaney. This RFI asked:  should the CFPB shift course to litigate all of its enforcement cases in federal court and none before ALJs? Suffice it to say, there is less here than meets the eye.

Continue reading "Shakespeare Meets ALJs: Much Ado About Nothing" »

Call for Papers on College Completion and Student Debt

posted by Patricia A. McCoy

For those of you writing on student loans, you may be interested in a new call for papers for a conference I am working to organize. On November 30, 2018, the Rappaport Center for Law and Public Policy, Boston College Law School, and the National Consumer Law Center will hold a daylong symposium on Post-Secondary Education Non-completion and Student Loan Debt on the Law School campus. Our call for papers is out and we are accepting submissions through midnight on Sunday, June 17, 2018. We are especially interested in proposals that examine some aspect of the interaction among student debt, college completion, and/or resulting socioeconomic outcomes. Do consider submitting.

Epic Systems and the Atomization of Employment Disputes

posted by Mark Weidemaier

Millions of American workers are parties to arbitration agreements that require them to bring claims against their employers in individualized arbitration proceedings (rather than as part of a class or collective action, as authorized by some federal and state laws regulating the workplace). In Epic Systems v. Lewis, a 5:4 majority of the Supreme Court held today that these agreements must be enforced even though the federal National Labor Relations Act declares it an unfair labor practice for an employer to interfere with the ability of employees to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The decision is not unexpected, but it is consequential given the number of affected employees.

The case—really, several consolidated cases—was weird for a number of reasons. The NLRB had concluded that employers who insisted on individualized arbitration were engaged in unfair labor practices. Then, in September 2017, the Board fell under Republican control, and many wondered whether it would continue to defend that position. It did, but the administration worked hard to undermine it. In fact, the Solicitor General, which had previously supported the Board in seeking Supreme Court review, later filed a brief disagreeing with it on the merits.

Continue reading "Epic Systems and the Atomization of Employment Disputes" »

How to Tie CFPB Enforcement Up in Knots

posted by Patricia A. McCoy

While Acting Director Mick Mulvaney is apparently on a tear to defang the Consumer Financial Protection Bureau, some of his actions have flown under the radar. In this and future guest blog posts, I will shine light on one key initiative that largely has gone unnoticed:  namely, the twelve Requests for Information that Mr. Mulvaney launched on January 26. These notices, dubbed "RFIs," seek public comment on scaling back every core function of the CFPB, from enforcement and supervision to rulemaking and consumer complaints. 

Although the RFIs provide the veneer of public participation, in reality they are slanted toward industry. Many are couched in such vague language that consumers and consumer advocates cannot tell which rollbacks are gaining traction behind closed doors. Just last week, Mr. Mulvaney raised new concerns that the RFI process is infected with bias when he personally pressed bankers attending a meeting of the National Association of Realtors to file responses to the RFIs. 

Continue reading "How to Tie CFPB Enforcement Up in Knots" »

Welcome (Back) to Patricia McCoy

posted by Bob Lawless

Credit Slips is pleased to welcome back Professor Patricia McCoy as a guest blogger. Professor McCoy is the Liberty Mutual Insurance Professor of Law at Boston College Law School. She is a nationally known scholar, writing in the area of consumer financial regulation area. Professor McCoy worked at the Consumer Financial Protection Bureau during its earliest days, and I understand some of her guest posts will offer her perspective on the current state of the CFPB. We look forward to her contributions.

Approaching the Middle of the Beginning of the End in Venezuela

posted by Mark Weidemaier

Though none of it is earth-shaking, there has been a lot of news out of Venezuela recently, so it seemed an appropriate time for an update. The election looms. Henri Falcón leads some polls, though those are presumably unreliable indicators, given what Reuters slyly labels Maduro’s “institutional advantages.” A Falcón victory would increase the odds of a restructuring in the near future. A Maduro win might prompt additional U.S. sanctions; the Wall Street Journal (here, also linked above) speculates that these might finally target oil exports.

Continue reading "Approaching the Middle of the Beginning of the End in Venezuela" »

Illegal Repo Practices

posted by Adam Levitin

The Washington Post has an interesting piece about the coming of big data to the auto repossession world. But of particular note is the end of the article, wherein the repo man profiled says that he will return ransom the defaulted borrower's personal goods found in the car back to the buyer for a $50 flat fee (with child car seats given back for free). 

That's probably illegal. The auto lender's security interest extends only to the car, not to personalty that happens to be in the car (were it otherwise, it would violate the FTC Credit Practices Rule).  So the repo man, as the lender's agent, holds that personalty in the car as a bailment; there's no security interest interest in it.  The repo man can't simply destroy it or throw it away--that'd be conversion, and ransoming it back would seem to be some flavor of tort, making the repo many vulnerable to a trover action (for value) or replevin action (for the stuff itself), as well as a UDAP violation.

Now it's possible that there's contractual language in the loan agreement authorizing a storage and inventory fee or the like. But auto loan agreements aren't standardized and that language won't be in all agreements, so a blanket policy like the one described in the article surely isn't right.

As it happens state law in a handful of states (Connecticut, Florida, Maine) authorizes repo man storage fees, but I can't find anything like that in the Ohio Revised Code.  So the repo's practice looks like it's illegal to me.  

Whether or not anyone's going to litigate over this is another matter--Ohio's UDAP statute authorizes recovery of attorneys' fees, which changes the economics of litigation, and there are statutory damages of up to $5K, so with 25,500 repos last year alone there might be enough dollars at stake for a class action to make sense here (and the statute of limitations should cover more than that), but only if there's a defendant who can pay the damages.  I doubt the repo company has the assets to do so, but perhaps the lenders are liable for the repo man's actions.  And I suspect there are arbitration clauses on most auto loan agreements, so that will, at the very least, shield the lenders and perhaps also the repo man.  

Contributors

Current Guests

Kindle and ePub Versions of Bankruptcy Code

  • Free Kindle and ePub versions of the Bankruptcy Code are available through Credit Slips. For details and links, visit the original blog post announcing the availability of these files.

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

News Feed

Honors

  •    

Categories

Bankr-L

  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

OTHER STUFF

Powered by TypePad