postings by David Lander

Counseling Help for Distressed Student Loan Borrowers?

posted by david lander

As always, it has been very enjoyable to be a guest here. Three thoughts until next time.

1. At least two major organizations are about to join or have recently stepped into the effort to provide help to distressed student loan borrowers. National Foundation for Credit Counseling is launching an effort that was piloted by several of their larger members. Also,Neighborworks is launching an effort. We need high quality counseling for these borrowers, but the counseling programs face many challenges including the following

            a. Training must include not only the very complicated technical issues, but also counseling and interpersonal techniques; trainers must know both areas;

            b. These will hopefully be more than just diagnosis and pointing to the right program; digging into each individual case to help the borrower find the best option is complicated and takes time and skills;

            c. This counseling requires more than a single session and previous NFCC programs have not accommodated follow up sessions;

            d. The programs require serious quality control; and    

            e.  Finally,each provider MUST have a relationship with a legal services program or law school clinic that has expertise in student loan borrower programs so that referrals are smooth;

        2. Use of adjuncts at many law schools is undergoing major changes. In a few months I hope to start on a factual review of what is happening and comment on what that means for legal education. The fall in number of students the last several years at most law schools and the continuing pressure by the Bar for more practice-oriented education are two factors. And then there is the question of the most effective way of integrating adjuncts with the full time faculty and the general curriculum. More on this topic down the road after more numbers are in. 

        3. AFCPE (Association for Financial Counseling & Planning Education) has just received accreditation for its financial counselor certification from the National Commission for Certifying Agencies.  This is an important development for the field and i hope to comment in the future more fully on its meaning and impact. CFPB and many funders have been watching to see if the certification would be approved.

The Weight To Be Given To Comments From Bankruptcy Judges On Proposed Bankruptcy Rules and Forms

posted by david lander

 The Advisory Committee on Bankruptcy Rules (and forms) has been quite active and successful over the past decade in improving the practice of law in the Bankruptcy Courts.  Some of their major innovations such as the overhaul of the process for appealing a decision of the bankruptcy court have engendered little comment and have been deemed important contributions to justice.  Others, such as the responses to changes in the consumer credit and consumer mortgage industries have engendered very active comment from both the creditor and debtor communities and the Committee has endeavored to evaluate carefully all such comments to make certain the proposed rules and forms are not only well written and thought through but also fair to both sides.  In the business bankruptcy  realm the proposed rules governing Informal Committees (2019) engendered significant comment from the claims buying industry and the Committee made numerous changes in response to those comments.

Continue reading "The Weight To Be Given To Comments From Bankruptcy Judges On Proposed Bankruptcy Rules and Forms" »

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? " »

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.

Thanks for the chance to post.

posted by David Lander

Thanks to the folks who run Credit Slips for the opportunity to post.  I hope to be back in a few months with musings about the following: 

  1. Since the CFPB has very limited authority over auto finance, and since securitization of consumer auto loans is back with a vengeance and since low and moderate income folks desperately need used cars, we need to watch carefully this first post-crash subprime challenge. 
  2. Do preference recoveries redirect dollars in accordance with the goal of preference avoidance? With help from Ronald Mann I hope to do a small empirical study that others might replicate in their localities.Such information is crucial in figuring out the right size and shape for the preference recovery net. 
  3. Has the combination of the fall-off of law student numbers and the pressure toward more practice-oriented courses impacted the use of adjuncts in law schools?
  4. What are the factors behind the significant fall-off in insolvency work and is this a normal cycle or does it constitute institutional change for the business bankruptcy bar? I hope to combine my thinking with what I can learn from interviews with lawyers, lenders of every type, turnaround folks and academics who study this type of thing.   Till next time. 

Lessons For Consumer Protection From The World Of Inclusive Capitalism

posted by David Lander

Lately I have been teaching courses with names such as "Global and Economic Justice" and "History, Impacts and Regulation of Consumer Credit" instead of "Bankruptcy," "Secured Transactions" and "Chapter 11 Reorganizations." So I have been reading different books and listening to different speakers. A lecture I attended recently by Xav Briggs  here brought to my mind a couple of books that I use in one of my courses, “Borrow” and “Debtor Nation” both written by Louis Hyman. In many ways Hyman's books remind me of "Credit Card Nation" the outstanding and "ahead of its time" book by Robert Manning which I used extensively when I created my consumer credit course in 2002. 

Part of the wisdom I find in each of these books is the caveat that you cannot understand consumer protection without understanding the nature of American capitalism or the drive for an above-market return. This was never clearer or more of a "blow to the side of the head" than during the frenzy in the early 2000's, and perhaps nothing demonstrates it more crassly than the rating agencies covering their eyes as they rated subprime securitizations allegedly in order to "keep the business." 

Continue reading "Lessons For Consumer Protection From The World Of Inclusive Capitalism " »

Who is Helping Consumers With Defaulted Student Loans?

posted by David Lander

Clearly, the biggest surprise in consumer borrowing since the crash has been the explosive expansion of student loan debt. It has surpassed both auto lending and credit card lending. And, since it ties with Payday Lending and pre-crash sub-prime mortgage lending for the thinnest underwriting there are defaults aplenty. 

Consumer advocates are rightly urging the Department of Education to provide simpler and clearer paths forward for consumers with student loans in default but many people still need a helper.  As defaults in mortgage loans and on credit card loans have fallen, providers who live on the profits of counseling people who default on those loans have turned their attention and their advertising and marketing to consumers who are in trouble on their student

Continue reading "Who is Helping Consumers With Defaulted Student Loans?" »

Can We Count on Macro-Economists to Analyze the Impacts of Inequality?

posted by David Lander

Prior to the crash, only a very few macro-economists were studying consumer borrowing and fewer still were investigating inequality of income or of wealth as an important macro-economic factor. Work in macro-economics is done at academic institutions, the Fed, think tanks and government and private enterprises. Historically, very few PhD dissertations in macro-economics dealt with consumer finance or consumer spending or inequality issues. Prior to the crash there was a divide between the small minority (which included some high prestige folks such as Joseph Stiglitz) and the dominate majority. Both sides make extensive use of mathematical formulae but the majority looks more like physics and the minority may include a dose of sociology.  This is important stuff because government fiscal policy and even monetary policy and private business decisions are often based on the work of these folks. The majority tended to believe that humans act rationally while the minority helped develop the field of behavioral economics. 

Continue reading "Can We Count on Macro-Economists to Analyze the Impacts of Inequality?" »

Why Has Chapter 11 Failed as a Reorganizing Chapter?

posted by David Lander

The ABI has spent thousands of hours on its Chapter 11 Commission Report; the National Bankruptcy Conference is hard at work on its "Rethinking Chapter 11" project. Underlying these and other such efforts is an overwhelming frustration with the failure of Chapter 11, under current circumstances to empower true reorganization. Hard to believe but it was not always this way. During the first decade or two of the Bankruptcy Code it seemed to be working pretty well; in fact many courts were unwilling to consider quick sales of the entire business. Many large cases resulted in a confirmed reorganization plan although some led to further chapter 11 efforts or failure; the results in smaller or medium-sized cases were more uneven with a healthy percentage being dismissed or converted to Chapter 7.  There was almost no discussion of Section 363 at the Ten Year Retrospective on Chapter 11 in Williamsburg and there was little commentary on its use. Indeed, the 1997 report of the Bankruptcy Review Commission did not focus on this issue. 

Beginning sometime between the Code's tenth and twenty-fifth birthdays the tide shifted; not only did most courts back off from their legal position that Chapter 11 was for reorganization and that any sale of the entire business needed to be done within a Plan, but the vast majority of cases seemed to shift to quick 363 sales to a suitor that was identified before the filing with an auction possible if there were competing bidders. 

Continue reading "Why Has Chapter 11 Failed as a Reorganizing Chapter? " »

Thanks to Demos

posted by David Lander

Several years ago Demos organized a small conference to bring together consumer advocacy groups with academic and think tank economists and sociologists and a few bankruptcy and consumer protection lawyers and law profs and Foundation funders.  Not only was it a very productive day but the personal and professional links  formed  or strengthened by that exercise have  reverberated and continue to reverberate to the benefit of consumers in the U.S.  The extraordinary damage being inflicted by the current economic disaster increases our responsibility to strengthen the network.  Since the time of the Demos program, the savings movement and the economic/psychology or behavioral/economics movements have grown and they need to be added to the mix.  It is only through the combined insights of folks in different fields that we can produce the kinds of results that consumers need.  Turf battles and other barriers dampen the enthusiasm for such efforts, but make them all the more essential. Maybe these efforts are ongong; if not, perhaps its time to take stock and freshen them.

Debt Management Plans and Chapter 13 Plans: Non Identical Twins Or Distant Cousins?

posted by David Lander

The drop in the percentage of U.S. consumer bankruptcy filings that are chapter 13 cases (commented upon in Credit Slips recently by Bob Lawless) is mirrored by the reduction in the percentage of overindebted consumers who are “qualifying” for Debt Management Plans. There have always been striking and largely unexamined parallels between chapter 13 plans and Debt Management Plans. For years the drop off rates for each were within a few percentage points of one another and such demographic data as was publicly available showed remarkable similarities between chapter 13 debtors and participants in Debt Management Plans.  Debt Management Plans ("DMP's) are plans by which consumer borrowers repay their unsecured credit card debt; they are voluntary and in such plans creditors grant concessions on rates, term and installments. The official version of the DMP’s are administered by accredited consumer credit counseling agencies. To qualify for the concessions the consumer must fit within pre set criteria established by creditors.

Historically creditors had determined that this method of repayment/collection was a good deal for them, but in recent years creditors had been reducing their concessions and their involvement in the consumer credit counseling industry in general. Although there has been severe and justified criticism of the overuse of the DMP, some consumers and consumer advocates have found that the concessions within a DMP are valuable to a certain subset of overindebted consumers for whom a DMP may be a better alternative than bankruptcy. DMP’s  are not valuable, and are often damaging to consumers for whom bankruptcy is clearly a better alternative. These are different products from those offered by the severely criticized Debt Settlement industry.

Recent information regarding DMP’s is a bit confusing. Although there have been reports that creditors have reduced or eliminated concessions and have made qualifying more difficult, other more recent reports indicate that creditors and agencies are co operating in launching a new DMP which they assert will be more valuable to more of the consumers who are defaulting on credit card debt but who cannot not make the payments required under traditional DMP’s. In 2008, banking industry representatives and some consumer advocates developed a plan that would have allowed significant reductions in principal on credit card debt and long stretches for  repayment for a “test group” of consumers. That Plan required  OCC approval which was not forthcoming. CreditCards.com is one place to follow some of these developments. The DMP world is populated by many consumers who are very similar to bankruptcy debtors and studying the bankruptcy world without studying the DMP world may lead to an incomplete analysis.

Does Anybody Know If Credit or Foreclosure Counseling Helps?

posted by David Lander

The infusion of millions of dollars to pay "counselors" to forestall foreclosures on behalf of consumers who are delinquent on their mortgage payments seems as American as apple pie and should perhaps help some homeowners. These dollars are split among neighborhood non profits, specialized housing counseling organizations and a considerable amount has flowed to providers that have historically spent most of their time counseling consumers with credit card delinquencies. A group of United Way supported family and children service agencies also receive some of these funds.

Anecdotal reports indicate that the housing counselors are a cut above the historic credit card counselors. The credit card counseling industry agencies were mostly begun by creditors and their funding has always been supported by payments from creditors. The housing counseling organizations began with funds from HUD and the Ford Foundation and the extensive new dollars have come from the Federal government through a central organization called Neighbor Works. The neighborhood organizations obtain their funding all over the lot. The cultures of the various organizations differ a good deal among themselves and between the various types of providers.

Continue reading "Does Anybody Know If Credit or Foreclosure Counseling Helps? " »

Creating Legislative Intent Years After Passage of Revised Article 9

posted by David Lander

The legislative drafting errors in BAPCPA have certainly launched a fascinating  set of statutory construction challenges for the courts.  For example: What level of ambiguity is necessary before the court resorts to legislative intent? If the statute itself is clear how ridiculous must the result be before the court may “ignore” the clear but clearly incorrect meaning? 

The Article 9 revision process of  a decade ago  was the polar opposite of the BAPCPA experience in terms of drafting.  The combined American Law Institute (“ALI”) - National Conference of Commissioners on Uniform State Laws (now known as the Uniform Law Commission[“ULC”]) labored for years to make sure of their drafting and vetted their proposed language extensively. Still, no one is perfect and things change so in 2007 the Permanent Editorial Board of the Uniform Commercial Code authorized a committee to consider the need for possible statutory modifications or comment amendments to the Official Text of Article 9 of the Uniform Commercial Code.    When the ULC and the ALI considered the report of that group the ALI and the ULC  jointly  authorized a drafting committee, the Joint Review Committee for Article 9 of the UCC and the Drafting Committee has met several times. 

Continue reading "Creating Legislative Intent Years After Passage of Revised Article 9" »

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