Argentina: The RUFO Crazy

posted by Anna Gelpern

Kudos to Joseph Cotterill at FTAlphaville for an excellent post on the obsession with the Rights-Upon-Future-Offers (RUFO) clause in Argentina's restructured bonds, which seems to be driving Argentina to a payment default on those very bonds. Judge Griesa is not buying it, though --  at a hearing on July 22, he again denied the Republic's request for a stay of his orders blocking restructured bond payments, unless Argentina pays the holdouts pro rata. He also deferred the hugely consequential decisions on paying creditors under English and Argentine-law bonds; that mess is for another post.

Continue reading "Argentina: The RUFO Crazy" »

In Tribute to Dan Markel

posted by Bob Lawless

On behalf of everyone at Credit Slips, I want to express our profound sadness at hearing of the tragic and untimely passing of Professor Dan Markel. a professor of law at Florida State University and a prominent criminal law theorist. Dan was the founder of PrawfsBlawg and a leader in the legal blogosphere. May his family and friends take some small comfort in knowing how Dan was considered a leader in his discipline.

His colleagues at PrawfsBlawg have a tribute with comments from many persons who knew, worked with and learned from Dan.

A Bubble in Deceptive, Abusive Subprime Auto Lending?

posted by Jean Braucher

In a long story in today's edition, the New York Times is reporting a bubble in often deceptive and abusive subprime auto lending on unaffordable terms, including very high rates of interest.  Although not quite the threat to the overall economy that the subprime mortgage bubble created eight or nine years ago, this apparent new bubble in lending for used vehicles has some similar features (targeting vulnerable consumers, lax underwriting, securitization, investors seeking high returns) and is causing significant pain for low income and unsophisticated borrowers.  A few regulators are mentioned in the story, but oversight so far seems to have been lax.

Eight Years and Counting

posted by Bob Lawless

Number 8Today marks the eighth anniversary of the launch of Credit Slips. That means we have been around long enough to get tenure at most universities. Now, if we only can get through the review letters.

One thing that I have learned from administering the blog is that its path is never linear. We have had a lot of comings and goings over the eight years, and I certainly can't predict what the next year will bring. Our goal will remain the same of trying to provide occasionally insightful commentary on topics in the credit, finance, and bankruptcy space that is of interest to opinion leaders in law, policy, and the media.

The comments on the blog continue to offer some of the best conversations on the Internet. The expertise and civility of the discussions prove that there are still places in this world where reasonable people can discuss different points of view without screaming at each other. 

Thank you to our bloggers, commenters, and readers for continuing to give Credit Slips whatever little bit of success it has.

CFPB: Let Consumers Make Their Complaints Public; All Rejoice

posted by Dalié Jiménez

CFPBcomplaintsbyproductThis week the CFPB announced it's seeking public comments on a proposed policy that would allow consumers who file a complaint with the agency to share all of the (non-personally identifying) details of that complaint with the public as part of its Consumer Complaint Database. (Right now the database only identifies the financial product complained about, name of the company, and a category identifying the topic of the complaint).

As a researcher, I am beyond thrilled at the possibility of being able to drill down into the details of complaints. This might allow us to go even further than the CFPB or Ian Ayres and others did last year in analyzing the complaint database. 

Good players in the consumer finance space should be thrilled too: more data will allow us to really separate those who are doing right by consumers from those who aren't. It would allow the public or researchers to decide for themselves whether someone was making a mountain out of a molehill or if was identifying a real problem in their complaint. The fact that we currently don't have transparecy into complaints is a common (and justified) complaint by the debt collection industry. The CFPB is also proposing to make public the institution's response to the complaint (at their option). Anyone could then evaluate whether they think particular industries/institutions are responding appropriately to complaints. 

Continue reading "CFPB: Let Consumers Make Their Complaints Public; All Rejoice" »

Operation Choke Point Hysteria: Are Choke Point's Critics Responsible for the Account Closings?

posted by Adam Levitin

At today's House Judiciary Committee hearing on Operation Choke Point it seemed that Choke Point's critics are conflating a fairly narrow DOJ civil investigation with separate general guidance given by prudential regulators.  In particular, Rep. Issa attempted to tie them together by noting that the DOJ referenced such guidance in its Choke Point subpoenas, but that's quite different than actually bringing a civil action on such a basis (or on the basis of "reputational risk"), which the DOJ has not done.  

There is a serious issue regarding the bank regulators' use of "guidance" to set policy. Guidance is usually informal and formally non-binding, but woe to the bank that does not comply--regulators have a lot of off-the-radar ways to make a bank's life miserable.  This isn't a Choke Point issue--this is a general problem that prudential bank regulation just doesn't fit within the administrative law paradigm.  There are lots of reasons it doesn't and perhaps shouldn't, but when it is discovered by people from outside of the banking world, it seems quite shocking, even though this is how bank regulation has always been done in living memory:  a small amount of formal rule-making and a lot of informal regulatory guidance.  By the same token, however, compliance with informal guidance is enforced informally, through the supervisory process, not through civil actions, precisely because the informal guidance is not actionable.  Yet, that is what Choke Point critics contend is being done--that DOJ is using civil actions to enforce informal guidance.  

I don't think that's correct (or at least it hasn't been shown).  But the conflation of DOJ action with prudential regulatory guidance may be creating the very problem Choke Point's critics fear.  

Bank compliance officers may be hearing what Choke Point critics are saying and believing it and acting on it.  If compliance officers believe that the DOJ will come after any bank that serves the high-risk industries identified by the FDIC or FinCEN, not just those that knowingly facilitate or wilfully ignore fraud, they will respond accordingly.  The safe thing to do in the compliance world is to follow the herd and avoid risks.  The attack on Operation Choke Point may well have spooked banks' compliance officers, who'd aren't going to parse through the technical distinctions involved.  

What matters is not what the DOJ actually does, but what compliance officers think the DOJ is doing, and they're likely to head the loudest voice in the room, that of Choke Point's critics.  So to the extent that we are having account terminations increasing after word got out of Operation Choke Point it might be because of Choke Point's critics' conflation of a narrowly tailored civil investigation with broad prudential guidance.  Ironically, we may have a self-fulfilling hysteria whipped up by Choke Point critics, who shoot first and ask questions later.  

Operation Choke Point: Payday Lending, Porn Stars, and the ACH System

posted by Adam Levitin

Pop quiz:  what do payday lenders have in common with on-line gun shops, escort services, pornography websites, on-line gambling and the purveyors of drug paraphrenalia or racist materials?  

You can read my testimony for this Thursday's House Judiciary Committee, Subcommittee on Regulatory Reform, Commercial, and Antitrust Law's hearing on Operation Choke Pointo find out. Or you can just keep reading here.  

Continue reading "Operation Choke Point: Payday Lending, Porn Stars, and the ACH System" »

Me in DC

posted by Stephen Lubben

A quick note on a couple of events today that might be of interest to Slips readers:

First, I'm participating in an ABI webinar about "chapter 14" and related topics.

Second, I'll be testifying in front of the House Judiciary Committee on proposed legislation to add a subchapter V to chapter 11, for financial institutions.

Otherwise, resume your summer and I'll bother you no more.

Do Debtors or Creditors Get Undisbursed Chapter 13 Plan Payments Upon Conversion? -- A New Circuit Split

posted by Pamela Foohey

Chapter 13 trustees handle millions of dollars in plan payments every year. At some point in likely a sizable portion of cases, the trustee accumulates these payments instead of distributing the funds to creditors. What happens if a debtor's case is converted while the trustee has this accumulated money in its account? In 2012, the 3rd Circuit, in a majority opinion, held that the trustee must return the funds to the debtor (see decision here). Yesterday the 5th Circuit held that the trustee must distribute the funds to creditors (see decision here), thus creating a split on an issue that, as the Fifth Circuit stated, "has divided courts for thirty years," though only had previously produced one appellate court decision squarely on point.

With only one-third of Chapter 13 cases making it to discharge, the issue potentially affects a good number of debtors and involves a significant amount of money in total. Each individual debtor may (or may not) be entitled to a large sum of money in his or her estimation. In the 3rd Circuit case, the Chapter 13 trustee had accumulated over $9,000 in undistributed payments. In the 5th Circuit case, the trustee was holding about $5,500 in undistributed payments. And to the extent there isn't at least a local rule to rely on, Chapter 13 trustee probably would like clearer guidance on the issue.  

Continue reading "Do Debtors or Creditors Get Undisbursed Chapter 13 Plan Payments Upon Conversion? -- A New Circuit Split" »

Small Formalities, Big Consequences in Secured Credit Law - An Update

posted by Melissa Jacoby

FolderRowTo what extent does secured credit law protect creditors from the consequences of mistaken actions made on their behalf? I wrote about this issue in March 2013. As discussed in that post, the bankruptcy court issued both a decision on the merits and a certification for a direct appeal to the U.S. Court of Appeals for the 2nd Circuit.

The 2nd Circuit has now certified the following question to the Delaware Supreme Court: 

Under UCC Article 9, as adopted into Delaware law by Del. Code Ann. tit. 6, art. 9, for a UCC-3 termination statement to effectively extinguish the perfected nature of a UCC-1 financing statement, is it enough that the secured lender review and knowingly approve for filing a UCC-3 purporting to extinguish the perfected security interest, or must the secured lender intend to terminate the particular security interest that is listed on the UCC-3? 

The 2nd Circuit decision is here.  (The date of oral argument on the cover page should say March 2014, not March 2013). 

File folder photo courtesy of Shutterstock

Detroit: My Complication Had A Little Complication

posted by Melissa Jacoby

GazellesUntil a few days ago, it looked like Detroit's chapter 9 plan confirmation would come and go untouched by appellate process. In February 2014, the U.S. Court of Appeals for the Sixth Circuit granted seven petitions for direct appeal of the bankruptcy court's eligibility decision, which included the finding that public pension claims could be impaired in chapter 9 bankruptcy. But the Sixth Circuit did not act on the request for expedited consideration. Somewhat remarkably, it agreed to do what the bankruptcy court had requested in its certification memo: consult with the bankruptcy court's lead mediator to consider the impact of the appeal's timing on negotiations. According to the bankruptcy court, "the interests of the City, its residents and its creditors are better served by adjusting the pace of the legal process, including the appeals, to meet the needs of the mediation process." (p. 14)  Don't know for sure, but it seems plausible that the lead mediator preferred deferral of the appeal until after plan confirmation; doing otherwise might throw a wrench in implementation of plan settlements he oversaw - especially the Grand Bargain, for which he has pressed for many months. Because the eligibility decision included the finding that public pensions could be impaired in bankruptcy, the Sixth Circuit docket has swelled in the meantime to include many amici appearances and briefs, including from CalPERS, the Illinois Public Pension Fund Association, the American Federation of Teachers, and AARP.

A host of appeals from other bankruptcy court orders in Detroit's bankruptcy also are pending in the U.S. District Court for the Eastern District of Michigan. In at least several - and possibly all, as I haven't yet checked each and every one - the district judge sua sponte stayed the matter until the Sixth Circuit decided the eligibility appeal. 

This week, the Sixth Circuit shattered the blockade on appeals from Detroit's bankruptcy.  

Continue reading "Detroit: My Complication Had A Little Complication" »

A Sort of Special (Sovereign Debt) Language

posted by Mark Weidemaier

I thought I'd write a quick follow-up to Anna's thorough post about the latest in the Argentine bond saga. A lot happened at Friday's hearing, which was convened after NML requested that the judge hold Argentina in contempt for transferring funds to Bank of New York Mellon and others. The transcript reveals an exasperated judge without a great deal of interest in parsing the separate parties and interests at stake. The result was one clear loser (holders of English-law bonds denominated in euros) and one clear winner (holders of Argentina's local-law bonds).

Continue reading "A Sort of Special (Sovereign Debt) Language" »

Missed Payment Date Musings - Offshore Openings, Free Riding the Free Riders, and Argentina's "Uniqueness"

posted by Anna Gelpern

Extra! Extra!  Today is just another day in Argentina's bond saga. It may well come and go with no payments either to the NML plaintiffs or to the restructured bondholders. However, a Sunday filing by Argentina's Euro-denominated exchange bond holders might lead to substantive developments eclipsing the purely symbolic significance of a missed payment date and the start of a 30-day contractual grace period.  The Euro bond holders' move is a good place to start thinking about the next steps and beyond.

Continue reading "Missed Payment Date Musings - Offshore Openings, Free Riding the Free Riders, and Argentina's "Uniqueness"" »

The Puerto Rico Public Corporation Debt Enforcement and Recovery Act

posted by Melissa Jacoby

PRflag

6/30 UPDATE: here's the  amended complaint.

The fast-moving legislation's title does not include the word bankruptcy. Materials distributed by the Puerto Rico government explain, though, that the bill is meant to provide chapter 9-like relief to Puerto Rico public corporations through one of two paths - one more prepack-like than the other. Calling the effort "dazzling," Cate Long notes, "[s]eldom have financial markets seen such an elegantly choreographed approach to haircutting sovereign debt."

However elegant, investors say the bill violates multiple provisions of the U.S. Constitution. Quiz yourself, or directly check out the action just filed in the U.S. District Court for the District of Puerto Rico seeking a declaratory judgment.  H/T Cate Long.

Puerto Rico flag courtesy of Shutterstock

Sound and Fury, Signifying... Contempt for Argentina?

posted by Mark Weidemaier

Ordered not to carry out its planned swap into local-law (and local payment) bonds, Argentina has now deposited funds for the June 30 payment with Bank of New York Mellon, trustee under the exchange bonds. Via Joseph Cotterill at FT Alphaville, here is NML's response, which asks Judge Griesa to schedule contempt hearings. (Technically, to order Argentina to show cause why it should not be held in contempt.) The plot thickens.

Judge Griesa's contempt power in this case is limited. That is putting it mildly. Argentina has violated the injunction - or so it seems - by depositing funds for exchange bondholders without tendering the required payment to plaintiffs. In an ordinary case not involving a sovereign government, such a willful violation might result in contempt sanctions. But in this case, an order of contempt would be largely symbolic, as no meaningful penalty can be imposed. The judge might (even this is disputed) be able to impose a fine. But the fine, like the money judgments against Argentina, would be uncollectible. So an order of contempt cannot change the status quo in any material way. Nor is it likely that BNY Mellon will pass the deposited funds along to exchange bondholders. Unlike Argentina, it has a real reason to fear contempt sanctions.

Consequently, whatever happens in Judge Griesa's courtroom will be little more than a sideshow at this point. What the deposit accomplishes for Argentina is unclear. It demonstrates good faith to exchange bondholders. Perhaps (though I have my doubts) it also allows Argentina to argue that it is in technical compliance with its obligations under the exchange bonds. And the payment may serve to maintain negotiating leverage with NML and the other plaintiffs. That may be the important point. At this point, any meaningful action will take place behind closed doors, in negotiations between Argentina and the plaintiffs.

We Have Our "Nope"

posted by Mark Weidemaier

As expected, Judge Griesa has reportedly denied Argentina's request for a stay. At his recent news conference, Economy Minister Axel Kicillof did not quite suggest that the government would negotiate only if the stay was granted - instead, he implied that Argentine officials couldn't weigh options without knowing how much time they had. Well, now they know.

The "New" New Legislation on Student Loans and Bankruptcy

posted by Melissa Jacoby

AbstractSenator Harkin's discussion draft of the Higher Education Affordability Act (described here) is expected to include a provision restoring bankruptcy relief from private for-profit student loans. A few years ago, I offered justifications for that move here. Prof. Scott Pryor agrees.

But wait, there's more. S.2471, The Medical Bankruptcy Fairness Act of 2014, introduced by Senator Sheldon Whitehouse, co-sponsored by Senator Elizabeth Warren. Section 6 would offer relief from student loans for some bankruptcy filers. Take a look. 

Abstract image courtesy of Shutterstock

 

News of the Obvious: NML et al. Oppose the Stay

posted by Mark Weidemaier

Yesterday's post noted that, by asking Judge Griesa to re-impose a stay of the injunction, Argentina was effectively asking for permission to pay exchange bondholders on June 30 without making any payment whatsoever to NML and the other plaintiffs. Not surprisingly, plaintiffs oppose the motion. (Here's their response.) The parties held a telephone conference today with the judge, so I would expect a ruling soon.

Argentina needs time to fashion a global resolution that will encompass potential "me too" claimants. But after years of litigation (and a stay of more than two years), extra time may not come for free. As I suggested in an earlier post, if Argentina needs more time and wants to avoid default on the exchange bonds, it might need to pay plaintiffs to extend the stay. In their response to Argentina's stay request, Plaintiffs also raise this possibility, noting that any agreement would have to "provide Plaintiffs with suitable protections and compensation for the risk that the settlement effort will fail." So, we will see. I am skeptical that Judge Griesa will grant the stay, and even more skeptical that he will grant it without imposing any conditions. At this point, he has every reason to keep the pressure on Argentine officials so as to give urgency to the settlement talks. If a stay proves necessary, and the parties cannot agree to one, he can always reconsider his decision. Conceivably, he might even condition a stay on Argentina providing some compensation to plaintiffs. That would raise interesting questions under the Foreign Sovereign Immunities Act - since the order would condition relief on Argentina's parting with immune assets - but I don't think it is obviously beyond the scope of the judge's power. 

Let the Negotiations Begin (Updated)

posted by Mark Weidemaier

Argentina will negotiate with NML. Or maybe it won't. Instead, it will let exchange bondholders swap into local law bonds, in clear defiance of the injunction. Except that this recent order by Judge Griesa forbids the swap and declares Argentina's Economy Minister in violation of the injunction. Well... on second (third?) thought, let the negotiations begin.

The country has sent confusing signals since the Supreme Court rejected its appeal in the pari passu case. Now, however, it seems that negotiations will begin in earnest under the auspices of a special master appointed today by Judge Griesa. Here's the order, which appoints Daniel Pollack (of the McCarter & English law firm) to oversee negotiations. Unlike some other cases involving financially-distressed governments (here's looking at you, Detroit), the special master won't play a quasi-judicial role. The master has no authority to make rulings of any kind, only to supervise settlement discussions.

Perhaps Argentina's somewhat erratic behavior - including essentially forcing Judge Griesa to forbid the debt swap - has been designed to make it seem that the country has been forced to negotiate. The RUFO clause entitles exchange bondholders to participate in any better deal voluntarily offered to holdouts. The clause seemingly excludes settlements and so arguably wouldn't apply, but it can't hurt to be careful. In any event, the prospect of a settlement is a welcome one for Argentina-watchers.

Update: Also today, Argentina filed this letter, asking Judge Griesa to reinstate the stay of the injunction. Although the letter doesn't spell it out, this would allow Argentina to make the June 30 payment without making any payment whatsoever to NML. The letter (somewhat curiously) doesn't say whether Argentina has consulted with NML about a potential stay; I assume NML will oppose it. 

Regulars

Occasionals

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

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, visit http://listserv.uiuc.edu/archives/bankr-l.html and click on the link for "Join or leave the list." 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