6 posts from September 2017

Visa's Maginot Line: Chip Cards and the Equifax Breach

posted by Adam Levitin

The media attention on the Equifax breach has been primarily on consumer harm.  There's real consumer harm, but it's generally not direct pecuniary harm.  Instead, the direct pecuniary harm from the breach will be borne by banks and merchants, and it's going to expose the move to Chip (EMV) cards in the United States without an accompanying move to PIN (as in Chip-and-PIN) to be an incredibly costly blunder by US banks.  Basically, Visa, Mastercard, and Amex have built the commercial equivalent of the Maginot Line. A great line of defense against a frontal assault, and totally worthless against a flanking assault, which is what the Equifax breach will produce.  

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Update on ABI Consumer Bankruptcy Commission

posted by Bob Lawless

This afternoon, I am off to New Orleans and the annual meeting for the National Association of Bankruptcy Trustees (NABT).  Tomorrow (September 15) from 12:30 - 2:30 PM, we are holding a public meeting for the Committee on Chapter 7 of the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you are at the NABT meeting, come and listen to our full schedule of fourteen speakers. The room location should be in the program and will be in the public meeting space for the conference.

If you would like to speak to us, there will be another opportunity for persons attending the National Conference of Bankruptcy Judges (NCBJ) in Las Vegas. The Committee on Case Administration & the Estate will be holding a public meeting at NCBJ on the morning of October 10. More information about requesting a time to speak is available at the call for participation. There also will be public meetings for the full Commission at the ABI's Wedoff Consumer Bankruptcy Conference to be held in November in Chicago, Illinois, and the Winter Leadership Conference to be held in December in Palm Springs, California.

Of course, you don't have to come to a meeting to send us your suggestions and comments. Anyone can send an email to ConsumerCommission@abiworld.og. I route all of those emails directly to the persons working on the issues raised as well as make them available to everyone involved with the Commission. Now is a particularly good time to write us as the committees are working on preliminary drafts. The topics the Commission is addressing are also available on our web site.

A Quiet Revolution in Pension Reform

posted by Jason Kilborn

A historic vote was announced overnight that signals a new era for large pension reform. As is often the case, "reform" here means that ordinary, hard-working folks will suffer a significant amount of pain as big companies are relieved of some liabilities, but the hope is it will be less painful than the alternative. The revolution began in 2014, when Congress adopted the Multiemployer Pension Reform Act (MPRA).  The Pension Benefit Guaranty Corporation guarantees a portion of the benefits due to participants in pension plans that have become insolvent, but as a result, it is also facing a nearly $100 million shortfall in its ability to cover the projected volume of its existing guarantees. Congress attempted to avert disaster by allowing particularly large and especially distressed pension funds to slash benefits themselves in order to maintain solvency. Ordinarily, this extraordinary action would, if possible at all, require an insolvency filing and court oversight of some kind, but the MPRA allows plans who aggregate benefits for many companies (multiemployer plans) to apply to the Treasury Department for administrative permission to abrogate their pension agreements and cut benefits with no court filing or general reorganization proceeding. There are, of course, restrictions on the level of distress required for such a move and the degree of proposed cuts, but the MPRA allows large pension funds to reduce the pension benefits of thousands of beneficiaries with simple administrative approval. The plan participants get a vote on such proposals, but the law builds in a presumption: Treasury-approved cuts go into effect unless a majority of plan beneficiaries votes to reject the cuts.

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Your Friendly Neighborhood Sanctions Running Strategy

posted by Anna Gelpern

We are about to hit an anniversary of sorts, a year since Venezuela was surely going to default on its debt ... except that it still hasn't, so the U.S. government has decided to nudge it along. Retroactive debt sanctions imposed on August 25 prohibit, among other things, extending new credit to the government of Venezuela and its state oil company PDVSA beyond 30 days and 90 days, respectively, as well as any transactions in previously issued government debt, and, separately, any direct or indirect, old or new bond-buying from the Venezuelan government. The sanctions are a big headache for U.S. bank compliance departments, but they also got some glorious creative juices running. Mark & Mitu offer a contrarian reading of the sanctions order and one of the general licenses issued by the Treasury's Office of Foreign Assets Control (OFAC) as part of its implementation. As M&M read it, Venezuela cannot restructure all its debt in a debt swap (that would require issuing new bonds), but it could amend some of its old bonds using collective action clauses (CACs), and gain breathing room until oil prices recover, things change, or pigs fly. 

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Equifax: A Call for Public Utility Regulation of Consumer Reporting Agencies

posted by Adam Levitin

This post diagnoses what went wrong with Equifax and proposes a solution:  a public utility regulation regime for consumer reporting agencies in which the CRAs would be restricted in their ability to pay dividends and executive compensation unless they meet certain performance metrics in terms of reporting accuracy, dispute resolution, and data security.  Here goes: 

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Do Sanctions Prevent Venezuela From Restructuring CAC Bonds?

posted by Mark Weidemaier

This is a joint post by Mitu Gulati and Mark Weidemaier.

At the end of last week, press reports noted that Mr. Maduro has given the green light for restructuring talks to begin with holders of Venezuelan debt. Curiously, the Russians may lead the talks. One question is whether bondholders subject to US jurisdiction can participate in a restructuring given recent sanctions levied by the Trump administration. Press accounts suggest that the sanctions were intended to prevent this. Bloomberg reports the sanctions were "designed to prevent investors from engaging in liability management, and, if Venezuela can't pay its debt, a restructuring." The Financial Times reports likewise, quoting a senior analyst who thinks the sanctions will work: "If these sanctions stay in place, then Venezuela cannot restructure."

We accept that the sanctions were intended to block a restructuring. But they don't seem to actually do this. There is a rather large loophole that would allow Venezuela to employ a common restructuring technique.

Continue reading "Do Sanctions Prevent Venezuela From Restructuring CAC Bonds?" »

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