What Would Effective Counseling for At Risk Student Loan Borrowers Look LIke?

posted by david lander

As the CFPB and Department of Education and others struggle with how best to provide effective help to at risk student loan borrowers, here is one example of a program that provided these services. For full disclosure I am the chair of the advisory committee of the organization that oversaw and funded the project.

The Center for Excellence in Financial Counseling (“CEFC”) at the University of Missouri St Louis was founded and funded to develop ways to improve the quality of education and counseling for consumers in financial distress. For its first program, the organization has been exploring ways to help consumers who are at risk on the repayment of student loans. This is the first such program in the country and CEFC is encouraged about the results thus far and for the prospects going forward.

Continue reading "What Would Effective Counseling for At Risk Student Loan Borrowers Look LIke? " »

Making the ABA Journal's Blawg 100

posted by Bob Lawless

The ABA Journal has named Credit Slips to its annual Blawg 100. Thanks for the recognition! We really appreciate it. It is a list of great blogs, and we are honored to be included on it. And, thanks to our readers and commenters who help to make this little part of the Internet a great community.

The Future of Bankruptcy Work for Lawyers

posted by david lander

As expected, as the number of consumers filing bankruptcy has continued to decrease, the revenue of the consumer bankruptcy debtor and creditor bar has been hit hard. Over the past several years billable hours of business bankruptcy (including insolvency, workout or reorganization) lawyers have been dropping and many mid-level partners at large firms are looking for work in related or unrelated specialties. 

We would expect consumer bankruptcy work to increase when:

  1. Filing has a better chance of discharging some or all student loan debt;
  2. Filing has a better chance of helping consumers modify the terms of their first mortgages;
  3. Filing has a better chance of helping consumers modify the terms of their car loans; and/or
  4. Credit card debt and/or defaults increase.

The future is harder to call for the business bankruptcy field. Everyone expects the number of business failures and loan defaults to increase when interest rates tick up and those businesses that are surviving only because of the low rates cannot service their debts or find alternative financing.  Even though the economy had not been vibrant, with the exception of specific industries such as coal or oil defaults are low.

The challenge is to predict to what extent law work in this area is down because of structural and legislative changes.  For example, the shift from traditional financial institution lenders to “Loan to Own” lenders has reduced the amount of law work related to default and/or restructure on both the debtor and the creditor side. Partly related to that change, the shift from chapter 11 reorganizations to “chapter” 363 sales has significantly reduced bankruptcy court work. One of the factors in the shift to 363 sales rather than true reorganizations was the legislative changes to Article 9 in all fifty states. When the ALI –ULI drafting committee made it much easier to take and enforce in bankruptcy court a security interest in just about every conceivable type of asset they reduced the reorganization leverage.

What percentage of the drop off in work involving defaults, workouts and restructure is related to these factors will determine to what extent the work will grow when defaults rise.

A Different and Better Type of Financial Counseling For Low and Moderate Income Consumers May be on the Horizon

posted by david lander

After many years of lingering between mediocrity and dishonesty there may be early signs of improvement in the industry that provides financial counseling or coaching for low and moderate income consumers in financial difficulty. Sparks started by Single Stop/Robin Hood Foundation in the NYC area and Cities for Financial Empowerment in NYC and several other cities may have the potential to provide much needed help. This comes at a particularly important time since the search is on for providers to help consumers wend their way through the student loan default maze. There is considerable concern that dollars will go to mediocre providers who see their bottom line as more important that the needs of their customers and/or which do not have sufficient quality or quality controls.

Many of the sparks of hope are located within a multi-service center, often a community development corporation or well-established neighborhood non-profit organization. Because there has not been a well-established career line for high quality professional financial counselors, the academic ladder into these jobs is slippery and has more holes than pegs. Likewise, the credentialing has been uneven. Over the past several decades there have been moments when quality research was undertaken but in the past decade such research as there has been has focused on financial literacy or savings and not this segment of the safety net. For these sparks to kindle it will be necessary for the academic preparation programs that do exist to step up. The bulk of the teaching has been at land grant universities in programs that send most of their graduates to financial planning where salaries are better or to the military which has generated a healthy career line since they have realized how important financial stability is to the psyche of their members. There is also some noise in the social work academy to infuse greater emphasis on things financial and perhaps create a relevant field of concentration. The development of a new set of courses at the City University of New York is a welcome first step, but it is crucial that quality control be maintained as those courses are expanded to institutions of learning at other Financial Empowerment cities. And it is crucial that PhD programs be developed to provide quality research and writing that is not subject to the conflicts of interest that have dominated in this field as the very credit counseling providers fund or otherwise control most of the research and writing that does exist.

Servicers Serve the Interests of the Lender, NOT the Student Loan Borrower

posted by david lander

I have enormous respect and appreciation for the CFPB and the wonderful and talented and committed folks who work there. Thus I am mystified that in their efforts to improve servicing of student loans and directing of student loan at-risk borrowers to the window that would help them, they continue to misunderstand the basic nature of capitalism and its profit motive and the borrower-lender relationship. Certainly, the fatally flawed structuring of the credit counseling industry by the credit card lenders in the 1970’s and the still ongoing dismal efforts of mortgage loan servicers to “help” borrowers in default should have taught us the lessons that those who serve the lender cannot and may not and will not serve the interests of the borrower. Capitalism does not work that way whether the lender is a traditional profit incented financial institution in the case of credit card and mortgage loans or a mix of private and public lenders as in the case of student loans. Think IRS and SBA for other government collector examples. If the notion of inclusive capitalism or Robert Reich’s notion of saved capitalism takes hold, perhaps it will invent a way for this to work, but today such efforts are poisonous because they delay creative solutions and punish borrowers and the American economy both of which desperately need such solutions to thrive. Of course servicing must be improved as much as possible and it is tempting to try to rely on the servicers since they are the ones with contacts with the borrowers, but servicers are collectors by another name. It is well past time to stop putting our faith in the collectors. There is currently no high quality network of financial counselors who can help student loan borrowers at risk.All of us including the Department of Education and the CFPB need to start work immediately to develop that effective network and make certain that this crucial job is not delegated to mediocre providers without sufficient quality or quality controls. More on that in a later post.

Indiana Adds Some Bankruptcy to Its Bar Exam

posted by Bob Lawless

Bernie Trujillo emailed me from Valparaiso University with the news that the Indiana bar examiners have added some bankruptcy law to the state bar exam. Specifically and effective February 2018, the Indiana bar exam will include "Indiana debt collection, including garnishment, attachment, and bankruptcy exemptions." A few years back, I noted that bankruptcy law was fair game on the Texas bar exam. Indiana's move appears to double the number of states with coverage of any bankruptcy law on the state exam. Regardless of whether bankruptcy law needs to be covered, I think it is probably a good thing to add coverage of judicial remedies. Every year in my courses, a fair percentage of the students seem surprised to learn that all those judicial decisions they study in the first year are not self-enforcing.

Indiana's move also bucks a trend noted by Slipster Jason Kilborn of declining coverage of commercial law law on state bar exams. In addition to debt collection law, Indiana is adding secured transactions to the list of subjects.

UPDATE (11/17/15): Bernie pointed out that secured transactions was already covered under the heading "commercial law," which is no longer listed. The change was to scale back "commercial law" to "secured transactions." Because sales is tested under the heading "contracts" by the Multistate Bar Exam, the Indiana change is effectively the same as Jason noted with the move by the Multistate Bar Examiners with regard to their essays -- dropping negotiable instruments/UCC Articles 3 and 4.

Welcoming Back David Lander

posted by Bob Lawless

Frequent readers of the blog will know that David Lander has guest blogged for us several times. When he was last with us, David left with four topics he wanted to discuss further. When David wrote and said he had the time to turn back to these topics, we were delighted to welcome him back. David combines extensive big law firm experience with a background in consumer and individual representations. These days, David is spending his time as an adjunct professor at St. Louis University. David always has thoughtful things to say about the state of our bankruptcy and consumer finance systems. Welcome back.

Is the Person I've Been Dating Right for Me?

posted by Katie Porter

No, blog administrator Lawless, this is not spam. Credit scores are related to dating, as Ana Swanson reports in the Washington Post that credit scores are "eerily good at predicting" success in forming a committed relationship. The higher an individual's credit score, the more likely it is that they form a committed relationship and stay in it. That part could mirror a number of other things. For example, people who are young and not seeking serious relationships, also then to have lower credit scores from less credit experience.

Shutterstock_2503894But after a few dates, when you are wondering whether to get a more serious, that is when it's time to demand a visit to annualcreditreport.com. And you should do this on a date together. The difference in credit scores between two dating partners matters--not just the score itself. A closer match in credit scores at the time one started dating is highly predictive of whether the couple stays together. The next time someone asks you "what do you think of her?" you can respond, "well, I barely know them. I'd definitely need to know a credit score to give an opinion."

You might think this research is some forlorn economics PhD's dissertation gone awry, but it from no less than the august Federal Reserve Board. Clearly with the financial crisis over, the researchers there are . . . ahem, stretching themselves. Jane Dokko, Geng Li, and Jessica Hayes are serious researchers, however, and the paper is strong. It contributes to the growing body of research showing the degree to which data collection and analysis have encroached even into the most private parts of our lives.

Longest Running Catholic Archdiocese Chapter 11 Case Finally Ends

posted by Pamela Foohey

The Archdiocese of Milwaukee filed its chapter 11 petition on January 4, 2011. Yesterday, four years and ten months later, Bankruptcy Judge Susan Kelley confirmed the dioceses' reorganization plan. During those four plus years, the most contentious issue regarded a $55 million trust fund established rather suspiciously prior to filing to care for a cemetery. The parties were sent to mediation repeatedly, but the cemetery issue seemed to remain the hold up -- until the 7th Circuit ruled that the cemetery trust fund was not shielded from the Code's avoidance provisions by the Religious Freedom Restoration Act. After the 7th Circuit's ruling, the archdiocese revised its plan to distribute $21 million in total to sex abuse claimants. $16 million is coming from that cemetery trust fund. 

In comparison, the archdiocese's initial plan proposed to distribute $4 million in total to these claimants. The $21 million primarily will be split among 355 people. Though it is difficult to compare settlement amounts across diocese chapter 11 cases because of unknowns about abuse severity, state laws that apply to the underlying claims, and available insurance monies and other assets, the $21 million still makes Milwaukee's settlement one of the smallest based on the number of people to receive compensation.

Continue reading "Longest Running Catholic Archdiocese Chapter 11 Case Finally Ends" »

The Ibanez Property Ring

posted by Adam Levitin

There’s an interesting new article out on the celebrated Massachusetts U.S. Bank v. Ibanez case that suggests that the defendant, Antonio Ibanez, was at the center of a property fraud ring. It's not clear to me that there was anything illegal about Ibanez's activities, but even if there were, I don't think it much matters.  

Continue reading "The Ibanez Property Ring" »

Doubts About the Future

posted by Stephen Lubben

Over at Dealb%k, I express my doubts about the future of chapter 11.

Wholesale Reform of Indian Insolvency Law

posted by Jason Kilborn

IndianpiggybankOn Wednesday of this week, the Indian Ministry of Finance released a draft of a watershed Insolvency and Bankruptcy Bill, 2015. The proposed reform covers all of Indian insolvency law, both corporate and personal. A summary of the key proposals is here. While reform efforts earlier in the year concentrated on business recovery, at least 50% of this latest bill concerns a total revamp of the personal debt relief process. These provisions are long overdue. In a fabulous case study a few years ago, Adam Feibelman described both the growth of the personal lending sector in India, as well as the serious structural deficiencies of the century-old Indian regime of personal debt relief (bankruptcy). Among the biggest problems: multi-year delays as cases wind through the civil judicial system, brought on in part by excessive judicial discretion with respect to case administration, including admission of debtor petitions, stays of enforcement, and ultimate debt discharge relief. The bill makes significant progress on several fronts, though it leaves much to be desired.

Continue reading "Wholesale Reform of Indian Insolvency Law" »

Dear NY Times: Thank You For Letting Me Sue Only 500 Miles From My Home

posted by Mark Weidemaier

So the New York Times has just finished a three-part series on arbitration. For such lengthy coverage, the Times reveals almost nothing that will be new to those who have been following debates over the use of pre-dispute arbitration agreements. But if you haven't been following the issue, the Times series is a good place to start. It highlights some pressing recent issues, such as the use of arbitration to eliminate class action liability, while also touching on issues that often escape attention, such as judicial enforcement of contracts requiring religious arbitration.

Discussions about arbitration can be frustrating. For one thing, it is hard to have them without sending (often unintended) ideological signals. Those who highlight flaws in anti-arbitration arguments--even if simultaneously supporting greater regulation--are often characterized as "defenders" of "forced arbitration," as if the only valid choice is to justify or oppose (rather than investigate) the practice. Meanwhile, lawyers for large business interests have the irritating habit of presenting themselves as defenders of the common good, rather than as zealous advocates for corporate clients. 

Continue reading "Dear NY Times: Thank You For Letting Me Sue Only 500 Miles From My Home" »

What? (Puerto Rico Edition)

posted by Stephen Lubben

So former Senator Judd Gregg has an op-ed in The Hill opposing the administration's plan for a territorial version of chapter 9. In the piece, he tells us "[a]ny bankruptcy bill for Puerto Rico would punish retirees whose pension funds invested in these bonds because they were tax-free."

Tax free retirement funds investing in tax free bonds?  Now we are just making stuff up.

Who "Presides" over Chapter 13 Plan Confirmation Hearings?

posted by Melissa Jacoby

Shutterstock_329900393Temple Law Review will soon publish a volume honoring Bill Whitford, based on a conference from last fall. That event was particularly special for an additional reason: it turned out to be the last opportunity, for many of us, to spend time with another inspiring leader in our field, Jean Braucher

My own short contribution, on judicial oversight in chapter 13 bankruptcies, has just been posted here. We will share the word when the entire volume is available - including, I believe, a piece from Jean.

Gavel image courtesy of Shutterstock

Tired of Dealing with Students' Exams?

posted by Katie Porter

Shutterstock_194826680As exam grading season looms, some professors lament. I actually enjoy reading exams, as at least a few students usually write something fairly comical. For those academic readers, the American Board of Certification is seeking additions to its faculty committee. The main task is to design and grade the certification exams.

It's a great way to perform a public service and get ideas for your classes. Consumer and business topics are both possibilities, and the entire process turns out to be quite fun. I served for several years and felt like, particularly as a younger academic, it was a great way to discuss exam strategies with more experienced colleagues. Academics do not need to be certified by the ABC to participate. If you are interested, please contact Laura Bartell of Wayne State University Law School, who is Dean of Faculty.


The Promise and Limits of Postal Banking

posted by Adam Levitin

It’s easy for Progressives to get excited about the idea of postal banking: a public option for banking! What’s not to love?

I’m glad to see the idea of public options in financial services getting some play of late; it’s something I’ve championed for a while in payments and housing finance. But I think it’s necessary to recognize some of the limits to postal banking. In particular, it's not at all clear to me why we would want to involve the Post Office in the public provision of financial services. What the Post Office offers is a way to recreate a brick-and-mortar branch bank network. This really doesn't make a lot of sense for 21st century banking. Additionally, postal banking is often pitched as an alternative to payday and title lenders. Before we go running down that path, we should think about what it means to have the government in the payday lending business.

Continue reading "The Promise and Limits of Postal Banking" »

Credit Slips Unofficial Contest: Win Everything (all the glory that is)

posted by Katie Porter

Shutterstock_309261569Credit Slips has great readers, and I'd love to encourage more of our readership to comment. So I've created this contest, of which I will be the sole judge, except that I'll probably actually let John Pottow decide to keep it quirky.

Here's the challenge. What is an important legal protection for consumers that nobody has ever heard of? I don't mean literally that nobody has heard of but rather a consumer legal right that is poorly understood or underutilized. Even your fellow savants (aka nerds) who read Credit Slips will be blown away to learn of this law. Federal or state laws are fair game, and while the law does not have to be strictly a borrower protection, it should have some connection to household financial security or credit.

I'd love to give you an example but I don't want to take the wind out of everyone's sails by revealing my entry.

The prize is only glory and bragging rights (and maybe a mention in my new Consumer Law textbook) but at least it's not an all-expense paid trip to the next Presidential debate.



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