Suffolk/NCLC Student Loans Symposium

posted by Dalié Jiménez

I had the pleasure of participating in this weekend's very successful Research Symposium on Student Loans organized by Kathleen Engel of Suffolk Law School and Deanne Loonin of the National Consumer Law Center (NCLC) (NCLC, by the way, is looking to hire three attorneys!). In this post I want to mention some of the highlights.

Elizabeth Warren at Suffolk LawThe symposium was not your typical academic conference. Although almost 20 papers were presented during the two days, a number of participants were from industry and nonprofits. Participants also heard from an NCLC client who had actually dealt with student loan issues and come out the other side. This was, as one speaker mentioned, the conference some of us had been waiting for. 

The speakers also included former Slips regular and now senior Massachusetts Senator Elizabeth Warren (pictured at the event). The Senator focused her remarks on her proposal to allow refinancing of student loans (federal and private) at the interest rates Congress approved last summer (3.86% for undergraduate loans and 5.41% for grad unsubsidized loans). She noted that this is just a small step on the road to fixing the problems with the student loan system but since Congress not too long voted to lower future students' interest rates agreeing that they were too high she is hoping this proposal might actually have some political legs.  

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Pre-paid Cards Enter the Credit Market, Thwarting the Primary Impetus for Using the Cards

posted by Nathalie Martin

A while back, The PEW Charitable Trust did two fascinating papers, found here and here, on prepaid cards. The studies reported that nearly 12 million consumers loaded more than $64 billion onto prepaid cards in 2012, and that three of the top 10 companies now offering prepaid cards are highly recognizable banking institutions that did not offer the product before. This is a big change. Indeed, we here at credit slips do not even have a category for stories on pre-paid cards, but the cards are the next big thing. Since these reports came out, I have seen numerous conferences advertised to help people learn more about how to make money issuing pre-paid cards. The business plan for making more money from a seemingly simple payment device? Offering overdraft “protection” for the cards, meaning that if the money is gone, the card holder can just overdraw the pre-paid card…for a few bucks of course. Hmmm…

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Thank You to Javier Arias and Andrew Dawson

posted by Bob Lawless

On behalf of everyone at Credit Slips, I wanted to thank Professor Javier Arias of the Universidad Rey Juan Carlos and Professor Andrew Dawson of the University of Miami. It takes time out of a busy schedule to contribute to the Credit Slips community, and their contributions are well appreciated. Javier brought us up to date on the recent changes in the Spanish insolvency regime, and Drew offered his thoughts on some developments in chapter 15/transnational insolvency as well as on labor rights in chapter 11. Thank you again, both of you.

Reflections on the Dark Side

posted by Susan Block-Lieb

Thanks to all who commented on my earlier post on the interaction of §§ 544(a)(3) and 551 and homeownership in bankruptcy; as hoped, CreditSlip readers helped me frame the questions that I continue to have about Traverse and the larger policy questions it raises. Some readers emphasized the importance of variations in state mortgage law to the trustee’s strong-arm powers; others questioned whether these distinctions should affect the trustee’s power to sell the residence (or the avoided lien) following avoidance.

Clearly, the trustee had the power to avoid the unrecorded mortgage in Traverse; let’s assume for purposes of argument that he also had the power to sell full title to the debtor’s home after avoidance.  For me the more interesting question is whether the trustee should have exercised these powers, and also whether the exercise might be viewed as an abuse of discretion.

Another way to think about this question is from an even broader angle: What position should a trustee play in a individual borrower’s chapter 7 case?  Is a trustee’s role to maximize distributions to unsecured creditors, full stop? Or might the trustee’s fiduciary obligations to the estate sometimes sit in tension with an interest in maximizing creditors’ interests?

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Supreme Court denies certiorari in Sinkfield (chapter 7 lien strip-off case)

posted by Jean Braucher

The U.S. Supreme Court has denied a petition for writ of certiorari in Bank of America v. Sinkfield, an 11th Circuit case raising the issue whether a junior lien wholly unsupported by collateral value can be stripped off in chapter 7. 

The high court's denial of certiorari yesterday (March 31) is a victory not only for the debtor who prevailed in the case below but also for the National Association of Consumer Bankruptcy Attorneys, represented by the National Consumer Bankruptcy Rights Center, which argued in an amicus brief against Supreme Court review on the ground that the case had not been fully litigated below and thus was a poor one for the Supreme Court to take up.   

The creditor in Sinkfield stipulated to the result that strip off was permitted in the case, based on an Eleventh Circuit opinion so holding in another case,  In re McNeal, 735 F.3d 1263 (11th Cir. 2012), one in which en banc rehearing has been sought.

The Supreme Court's decision not to review Sinkfield avoids for now the possibility of disturbing the solid precedent for lien strip off in chapter 13.  McNeal is the first circuit court case to allow lien strip off in chapter 7; two other circuits have extended Dewsnup v. Timm, 502 U.S. 410 (1992), to come to the opposite conclusion.  See here for background.  Lien strip off in chapter 13 has been one of the few ways for debtors in bankruptcy to hold on to homes on which they are underwater while making them more affordable by removing junior liens unsupported by collateral value.  Extending that sort of relief to chapter 7 cases would be helpful, but Supreme Court review also poses a serious downside risk of making bankruptcy less promising for consumer debtors. 

DIP Loans and the SIFI Problem

posted by Stephen Lubben

Word on the street is that the company formerly known as TXU – now known as Energy Future Holdings – is lining up the biggest private DIP loan ever. About $9 billion.

Still substantially less than the $33 billion that GM needed, and that is still much, much less than a global SIFI might need upon failure. A few years ago I suggested that number might be as high as $300 billion.

So why do we continue to pretend that private DIP lending can work in SIFI resolution? Do we really think the DIP loan market will provide more lending than usual during times of financial stress?

Teaching Consumer Law Conference in Santa Fe New Mexico, May 30-31, 2014

posted by Nathalie Martin

Richard Alderman (Houston Law Center ) and I welcome all of you to beautiful Santa Fe New Mexico on May 30-31,  2014 for the only international conference in the world dedicated to the teaching of consumer law. The conference is sponsored by the Center for Consumer Law at the University of Houston Law Center, in cooperation with the University of New Mexico, and the National Association of Consumer Advocates. This year the theme is “Teaching Consumer Law in a Virtual World.”

More than 25 presenters will discuss issues related to teaching consumer law, establishing a consumer law program, as well as substantive issues regarding U.S. and international consumer law. Some of the topics include: Increasing the Prominence of Consumer Law and Influencing Policy, Debt Collection, What’s New with the FTC and the CFPB?, Economic Justice and Consumer Law. 
Teaching the Financial Crisis through Consumer Law, Virtual Currency, Privacy, Making the Most of Consumer Clinics, Consumer Arbitration , Class Actions, Innovations in Teaching, “Legal” Drug Advertising, Computerized Delivery of Consumer Law, Foreclosure Defense, Online Peer-to-Peer Lending , and Strict Product Liability in South Africa. Click here  to register and here for the brochure. 

It's My Fault You Can't Get a Mortgage

posted by Adam Levitin

Can’t get a mortgage?  Turns out it’s my fault.  As in mine, personally.  Yup.  That’s the claim in a Housing Wire written by right-wing banking analyst R. Christopher Whalen.  Here is Whalen’s argument in a nutshell:  

Servicing regulations make banks really reluctant to deal with anyone but very good credit borrowers because it takes so long to foreclose on anyone anymore.  Servicing regulations are so onerous because of an article Tara Twomey and I wrote on mortgage servicing that said that servicers were doing bad things. The problem (in Whalen's view) is that Tara and I had it totally wrong.

I'm flattered that Whalen credits the article with having inspired all of the subsequent foreclosure regulation, but it would be nice if Whalen would accurately characterize the article. (Has he even read it?)  It would also be nice if Whalen would acknowledge that servicers have done an awful lot of bad things over the past several years, which might just possibily have something to do with the current regulatory enviornment for servicing. But such an admission that might get in the way of Whalen grinding his political axe (two legs good, regulation ba-a-a-d).

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Is UCC Article 8 Bitcoin's Savior (for Commercial Law)?

posted by Bob Lawless

Two weeks ago, I wrote a post based on Lynn LoPucki's observation that Article 9 of the Uniform Commercial Code (UCC) might be Bitcoin's Achilles heel. From that experience, I learned that the surest way to get attention for a blog post is to put "Bitcoin" in the title. Thus, I am back.

Article 9 governs security interests in property, and its usual rules would seem to mean that a security interest that attaches to a bitcoin forever stays with a bitcoin, substantially dimming their prospects as a mainstream medium of exchange. Article 9 has its own, special definition for "money," but that special definition clearly does not apply to bitcoins. For more detail, see the previous post.

One of my students, Igor Shleypak, and a commenter on the original post, David Patterson, separately suggested that bitcoins might be a "security" under UCC Article 8, which has separate rules for investment securities. If a bitcoin is a "security," then Article 8 would allow the transferee of a bitcoin to take free of prior security interests against the bitcoin. This is a family blog, so I will not go into the technical details of how precisely this result would obtain under Article 8. All we need discuss here is whether a bitcoin is a "security" such that Article 8 would apply.

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The Latest Amendment of Spanish Insolvency Law (2 and Farewell to Spanish Guestblogging)

posted by F. Javier Arias Varona

This post will be my last one, and I would like to start it thanking Bob and the rest of the Credit Slips team for inviting me again to guest blog. I felt flattered and excited to share my experiences with Spanish insolvency law the first time, and the feeling remained throughout my second blogging stint. The experience has been so interesting (and a bit challenging) that I would not mind returning for a third time in the future.

My previous post covered the basics of the recent amendment of the Spanish Insolvency Law regarding refinancing and restructuring agreements. I left for this final post the analysis of two specific issues: judicial authorization and promotion of debt for equity agreements. The changes introduced by this amendment are, for sure, of great importance.

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New Data and Thoughts on Payday and Other Alternative Lending

posted by Pamela Foohey

The Consumer Financial Protection Bureau's new study (published 3/25/14) regarding payday loans has received substantial press coverage over the past couple days. The study focuses on repeat customers and finds that 80% of payday loans effectively are rolled over--that is, another loan is taken out within 14 days of repayment of the prior loan. (Some states have legislated cooling-off periods for payday loans; in those states, loans cannot be rolled over, but customers are free to come back a few days later.) The study further finds that the loaned amount goes up as loans are rolled over and that nearly 50% of all loans are in a sequence at least 10 loans long. This means that payday loans generally are not used by customers as short-term "stopgap" loans to keep them out of a cycle of debt. Rather, customers are in debt effectively for months, as Credit Slips contributor Nathalie Martin's research previously has suggested.

The study's release coincided with yesterday's Senate Committee on Banking, Housing and Urban Affairs, Subcommittee on Financial Institutions and Consumer Protection's hearing titled, "Are Alternative Financial Products Serving Consumers?" -- at which Nathalie testified. The hearing raises larger questions about the federal government's role in regulating the landscape of alternative lending. This includes payday loans and, as Nathalie noted in her testimony, similar short-term loans that are designed in part to bypass state laws regulating "traditional" payday loans.

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The Latest Amendment of Spanish Insolvency Law (1), or a Guide to Run Away From Insolvency Procedures

posted by F. Javier Arias Varona

Shutterstock_171670922

As I mentioned in my previous post, in the final two posts in my stint as guest blogger detailing the latest amendment of the Spanish Insolvency Law, I’ll take a break from discussing personal insolvency to focus on another current issue in Spain that very recently led to a partial amendment to the Insolvency Law: out of court refinancing and restructuring agreements. I have a personal interest in sharing the situation here in Spain because I am deeply interested in hearing comments on the main issues I identify as regards the amendment. To begin, I will briefly outline the amendment’s main features. I’ll then identify four main issues with the amendment – two in this post and two in my final post.

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The Pari Passu Posse Arrives. (And Paul Singer Goes to Space.)

posted by Mark Weidemaier

Shutterstock_161010305The amicus briefs in support of Argentina's petition for certiorari are in (and most can be found here). As Anna notes, Mexico's brief may be the most pertinent, as that country is ideally positioned to refute the false CACs-solve-everything premise underlying the Second Circuit's decision. The others cover a range of issues, although they mostly stay on familiar turf. I'll give a few of the highlights below the jump.

But first: Yesterday, NML filed a suit in California federal court to execute on rights in a contract between CONAE (Argentina's National Space Activities Commission) and Space Exploration Technologies Corp. (SpaceX). Basically, SpaceX has agreed to launch satellites for Argentina from Vandenberg Air Force Base in California. NML wants those rights sold to the highest bidder, with the proceeds used to pay down Argentina's debt to NML. More from Bloomberg here.

The timing is curious. I doubt NML's lawyers worked too hard to put this lawsuit together - they filed a similar one back in 2011. The launches aren't imminent, so there's also no obvious rush. Perhaps the exotic collection suit will divert attention from the amicus briefs. (See, it's working!) If so, it's a diversionary tactic worthy of those masters from Little Britain.

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Bitcoin Tax Ruling

posted by Adam Levitin

The IRS has spoken:  Bitcoins are property, not currency.  This was hardly a surprise, but it has some important implication that tells us a lot about what it takes to make a currency work.  

Satoshi

For a payments geek, the real lesson from the IRS Bitcoin ruling is that for a currency--or any payment system--to work, its units must be completely fungible.  One reason dollars work really well as a currency is that one $20 bill is entirely fungible with another $20 bill.  This means that when I pay, I don't have to make a decision about which $20 bill to use (unless I have some idiosyncratic attachment to the crisp ones or the like). It means that when I accept a payment, I don't care which $20 bill I am given, in part because I know that my ability to spend that $20 bill will not depend on which $20 bill it is.  If payment were in, say, camels, then it would probably matter a great deal which camel were tendered.  Camels aren't fungible. And we know that's not going to make for a very good payment system. 

So what does this have to do with Bitcoin?  

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Pari Passu VIPs and Mexico's CAC Gravitas

posted by Anna Gelpern

Today is the day for filing amicus briefs with the U.S. Supreme Court in NML v. Argentina (pari passu case). Brazil, France, Mexico, the Jubilee Network and Nobel Laureate Joseph Stiglitz are all asking the court to take the case. Others will doubtless come in on all sides; then the court might ask for the United States to say something ... it's a long story; stay tuned.

For now, I only highlight Mexico's priceless intervention against the courts' misuse of Collective Action Clauses (CACs)  in the pari passu argument. Recall that according to the Second Circuit, NML v. Argentina has no policy significance because CACs can be used since 2003 to bind holdouts in a sovereign debt restructuring. No holdouts, no lawsuits, no pari passu. This happens to be completely wrong because CACs specifically provide for dissent and mechanisms to hold out, and because not all debt instruments have CACs.

It is one thing for me to rant about it--but Mexico has unique credibility on CACs. In February 2003, Mexico spearheaded the very market shift in New York on which the court relies to make its totally wrong statement. And this amicus is not shy about its special status:

Mexico is thus well positioned to disagree with a stated foundation for the Court’s reasoning: that contract provisions in sovereign debt instruments known as “collective action clauses,” or “CACs,” will limit the decision’s ramifications to Argentina alone. CACs permit a specified majority of bondholders to adjust the terms of sovereign bonds. While Mexico adopted CACs for its own external debt instruments in 2003, and was the first nation to do so in the modern era, Mexico also understands that CACs have clear limitations and will not eliminate the threat to orderly debt restructuring engendered by the decision below. In addition, Mexico—like other nations—has legacy debt obligations with no CAC protection at all.

Preach.

Now, whether any of this adds up to review and reversal is another story ...

New BoA Card to Bring Inner Peace

posted by Bob Lawless

As noted by America's finest news source here.

Cui bono?

posted by Jason Kilborn

At a conference on consumer bankruptcy policy over the weekend in Athens, Greece (a place that knows all too well about consumer financial distress) and again today in class, I confronted a really nagging, fundamental problem of bankruptcy policy: For whose benefit do modern societies develop consumer bankruptcy laws, and do these systems actually deliver such benefits? In my view, the most convincing and common explanation for why existing systems offer debt relief to consumers is that relieving their suffering redounds to the greater benefit of society at large (see, e.g., section I.9, pp. 26-40, in the World Bank's Report). The problem is that I know of no empirical proof of this essential assertion. Indeed, to the contrary, I have seen well done empirical evaluations of the fresh start that suggest that, at least in the US bankruptcy system, many consumer debtors are not being reinvigorated and reintroduced into the productive, open-credit society.

I'm no empiricist, but it strikes me as potentially impossible to substantiate the premise of consumer bankruptcy policy empirically. It would be a monumental task to even formulate a research agenda for such a question. How would/could anyone ever prove that society benefits from relieving consumers of overburdening debts? Has anyone tried? Am I missing something I should be citing? Is anyone attempting to answer the question today? Any leads welcome.

My Crimean Summers and Ukraine's Odious Debts

posted by Anna Gelpern

Crimea Every elementary school summer I was shipped out of Leningrad on a two-day train journey to the Black Sea, where a succession of family members would make me eat tomatoes and roast in the sun for three months to store vitamins for the winter. A human conserve. My Soviet engineer parents would rent a room in someone's rickety dacha on the outskirts of Sevastopol--one rouble per bed, except for the high-end place with lace-trimmed pillowcases that went for one-fifty. The fellow to the right  was our landlord, already chocolate-brown in early June, sleeping it off next to his sandy-brown boxer, when we were still fresh-from-the-north gray-green (photo courtesy dad). Sevastopol was a "closed" military city then, but to me, it was one happy, sleepy, dusty morning walk to the beach, trying to spy a poppy flower, sand, salt, sand, and sleepier afternoons under the sour cherry tree, trying to spy the landlady's grandson. Bleached, salty brown with a spot of red.

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Sousa on Bankruptcy Stigma

posted by Bob Lawless

If you are looking for trite and oversimplified assertions about bankruptcy stigma, then stay away from the latest issue of the American Bankruptcy Law Journal. In those pages, Professor Michael Sousa from the University of Denver has a wonderful paper reporting on his interviews with consumer bankruptcy debtors in Colorado. You can find a preprint version of the paper on SSRN. I had the pleasure of commenting on the paper at a conference earlier in the spring. Sousa is a new voice in the area of consumer debt who demonstrates with this paper the potential to make important contributions in the field.

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Gainful Employment Rule Redux

posted by Jean Braucher

It’s time for us to pick up this story again. Late last week, the U.S. Department of Education finally released an 841-page notice of a new proposed final Gainful Employment Rule (GER) aimed at predatory, debt-laden higher education, particularly at for-profit colleges.  The for-profits enroll about 13 percent of the total higher education population but account for about 31 percent of all student loans and nearly half of all loan defaults.

The new rule seems to have a better chance of withstanding an inevitable legal challenge than DOE’s 2012 version, and it gets tougher on career colleges in a few ways outlined below, although it's still pretty forgiving to the colleges.

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