114 posts categorized "Sociological Perspectives"

Scarcity, Money, and Undocumented Immigrants

posted by Pamela Foohey

Scarcity refers to having less than one needs -- time, money, calories when on a diet. For example, not having enough money reduces a person's cognitive capacity as much as missing one full night of sleep. When Scarcity, by Sendhil Mullainathan and Eldar Shafir, was published, Slipster Katie Porter connected its lessons about the mental tax of not having enough to adding a "cushion" to a chapter 13 plan. And now, Slipster Nathalie Martin's recently published paper, Survival in the Face of Scarcity: The Undocumented Immigrant Experience, uses her hour-long interviews with 50 undocumented immigrants living in Albuquerque, New Mexico to explore how their acute financial scarcity impacts their lives. Though the paper is focused on undocumented immigrants, some of the lessons of the narrative that Martin weaves apply equally to all cash-strapped people.

Continue reading "Scarcity, Money, and Undocumented Immigrants" »

Book of the Year

posted by Katie Porter

EvicitedCoverCredit Slips readers are invited to share the best credit/finance book of this year. The book can be a monograph, fiction, textbook, anything. It doesn't have to be published this year; just that you found it this year.

My nomination is Evicted by Matthew Desmond. It's an ethnography of evictions in Milwaukee and compellingly describes the problems of financial distress. The book describes how tenants struggle to make rent, and the strategies used by landlords, with the help of the courts and sheriff's department, to collect if they cannot. The site for the book contains amazing photographs-- check it out.

While the book focuses on evictions for nonpayment of rent, the foreclosure crisis also wreaked havoc on millions of lower-income Americans who may never own a home. When the property owner was foreclosed upon, the tenants found themselves on the street. The scarce and uneven protections available led to the enactment of the Protecting Tenant at Foreclosure Act. That law expired two years ago, leaving at-will tenants in about half of states vulnerable to eviction immediately after foreclosure.

Evicted describes the heartache that comes with home loss: the strain on family relationships, the mental anguish, the physical illness, and other harms. These problems are all too familiar to those who study consumer bankruptcy, but Desmond's work is a powerful story of financial distress that ensnares families who cannot make ends meet.

How Consumers Use the CFPB's Complaint Function

posted by Pamela Foohey

I recently posted to SSRN my new article, Calling on the CFPB for Help: Telling Stories and Consumer Protection (Law & Contemporary Problems, forthcoming 2017). In the article, I survey a random sample of consumers' narratives detailing their complaints about consumer credit and financial service providers, with the goal of assessing how people engage with the complaint function in light of how the CFPB processes complaints. In short, consumers submit complaints via the CFPB's website and by phone, the CFPB forwards the complaints to companies, and the companies are required to respond. That the CFPB does not respond to complaints in the first instance may come as a surprise to some consumers, despite the CFPB's websites’ prominent statements about where it sends complaints. Importantly, the CFPB is not the only federal or state agency that maintains a complaint function. The DOJ, FTC, and other agencies similarly take complaints from constituents, and likewise often do not respond directly to the complaining individuals. Identifying when and how people are not understanding how their complaints will be processed may provide agencies an opportunity to further help constituents and to augment how they meet their goals.

Continue reading "How Consumers Use the CFPB's Complaint Function" »

Civil Rights and Economic Justice in a New Era

posted by Melissa Jacoby

FlyerSharing news of this post-election civil rights conference on December 2, 2016 that, notably for Credit Slips, features pathbreaking research by Professors Mechele Dickerson and Bob Lawless (in collaboration with Dov Cohen and the late Jean Braucher) on the intersection of race with debt and bankruptcy and an exploration of how this research informs policymaking and advocacy going forward. Time permitting, I will address a different intersection between race and debt: collecting judgments arising from police misconduct when cities file for bankruptcy. Thanks to Professor Ted Shaw and the Center for Civil Rights for recognizing the role debtor-creditor research can play in the quest for equality. 

Register using this link.

 

Join us for the "The NCBJ at 90"

posted by Melissa Jacoby

ABLJInfoWill you be in San Francisco for the National Conference of Bankruptcy Judges annual meeting and related events? Please mark your calendars now for Thursday October 27, 3:oo pm Pacific Time: a special educational session honoring the 90th anniversary of the NCBJ.* We (Profs. Gebbia, Simkovic, Pottow, and me, with great guidance and input from Judge Colleen Brown and Judge Mel Hoffman) will be discussing original historical research on bankruptcy courts and bankruptcy law conducted for this occasion. Early abstracts can be found on the NCBJ blog. In the meantime, Prof. Gebbia has been posting quizzes; I suspect some Credit Slips readers would ace these tests, but you won't know until you try!

So please do join us on October 27 to be part of this commemoration and conversation.

* The mission of the NCBJ, according to its website, is:

The National Conference of Bankruptcy Judges is an association of the Bankruptcy Judges of the United States which has several purposes: to provide continuing legal education to judges, lawyers and other involved professionals, to promote cooperation among the Bankruptcy Judges, to secure a greater degree of quality and uniformity in the administration of the Bankruptcy system and to improve the practice of law in the Bankruptcy Courts of the United States.

 

Puerto Rico Symposium: Of Wills and Ways

posted by Melissa Jacoby

JigsawDebt relief without Congress? No one promised it would be pretty.  

Our brainstorm (remember the ground rules) has included Levitin's MacGyver-inspired local currency, eminent domain, and liberally-interpreted exchange stabilization, Weidemaier's use of COFINA doubts to wedge open the door for a Executive Branch/Puerto Rico partnership, and, thanks to economist Arturo Estrella, a long menu of options with examples, summarized succinctly as "where there is a will, there is a way" (p. 1) (english report at bottom of this page). Could the federal government underwrite new bonds in an exchange offer, asks Pottow? Be the mediator with a big stick, asks Lubben?  Might a holdout creditor be liable to shareholders if it rebuffed a reasonable deal, asks Jiménez? (scroll to the comments). Marc Joffe notes the potential analogy of the City of Hercules tender offer (as well as the fact that Levitin's local currency suggestion has a history from the Depression). 

Lawless reminds us of the risks associated with discriminatory treatment of Puerto Rico's debt and access to legal tools. Of course, there is a long history here. Maria de los Angeles Trigo points to UT professor Bartholomew Sparrow's study of the Insular cases. And while most expect debt relief will be conditioned on some sort of fiscal oversight, it needs to be designed in a way to avoid the foibles of the past.

Returning to Lubben's mediation theme, let's push the brainstorming a step farther: could Treasury appoint a federal judge, such as Chief District Judge Gerald Rosen (E.D. Mich.), to oversee the mediation, and demand that all creditors participate in good faith until released? Even in the absence of legal authority for this move, would creditors formally object or fail to show up? 

Thanks to participants and readers for active involvement so far, and please keep your thoughts and reactions coming this way.  

Puzzle photo courtesy of Shutterstock.com

The Financial Lives of Undocumented Immigrants

posted by Pamela Foohey

We know little about the financial lives and credit constraints of undocumented immigrants, partly because they are such a difficult to reach population. But Slips contributor Nathalie Martin gained access to this population in Albuquerque, New Mexico, interviewed 50 immigrants, and recently published a paper that provides an important glimpse into how this population handles money and finances. As the paper's title -- Giving Credit Where Credit Is Due: What We Can Learn from the Banking and Credit Habits of Undocumented Immigrants -- suggests, this population is leery of taking out credit, despite having so little income and savings that unexpected expenses quickly can become financial crises.

One of the most interesting, but expected findings is this population's extremely low level of savings. When asked if they could handle an unexpected expense of $100, three-quarters of respondents (37 of the 50) said they could not. But the majority of interviewees also expressed serious concerns with taking out credit, including via credit cards and the almost inevitable title loans (and payday loans, but most payday loans require a bank account, which a majority of respondents did not have). Indeed, they stated that they would rather ask family and friends for help, including help in trying to find work, which adds nuance to what we know about low-income individuals' feelings about relying on family and friends to deal with unexpected expenses (for instance, see Laura Tach and Sara Greene, Robbing Peter to Pay Paul). Martin's paper also contains data about how undocumented immigrants think about what ultimately often are legal problems and using (or not using) the legal system. Taken together, the paper provides a needed first glimpse into the financial lives of a subset of people who are in the country.

Foohey on Black Churches in Bankruptcy

posted by Bob Lawless

Credit Slips blogger Pamela Foohey has a new article on SSRN, "Lender Discrimination, Black Churches, and Bankruptcy." This paper builds on her previous work about churches in bankruptcy to dig into the demographics of which churches end up in bankruptcy court. From her abstract: "Churches with predominately black membership — Black Churches — appeared in chapter 11 more than three times as often as they appear among churches across the country. A conservative estimate of the percentage of Black Churches among religious congregation chapter 11 debtors is 60%. The likely percentage is upward of 75%. Black Churches account for 21% of congregations nationwide."

Foohey discusses the various reasons why black churches would be overrepresented in chapter 11. I suspect there will be a lot of debate about the paper's conclusions, but it is hard to argue with the notion that race matters in bankruptcy as it does across so many parts of life in the U.S. (h/t to Mechele Dickerson's work). Foohey's paper will get bankruptcy experts talking again about why and how it matters, even if there is disagreement on the specifics.

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

Glass-Steagall: It's the Politics, Stupid!

posted by Adam Levitin

It was like eight nights of Chanukkah in one for me watching the Democratic debate last night. There was a Glass-Steagall lovefest going on. But here's the thing:  no one seems to get why Glass-Steagall was important or the connection between Glass-Steagal and the financial crisis. The importance of Glass-Steagall was not as a financial firewall between speculative investment activities and safe deposits. It was as a political Berlin Wall keeping the different sectors of the financial industry from uniting in their lobbying efforts and disturbing the peace of the nation.

Until and unless we realize that the importance of Glass-Steagall was political, we're going to continue wasting our time debating insufficient half-measures of financial regulation like the Volcker Rule, which has the financial, but not the political benefits of Glass-Steagall. More critically, we're going to pass regulations like the Volcker Rule and then wonder slack-jawed why they don't work, as the financial industry undermines them through the regulatory implementation and legislative amendments. Financial regulation is just not that complex technically, even if if has a lot of technical rules (it's the capital, stupid!). The problem we face is not technical, but political.

Continue reading "Glass-Steagall: It's the Politics, Stupid!" »

Pro Publica: Extraordinary Struggles of African American Debtors

posted by Jason Kilborn

PoorAAmanI understand what it's like to live in a low-income family. I can only begin to try to understand the extraordinary struggles facing low-income families who also happen to be black. Pro Publica has just released a story and accompanying study that helps a bit to bridge this empathy gap.

Along the way, the story raises a frustrating point about our legal system that impacts all lower-income communities, but black folks in particular: Most legal protections against the kinds of rapacious collections activities described in the Pro Publica story require the debtor to affirmatively invoke the protections. For example, the story notes a collector explaining "if Byrd had filed a claim in court stating that the funds were exempt, the garnishment would have been terminated." Does the tragic irony escape this commentator? Byrd doesn't have enough money to pay the $29 sewer bill--do we really expect her to hire and pay for a lawyer to "file a claim in court stating that the funds were exempt"?! Similarly, the story describes default judgments being entered on time-barred debts because the debtors failed to invoke the statute of limitations--why in the world would a rational system allow time-barred debt to be revived against an impecunious debtor for failure to pay for counsel to raise this defense?! It's a self-fulfilling prophesy. The clever and unscrupulous inevitably prevail in a system where "The law doesn’t require anyone to tell debtors like Winfield of the [head-of-household 10% garnishment] exemption, and the burden is on them to claim it."

The story also cites and links to a study (and comments from study contributor and Slipster, Bob Lawless) on racial disparities in Chapter 13 practice. I've witnessed the emotional fervor that this study can whip up in a crowd of bankruptcy attorneys ... but the Pro Publica story ought to prompt us to return to the provocative question of whether, intentionally or not, directly or indirectly, our debt collection and debt relief systems are disparately impacting our black neighbors. Fixing problems that fall more heavily on these debtors would improve the system for everyone.

Image courtesy of Shutterstock

Municipal Bankruptcy After Detroit

posted by Melissa Jacoby

ArrowsA new commentary stemming from my draft article Federalism Form and Function in the Detroit Bankruptcy is now posted on the Columbia Law School Blue Sky Blog. The post frames the current skirmishes over other municipalities' access to chapter 9 at least in part as a referendum on the procedural tools used by the court to supervise the Detroit bankruptcy. For two prior Credit Slips posts on the article, see here and here.

Arrow image courtesy of Shutterstock.com

Picking a Judge to Preside over a Municipal Bankruptcy

posted by Melissa Jacoby

GavelLast week I introduced to Credit Slips readers my draft article on federal court oversight of Detroit's bankruptcy. An easily overlooked element of what I called The Detroit Blueprint is non-random judge selection, required by Congress for municipal bankruptcy cases.

Departing from the random assignment norm in the federal judiciary, section 921(b) of the Bankruptcy Code requires the chief judge of the applicable circuit court of appeals to select the judge who will preside over a municipal bankruptcy. In 1997, the National Bankruptcy Review Commission unanimously recommended eliminating section 921(b).  That Commission's Final Report observed that the fear prompting the provision - random draw of a judge unable to handle the case - was no longer salient. Congress did not take up this recommendation. What difference did section 921(b) make in Detroit?

Continue reading "Picking a Judge to Preside over a Municipal Bankruptcy" »

Chapter 9 and Federal Courts: The Detroit Blueprint

posted by Melissa Jacoby

BlueprintAmong its other effects, the Puerto Rico debt crisis has dramatically increased the number of public figures and politicians whose verbal repertoire includes the term "chapter 9." Bondholders' resistance to chapter 9 access for Puerto Rico municipalities is fueled in part by an earlier public debt crisis: Detroit. As suggested in my Credit Slips posts, Detroit made some new law but its major lasting legacy is procedural. I just posted a draft article, based on original empirical research, documenting that procedural blueprint, Federalism Form and Function in the Detroit Bankruptcy. It shows the paths by which the federal court became a major institutional actor throughout Detroit's restructuring.

After reading scholarship and case law on chapter 9, one might envision that, because of the Tenth Amendment to the U.S. Constitution and federalism principles, presiding judges are essentially locked in a closet for much of the duration, released only when the parties affirmatively seek an adjudicator. That's never entirely accurate, but to say it is inaccurate regarding Detroit is the understatement of the year.

Although The Detroit Blueprint will have broader ripple effects, I am dubious that its most significant elements could or would be implemented in, say, a PREPA bankruptcy. Detroit should not be an impediment to changing the Bankruptcy Code to cure the wrongful omission of Puerto Rico municipalities. More on that, and additional perspectives from the article, in future posts.  
 

Image courtesy of Shutterstock

Notifying Potential Claimants in Diocese Chapter 11 Cases

posted by Pamela Foohey

Since 2004, 12 Catholic dioceses have filed under Chapter 11. The latest case is that of the Archdiocese of St. Paul and Minneapolis, which filed in January 2015. The claims bar date is set for August 3. How should the Archdiocese go about notifying potential claimants -- clergy abuse survivors who have not yet come forward and who may feel ashamed and alone -- that they need to file a claim by the bar date?

Yesterday the official unsecured creditors' committee (which is comprised of five clergy abuse survivors) filed a motion requesting that the bankruptcy court order all 187 parishes to play a 7 minute video in which three abuse claimants explain the necessity of filing a claim by the bar date and talk about, from their unique perspectives, why coming forward, however hard it may be, is important, both for survivors and for the church. (The motion also requests that parishes publish the video on their websites.)

The video is hard to watch. The motion states that the committee tried to come to an agreement with the debtor and the parishes about the video. The motion identifies "cooperation clauses" in insurance contracts that require insured parties (the parishes) to limit the liability of the insurers to the greatest extent possible as the main problem that stalled negotiations. It also is understandable that parishes might not want to show the video or put it on their website simply because it is hard to watch. But ultimately I think that the video is a very worthwhile idea, as a legal and community-building matter.

Continue reading "Notifying Potential Claimants in Diocese Chapter 11 Cases" »

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?" »

Coming to Law -- Churches in Bankruptcy Edition

posted by Bob Lawless

Credit Slips contributor Pamela Foohey has just posted her most recent work in her series of articles on churches in bankruptcy. I have been a big fan of this research project since Pamela was a fellow at the University of Illinois. She tells us not only about bankruptcy but also about the ways in which these churches look like most any small business. Most impressively, the work builds on existing literature on how people come to law to solve their problems and expands that literature into a new and nonobvious setting, suggesting this literature may have deep explanatory power to help us understand more about how people perceive and use law. It is exactly what we need more of in the law reviews -- scholarship using rigorous social science to help us understand what actually happens in the legal system.

Pamela's most recent paper, "When Faith Falls Short: Bankruptcy Decisions of Churches," relies on structured interviews with church leaders and and their lawyers. One of the most surprising things is the church leaders did not see their problems as legal. Foreclosure may have beckoned, but the leaders had to be brought to law. They turned to social and professional networks both to get information about the law and for support that bankruptcy was the correct thing to do. There is much more in Pamela's paper. Get it before SSRN runs out of electrons to send it to you.

Local and State Treasurers Can Build Wealth in Struggling Communities

posted by Nathalie Martin

Sometimes you can beat the door down with efforts to get Federal and State officials to tackle problems, but at the end of the day, locals can best get the job done, quietly and quickly. A story in Monday’s New York Times bears this out.  For example, San Francisco City Treasure Jose Cisneros noticed that families who finally took advantage the of the earned income credit, the country’s largest public benefit program, often had no bank accounts in which to deposit their refunds. This meant losing a portion of this important public benefit to check cashers and others.

Because of this problem, Treasurer Cisneros started a program called Bank On, that helps people on the financial fringes open bank accounts and develop credit histories. This model has spread across the country, leading the Treasury Department to conclude that Bank On has “great potential” to “create a nationwide initiative that attends to the needs of underserved families and works to eradicate financial instability throughout the country.” In 2010, Mr. Cisneros also started Kindergarten to College, a program that automatically opened a bank account with $50 ($100 for low-income families) for every kindergartner in public schools. The city pays for the administration and initial deposits, while corporate, foundation and private donations provide matching money to encourage families to save more. His office even figured out how to open bank accounts for thousands of children without social security numbers.

These and similar effort have now been replicated in more than 100 cities, showing that even mundane public races might make a big difference in the health and well-being of citizens, if not the entire U.S. economy.

Yoga for Stressed Out Lawyers ... and Their Debtor-Clients

posted by Jason Kilborn

Yoga for lawyersAnd now time for something entirely different. I noticed a great new book in our list of library acquisitions recently that might be of particular interest to two groups that suffer from lots of stress: lawyers and debtors! Credit Slips' own Nathalie Martin has teamed up with a lawyer-turned-yogi and the ABA to produce a really wonderful new book, Yoga for Laywers: Mind-Body Techniques to Feel Better All the Time. The book contains a very nice discussion of stress, its causes and effects, and its relief through yoga poses, mindfulness and meditation.  I've read a lot of these kinds of books, and this one stands out as particulary clear and readable. Moreover, the yoga section is extraordinarily accessible. The poses are (almost) all simple and doable even for beginners, and the photos demonstrate proper practice. Spoiler alert: I was practically buzzing with anticipation at the chance to see photos of my friend Nathalie contorted into various pretzel shapes, but alas, only her co-author (Hallie Neuman Love) is pictured in the book. Great book, great way to relieve stress and feel better. Check it out! 

Detroit: "Now Is Not the Time for Defiant Swagger..."

posted by Melissa Jacoby

3dPuzzlePlan confirmation time. Doesn't everyone relish a big trial? Headlines in national newspapers breathlessly proclaim that the fate of Detroit's future is in the hands of one single judge!

Well, no.

Let's get literal about the judicial role at this juncture. There's no way over the finish line without a determination by the bankruptcy court that the City has met its burden of showing its plan satisfies all legal requirements by a preponderance of the evidence.

This standard includes the City showing that the plan is not likely to fail. Back in January 2014, as the parties negotiated the plan's initial version, Judge Rhodes called for restraint in creditor demands, modesty in City promises:

Now is not the time for defiant swagger or for dismissive pound-the-table, take-it-or-leave-it proposals that are nothing but a one-way ticket to Chapter 18 ... . If the plan ... promises  more to creditors than the city can reasonably be expected to pay, it will fail, and history will judge each and everyone of us accordingly.

    --Jan 22, 2014, afternoon session

Detroit's plan includes revitalization investments, and does so not merely to show how it will service its debt. That scope takes the court into a farther-reaching review.  And the judge appointed his own feasibility expert, and is planning to conduct the direct examination of the expert himself. Such factors further fuel the image of a judge as gatekeeper of Detroit's future.

Yet, no bankruptcy judge should be saddled with the full weight of longstanding socio-economic and geographic challenges. Historian Thomas Sugrue teaches us that the roots of Detroit's crisis run quite deep. Deeper than the recent past of corruption in the Kilpatrick administration, or dependence on casino revenues, interest rate swaps on certificates of participation, or questions about thirteenth checks. Even before the height of worries about auto industry competition abroad, or the enactment of Michigan constitution language on pensions. By Sugrue's account, Detroit's economic decline started in the 1940s and 1950s with hemorrhaging (his word) of good jobs and capital. For the spiral downward from there, the book is here, the speech, 19 minutes into the video, there.  Repair depends on collaborative work: many tools, many hands. How to engage all communities in the effort to conquer longstanding racial tensions and segregation, achieve regional cooperation, expand jobs that offer more security and opportunity than downtown coffee shops and sports stadiums? ("Downtown does not trickle down," said Sugrue at a Wayne State conference earlier this year; explanation here). Again, many tools, many hands.

Although these challenges illustrate how the judge's plan confirmation role operates within a much broader framework of actors, judges also can shape a municipality's restructuring and future throughout the bankruptcy process, in more informal ways. In Detroit's case, Judge Rhodes planted the seeds of oversight and influence in the earliest days of the bankruptcy. He drew on tools and techniques used decades earlier in other kinds of complex litigation, including prison reform and school desegregation cases. See here, here, here, and here.

Among the most consequential moves was delegating to Chief District Judge Rosen the authority to mediate nearly every substantive issue in the case. Detroit heads into the confirmation hearing with many settlements in its pocket - with financial creditors as well as workers and retirees. Most discussed is the pension/art settlement (a.k.a. Grand Bargain) that looks the least like a conventional mediated settlement. Chief Judge Rosen has suggested the deal could be a model for other distressed cities. On harnessing the power of the non-profit sector, maybe so. On a sitting life-tenured judge being the designer, broker, and closer of this type of deal, not so much. However socially desirable the content of the Grand Bargain may be (and that debate will rage on), the costs and risks of this procedural model are simply too great. 

So, as the last phase of the historic Detroit bankruptcy commences, the question of judicial responsibility and influence must be put in context. The role of federal judges in shaping Detroit's future has been overstated in some ways, understated in others. Trials matter. But if they capture too much of our attention, we will miss other important things.

Puzzle picture courtesy of Shutterstock

 

Robbing Peter

posted by Katie Porter

How exactly do people make ends meet? While there are a few formal studies of "payment hierachies" courtesy of the big data organizations, there is little ethnographic work. A new contribution in this regard is "Robbing Peter to Pay Paul":  Economic and Cultural Explanations for How Lower-Income Families Manage Debt by Laura M. Tach and Sara Sternberg Greene. The authors interviewed 194 lower-income households, finding that debts generally receive less attention than regular monthly expenses where credit cannot substitute for meeting the need (e.g., paying rent). The best findings of the paper describe how households choose among debt coping strategies, which Tach and Greene categorize to include debt juggling such as rotating which debt to skip paying, rejecting responsibility/ignoring debt, using an EITC refund to make a large payment, and others. Tach and Greene sketch out an "Injustice Narrative" based on respondents' own understandings of why certain debts should be ignored or rejected. In their sample, these debts were frequently subprime credit cards or debts ballooned up with fees. By contrast, the authors present an "Economic Mobility Narrative," where debtors prioritized and paid consistently if they believed repayment was required to achieve a goal, like improving a credit score enough to qualify for a home loan. The overall perspective of the paper is that cost-effective approaches to debt repayment (highest interest rate first), or logical approaches (last in, first out), are less prominent than cultural narrative strategies that allow debtors to explain their payment--or lack thereof--using cultural sociological norms about mobility and justice.

The paper is a nice addition to the generalized reporting that focuses on middle class people--those with mortgages and credit cards. As Nick Timiraos recently reported in the WSJ, mortgages are once again the king of the bill heap. The article has some nice graphics that illustrate regional differences in payment hierarchies that appear to correlate with property values.

p.s. There was a rumor that I would never blog again. I started it. But it just didn't catch on, despite my dissemination efforts.  I'm back . . .

Working and Living in the Shadow of Economic Fragility

posted by Melissa Jacoby

OupbookCredit Slips readers, please note the publication of a new book edited by Marion Crain and Michael Sherraden. The New America Foundation is hosting an event on the book tomorrow, Wednesday, May 28, 2014 at 12:15 EST. Not in Washington, D.C.? The event will be webcast live

The book project developed out of a stimulating multi-disciplinary conference at Washington University in St. Louis. Participants had great interest in considering how bankruptcy scholarship fits within the larger universe of research on financial insecurity and inequality. My chapter with Mirya Holman synthesizes the literature on medical problems among bankruptcy filers and presents new results from the 2007 Consumer Bankruptcy Project on coping mechanisms for medical bills, looking more closely at the one in four respondents who reported accepting a payment plan from a medical provider. Not surprisingly, these filers are far more likely than most others to bring identifiable medical debt, and therefore their medical providers, into their bankruptcy cases. We examine how payment plan users employ strategies - including but not limited to fringe and informal borrowing - to manage financial distress before resorting to bankruptcy, and (quite briefly) speculate on the future of medical-related financial distress in an Affordable Care Act world.

Detroit: So Many Questions

posted by Melissa Jacoby

Arrows...but first, a new (and short!) article: Please download here a just-published piece on the first months of Detroit's bankruptcy, resulting from a fall 2013 Fordham symposium. It reflects efforts to follow public parts of Detroit's chapter 9 through recordings of court hearings and monitoring the docket. And although largely descriptive, the piece sets the stage for unpacking the institutional and functional roles played by the federal court in municipal bankruptcies and beyond. The court's early management and oversight choices (discussed on Credit Slips here & here & here & here) can be tied quite directly to this bankruptcy's development  - most notably through the appointment of Chief District Judge Rosen as lead mediator. Without Chief Judge Rosen, would the  Grand Bargain exist?

Continue reading "Detroit: So Many Questions" »

Faith-Based Markets

posted by Adam Levitin

Paul Krugman has a column today about the blind, fundamentalist faith in efficient markets.  This is a phenomenon that Stephen Lubben and I have been discussing recently (did Krugman just preempt our paper idea?), as we've both encountered it in the financial regulatory policy debate: 

  • The Chapter 14 proposal that would resolve large financial institutions in bankruptcy takes it as a matter of faith that there would be sufficient private DIP financing available to resolve, say, JPMorgan Chase. I don't know how much would be needed, but it would be a multiple of the largest private DIP loans to date:  $10B for Energy Future Holding and $8B for Lyondell Chemical.  Where would the, perhaps $100B needed for a megabank come from?  Well, not from that megabank...  But don't worry, the market will provide.
  • Housing finance reform proposals that would either total privatize the housing market (the House Republican solution) or privatize 10% of the market (the Johnson-Crapo bill in the Senate).  We could have a completely private housing finance system.  But don't be surprised when home prices drop precipitously.  There just isn't enough private risk-capital willing to assume credit risk on housing to finance the whole market. It's not clear to me that there's enough private risk-capital willing to assume the credit risk on 10% of the market, and if there isn't it is going to result in at least a 50 basis point increase across the board, and much higher price increases for riskier borrower.  But don't worry about these details.  The market will provide. 

So here's the inconvenient paradox of market fundamentalism:  the idea that the free market can be directed. Either the market is free or it will follow direction, but it's not going to do both. Markets do what markets want.  

Continue reading "Faith-Based Markets" »

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.

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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A Lawyer and Partner, and Also Bankrupt...for reasons that have nothing to do with being a non-equity partner...

posted by Adam Levitin

It's all the rage these days to beat up on law school as a bad investment and to moan about the economic travails of the legal profession.  There are some reasonable critiques that can be leveled at the shape of legal education and its costs and there are clearly important changes going on in the economics of the legal profession.  But in a NY Times column, James Stewart has tried to connect these important issues with the sad story of the bankruptcy of Gregory Owens, a former equity partner in Dewey LeBoeuf who is now a non-equity service partner at White & Case.

Owens has filed for bankruptcy and for Stewart, Owen's case is informative about "why law school applications are plunging and [why] there’s widespread malaise in many big law firms".  There’s just one problem.  Owen's case has no connection with either of these things.  Owens’ story is one of the expenses of divorce.  It is not a tale of legal education debt.  And it is only a story of the changes in the legal economy to the extent that Owens’ problem is that he’s earning only $375,000, not $3.75 million.  If Stewart weren’t so eager to get his licks in on the law school economy, he might see that there’s a very different story here.

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Detroit's Managerial Milestones

posted by Melissa Jacoby

PathA city in bankruptcy operates with considerably more freedom from judicial oversight than its private chapter 11 counterparts. People often say judges have just two principal points of involvement in a chapter 9: presiding over trials on eligibility and confirmation of the plan of adjustment. My earlier posts about Detroit have told a story that puts judges in a more active ongoing role, emblematic of the evolution of the federal judiciary over the second half of the Twentieth Century. Serious managerial judging (plus a team) empowers them to shape the speed and direction of municipal restructuring notwithstanding doctrinal and constitutional limits on their formal legal authority. Yesterday's evidentiary hearing in Detroit's bankruptcy is illustrative.

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Furlough Raises Moral Questions

posted by Nathalie Martin

Snaking up a mountain road toward our favorite trailhead yesterday, Stewart and I realized we’d face some moral dilemmas when we arrived. Assuming we could get into the National Forest at all, would we pay the fee, even though no one would fine us if we didn’t? Yes, we concluded. Fair is fair. Would we use the restrooms even though we knew they were not being cleaned?  As we left civilization, the answer to this one became increasingly “yes.” Would we throw our breakfast burrito wrappers in the bear-proof garbage cans? You bet. Those could attract bears even if left in the car.  Little furlough
 As this photo shows, the feds didn’t leave these questions up to chance. The fee box, the restrooms, and even the garbage cans were all sealed shut. These are obviously just silly questions, but some questions raised by the furloughs are not so silly.  Non-essential federal employees are not being paid, even those that are low paid and barely paid, but Congress is?  How is this possible? I have heard that there is a law against not paying them for a current session (wonder who came up with that one), and also that some congresspersons are giving their pay to charity (nice choice to have). In any case, this strikes me as seriously wrong. 

 

Jonathan Lipson on “Relational Reorganization”

posted by Jean Braucher

Prof. Jonathan Lipson of Temple University School of Law has an interesting post today on the idea of “Relational Reorganization.”   Find it over at the ContractsProf blog. He advocates more attention by scholars and lawyers working on debtor-creditor issues to the relational perspective of Stewart Macaulay, a leading contracts scholar in the law-in-action tradition.  Macaulay has studied, among other contracts phenomena, the ways that business do and don’t use contracts, including that they typically readjust relationships in light of business realities rather than formal contracts entitlements.

Lipson points out that when business debtors struggle to meet their many obligations, workouts are the norm, and formal contracts give way, no matter the care with which they were entered.  Even bankruptcy reorganization is typically mostly consensual.  What is different in the debtor-creditor world is that multiple relationships often have to be adjusted or abandoned in a reorganization process.  Lipson suggests that more attention to relational thinking could help us better understand various bankruptcy practices, particularly those used in close-knit groups of repeat players, including bankruptcy lawyers, claims traders, and professional distress investors.

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Buying Hope

posted by Melissa Jacoby

NumbersThose interested in The Stakes of Design back in April may appreciate Why We Keep Playing The Lottery. Thanks to The Morning News for alerting readers to the article, and thanks to author Rosecrans Baldwin for co-founding The Morning News, and . . . that's enough.

Numbers image courtesy of Shutterstock

Don't Fancy Games (For Your Kids' Financial Education)? How About The Theatre?

posted by Melissa Jacoby

MoneyTree"Make it fun and they will come," Lauren Willis discussed in the instructive post that evaluated the pros and cons of "The Gamification of Financial Education." Meanwhile, in London, a live show has been designed for children as young as five to teach them about the financial system. Interesting story on the show in The Guardian here. Tickets to "Bank On It" (running through the 14th of July) and other information here.   

Money tree image courtesy of Shutterstock 

The Stakes Of Design

posted by Melissa Jacoby

SlotThat 99% invisible is a vibrant architecture and design podcast might have been beside the point in Credit Slips land -- but for the fact that its current show (Episode 78) focuses on the design and technology of casino slot machines, and the particular profitability of penny slot machines. The short piece is built on the work of M.I.T. professor and anthropologist Natasha Dow Schüll. Lots on the consumer finance and cognitive behavioral side of things; don't expect any mention of bankrupt casinos.

Slot photo courtesy of Shutterstock.

Apologies for Bankruptcy

posted by Bob Lawless

My colleague, Jennifer Robbennolt, and I have posted a paper to SSRN exploring apologies in the bankruptcy context. Jennifer has done some of the leading studies on apologies in different legal contexts. Contrary to the instincts of many lawyers, apologies tend to produce better outcomes for defendants. For example, victims who hear an apology are less likely to feel they need to invoke legal process and are generally more amenable to settlements. Researchers have demonstrated these effects in a variety of legal settings such as personal injury, professional malpractice, and criminal law. We wondered whether we would see similar effects in bankruptcy.

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Financial Dermatologists

posted by Adam Levitin

The Yellow Pages that arrived at my door yesterday. This strange book is an object of great fascination to a generation that has grown up watching YouTube and relying on Wikipedia instead of World Book and Brittanica.  It was pure Kismet, but when I opened the volume, it was to Lawyers-Bankruptcy.  It turned out to be an enlightening experience. The Yellow Pages is perhaps the only place one can find concentrated advertising by bankruptcy (and other) lawyers. There might even be a good article in analyzing the advertisements. 

I was surprised that a good third of them didn't have the requisite "we are a debt relief agency" language, while some of the others choose to repurpose the BAPCPA escutcheon by calling themselves things like "federally recognized debt relief agencies".  Is that so different than the mortgage modification shops recently warned by the CFPB and FTC regarding misleading advertising for potential misrepresentations about government affiliation?

By far the best ad, however, was patterned on the Dr. Jonathan Zizmor, dermatologist, ad of NYC Subway fame, listing the various types of treatments available for consumers:  instead of wart and mole removals, there are second mortgage and lien removals.  Instead of chemical fruit peel treatments to reduce blemishes, consumers can get reductions in mortgage balances and taxes. Stop living with those embarassing acne garnishments and get on with your life. 

I always thought of bankruptcy lawyers as the legal equivalent of ER docs:  stop the hemorraging, stabilize the patient, move them to the ICU, and then on to the next one. But maybe we're really financial dermatologists. 

What I Love about Kiva.org

posted by Alan White

Kiva.org is the on-line microlending network that allows anyone to lend $25 or more to individual low-income borrowers around the world for micro-enterprise and housing.   Kiva is an entirely different way of thinking about credit and financial intermediation. While it may be small, it is an example of the real utopias described by Erik Olin Wright in his 2012 presidential address to the American Sociology Association.

Through kiva’s web site, anyone wishing to make a loan can browse the descriptions of borrower projects. For example, a woman in Central America has applied for $350 to buy bricks, cement, wire, sand, gravel and iron to build on to her house, and proposes to repay over 15 months. NGOs prepare the loan descriptions, disburse and collect loans and provide support services to borrowers. 

The interest paid by the borrower covers the costs of payment transfers, underwriting and supervision of the loans and the administration of the program.  Lenders receive no interest.  Those of us with some surplus wealth can put it to productive use without insisting on enriching ourselves as a reward for being (at least relatively) wealthy.   This is especially painless at the moment when interest rates for savers in the conventional retail banking sector are low, but it can also give us an opportunity to reflect on the deep capture of contemporary economic thinking by the idea that capital is entitled to, and must always, earn interest for being put to use.

With its capacity to connect thousands of individual lenders with thousands of individual borrowers, kiva also points one way to solving to the maturity mismatch that creates so much risk for conventional banks.  An individual lender/saver can browse a list of thousands of potential loans of varying maturities, and match his or her own cash needs with the borrower’s.  There are no 30-year mortgages on kiva (yet) but the possibility is there. 

Whether microlending and microfinance generally are a net welfare benefit foScreen shot 2012-12-08 at 10.22.10 AMr poor borrowers is a complex and controversial question, to which there are a variety of empirical and theoretical responses.  Other peer-to-peer lending and crowdfuding experiments without the social mission have raised a host of problems, including high default rates.  I can say, though, that I experience more happiness browsing my kiva.org portfolio (see picture) than any of my other account statements.

Race and the Housing Bubble

posted by Jean Braucher

While we wait to see if the second Obama administration will do anything new to help homeowners hit by the lingering mortgage crisis (finally replace Bush-holdover Ed DeMarco at FHFA to make way for debt relief?), there’s time to review a recent development that didn’t get the full attention it deserved.

I am referring to a lawsuit, Adkins v. Morgan Stanley, filed in the Southern District of New York in October by the ACLU. We don’t usually associate the ACLU with consumer protection in mortgage finance, and not surprisingly, it has brought a fresh perspective on the abuses that led to the housing bubble, highlighting race disparity in subprime originations.

Together with the National Consumer Law Center, the ACLU has brought a class action against Morgan Stanley charging that it financed a major subprime mortgage originator, dictated the nasty terms offered, and bought up a big portion of the resulting junk to feed its securitization maw.  The originator was New Century Mortgage Corp., which filed in bankruptcy in 2007.

The plaintiffs are African-American homeowners in Detroit who were sold New Century mortgages and who have ended up facing foreclosure. Also joining as a plaintiff is Michigan Legal Services, which has been swamped with mortgage cases in foreclosure ground zero, Detroit.

The legal theories used include the Fair Housing Act and the Equal Credit Opportunity Act, which are promising because these federal laws cover purchasing loans and also make disparate racial impact sufficient to make out a discrimination case. The 71-page complaint presents data that Detroit-area African-American customers of New Century were 70 percent more likely to end up in subprime loans than white borrowers with similar financial characteristics. The suit seeks a jury trial and disgorgement of ill-gotten gains, among other relief including appointment of a monitor (a good idea given the constancy of race discrimination in US housing finance practices).

Continue reading "Race and the Housing Bubble" »

Disclosure Debates (. . . same old, same old)

posted by Amy Schmitz


We talk about disclosures, and the importance of reading our consumer contract terms before committing to any deal. However, does anyone really care about contracts? Let’s face it: Contracts have become largely meaningless until we run into problems and want to use the “terms” for ammunition to get a remedy. I am a Contracts Professor and often bypass e-contract terms when I am in a hurry or know that I could never get the terms changed. We are all lazy in reading contracts. I have confirmed this in my own research, which I wrote about in Pizza-Box Contracts: True Tales of Consumer Contracting Culture, published in the Wake Forest Law Review.  Disclosure debates are not new.

At the same time, texting and tweets as forms of disclosure have augmented shrouding and other tactics for effectivley hiding terms and contract modifications. The Federal Trade Commission hosted a one-day public workshop on Wednesday, May 30, 2012 to consider the need for new guidance concerning advertising and privacy disclosures in online and mobile environments. The workshop focused especially on challenges of making disclosures clear and conspicuous in social media and mobile marketing.

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Transactional Attorney Ethics

posted by Adam Levitin

The responses to my post on Scott Brown's activities as a real estate attorney make me think that I need to tee up a broader issue:  the role of attorneys in the financial crisis.  

The practice of law is a service industry. Lawyers don't decide the transactional ends. Instead, they help get their clients from point A to point B. It's a bit like being a cab driver:  the passenger picks the destination, the cabbie just provides the ride. And certainly we wouldn't think that a cabbie had any ethical issues if after dropping off a fare, the passenger proceeded to commit murder. Yet I don't think this means that deal lawyers are ethically immune from the transactional ends they facilitate. There is always the "known or should have known" issue. Lawyer can, and I would submit should, play a gatekeeping role. 

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Who Built It?

posted by Adam Levitin

We're seeing the back and forth between the Dems and the GOP about "who built it," whether the economy is a function of both public and private action (as artfully expressed by Elizabeth Warren and clumsily imitated by the President) or purely private Galtian will-to-create entrepreneurship. The only interesting thing about the argument is that there even is an argument. The facts are so overwhelming in support of the Elizabeth Warren version that it's astonishing that anyone would deny that government plays a huge and largely uncontroversial role (police, fire, roads, courts, currency) in making the economy function.  

So why are so many Americans so wedded to the private enterprise story? Why is this the heart of the GOP vision of what American is and should be? Why the insistence on clinging to the lone frontiersman version of America that has never really held true except on the margins?

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Zip Codes and Internet Searches Populate Database Mines

posted by Nathalie Martin

Twice now the New York Times has reported on a mysterious company in Arkansas, Acxiom, that has been collecting endless data on all of us but no one is entirely sure what they have or why they have it.  This is why neither NYT story makes perfect sense.  Something is wrong but we do not know enough about what they are doing to know what it is.  Consumers do not get to see their files according to the second article. I cannot write and get what they have on me, nor can you.

The collected data include our incomes, our family compositions, and certainly our geographic locations. The process for mining begins when a store clerk asks us at check-out for our zip codes, or perhaps when we search internet sites and input data there.  From there the sources somehow back into our e-mail and home addresses, our incomes, our buying preferences, our kids’ ages, our pets, and I am not sure what all else. 

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The Coasean Republic

posted by Adam Levitin

At times I've joked to my classes about the possibility of a Coasean Republic, a state I call "Coase-istan" (or perhaps Kosistan), in which the entire world operates via private ordering.  In Coase-istan, government does, well, nothing except put service provision out for private bids.  Mail would be delivered only by private express companies like Fed-Ex.  Prisons would be privately operated. Executions would be contracted out to the highest bidder. Food and drug safety would be policed solely by private litigation, which would, of course, all go to arbitration. Deposits would be privately insured, if at all. Taxes would be collected by tax farmers. The borders of the Coasean Republic would be protected by an army of mercenaries. Health care or transportation? Pay your own way. Want to buy a baby or enter a lifetime personal service contract? Go right ahead. 

The constitution of the Coasean Republic would, of course, enshrine self-evident truths such as revealed preferences and the absence of transaction costs or resource constraints.  Once one dismisses the rest of all possible worlds, one finds that this is the best of all possible worlds.   

Now, it turns out that the joke's on me. Sandy Springs, Georgia is well on its way to becoming the Coasean Republic. Well, let's hope that Tiebout competition works. 

Thank You to Bill Maurer and Stephen Rea

posted by Katie Porter

Last week, Credit Slips was fortunate to have the thoughtful insights of Bill Maurer and Stevie Rea on payments systems. Their posts reflect years of research in the United States and overseas on the social meaning of money, the potential and perils of mobile money, and the future of cash. We thank them for sharing their ideas with us.

As anthropologists working in a field shaped by legal rules--and lack thereof, Bill and Stevie offered insights on the ways in which cultural beliefs, social networks, and other non-legal forces are likely to shape the regulation of payments system in the future. If you missed their posts, I highly recommend you treat yourself to them. In their final post, they offer a challenge to Credit Slips readers that I hope we'll take up:

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Platform, Infrastructure, Utility?

posted by Bill Maurer & Stephen Rea

While we’ve been blogging, Stevie has begun his dissertation fieldwork in Korea. He emailed Bill the other day: “Yesterday I opened a bank account here in Seoul, and conducted the entire interaction in Korean. For some reason, I don't get an ATM card, which is really strange. But in all likelihood I had no idea what the teller was trying to say to me, so I might end up getting a card in the mail next week or something. As ‘technophiliac’ as this culture seems to be, cash is still king; outside of the large department stores and global restaurant chains, I don't see any POS terminals.”

There’s hype, there’s reality, and there’s possibility around all the cashlessness claims that follow on the heels of mobile and other digital payment platforms. We want to conclude our guest blogging with a gesture toward some of the possibilities of mobile money--and a challenge for the Credit Slips community.

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Cash as Social Infrastructure

posted by Bill Maurer & Stephen Rea

Sticker in San Francisco: "Of course it's cash-only, it's the Mission."

Overheard: "Oooh, yeah, no, we don't take cards. Because the coffee is, like, local?" (both items courtesy Lana Swartz)

The word “cash” derives from Latinate words referring to “a chest or box for storing money,” not the money itself. The term originally meant the practices of storing, and the objects used to store items of value – not just money -- as well as the act of going to those storage devices to receive money (to “cash” a bill of exchange,, meant to go to the specific box where the money was). Cash as we know it today is more than a store of value and a medium of exchange; it has symbolic, pragmatic and artistic functions. In the US, even before Durbin, small merchants placed an extra surcharge on credit or offered discounts if customers used cash. Research being conducted at the Institute for Money, Technology and Financial Inclusion (IMTFI) is bringing to light a host of social, ritual and religious uses of cash and coin beyond their economic functions. What's their relationship to, say, mobile money? For us, they are design challenges more than anything else (see, e.g., the Royal Canadian Mint's MintChip, or discussions among developers about Google Wallet). Building an infrastructure for digital payments, especially in places that have been cash-only, entails some connection to the existing social infrastructures of cash.

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Cash: Killing It, or Building Bridges to It?

posted by Bill Maurer & Stephen Rea

Much has been written about the inherent riskiness of cash. It is dangerous because it can be lost, stolen, eaten, destroyed, etc. It is dangerous because it is difficult to track, thereby helping to facilitate crime. Many a potboiler plot hinges on a cache of unmarked bills. Anyone remember Trixie Belden? “‘That governess of yours won’t argue when I tell her to leave a fat roll of unmarked bills under a stone at the Autoville entrance tonight. She won’t notify the police either.’ He reached up a grimy hand and touched one of Honey’s shoulder-length curls. ‘Not when I send her a lock of your pretty hair with the note, eh?’” (Julie Campbell, Trixie Belden and the Red Trailer Mystery, New York: Random House Children’s Books, 1950, p.180).

In the comments on our last post, we can clearly see two poles of the cash debate: cash is for criminals, but digital payment will welcome Big Brother into our wallets. Why so stark a choice? Last year, the Fletcher School held a conference titled, “Killing Cash.” It was framed explicitly in terms of the possibility that “mobile money”—mobile phone enabled payment and money transfer services, like Safaricom Kenya’s much vaunted M-PESA—heralds the possible end of cash and coin. Most of these services work on a prepaid model via the mobile telecommunications network – basically like prepaid airtime minutes for a top-up (not subscription) phone (nice article here on e-money in Central Africa by Andrew Zerzan; short piece here on mobile money regulation). I put cash into the system by visiting an agent. The agent sells me “e-money” in exchange for my cash, and gets a commission. I can now send e-money to another client on the network, who goes to another agent to cash it out (usually without a commission). Or, I leave the value in my mobile wallet, for a little while or for a long time. This is not an “end of cash” scenario, however. It’s an addition of e-money to what had been—for the poor, without access to financial services and digital financial platforms—a cash-only world.

Continue reading "Cash: Killing It, or Building Bridges to It?" »

Toward Cashlessness?

posted by Bill Maurer & Stephen Rea

One of my students came across a humorous blog post from February, 2012. Titled, “What your payment method reveals about you,” the author listed a series of unlikely payment actions and a line on the presumed personal characteristics of the payer. The humor appeals to… well, us, anyway, and probably you, too.

Slinging your card down: You've definitely shoved a dog's face away from you because "move."
Slinging cash down: You've consumed alcohol that's involved whipped cream in the past week.
Using your Hello Kitty-themed card: You have many other credit cards.
Handing a bag of nickels and dimes, uncounted: You are nine.

Around the same time, the United States Agency for International Development launched an initiative to replace the use of cash in aid efforts with electronic forms of value transfer:

"If you care about reducing poverty, then you must also care about reducing the reliance on physical cash. We begin a movement to do just that.  USAID Administrator Rajiv Shah is announcing a broad set of reforms [in order to] reduce the development industry’s dependence on cash.  This includes integrating new language into USAID contracts and grants to encourage the use of electronic and mobile payments and launching new programs in 10 countries designed to catalyze the scale of innovative payments platforms."

The USAID “Better Than Cash” program was the culmination of at least a year’s discussion internally and with major donor agencies over the costs of cash for the poor--the heightened risk of theft associated with physical currency, the anonymity of cash, the difficulty in transporting and storing cash for those without access to formal financial institutions. Our own work has been enlisted in this effort, yet we are a bit more circumspect: although there are  very real problems associated with cash, there are also virtues. One of these virtues is that cash is publicly issued, not privately enclosed and tolled like most electronic forms of value transfer, and almost always accepted at par value. We’ll return to this topic as we examine some mobile phone-enabled money transfer and payment systems in the developing world, and regulatory responses to them, that might provide useful models. Over the course of the week, we will look closely at cash and how the debate over cashlessness—at times downright silly—is getting more serious, as at least some major actors shift from “the evils of cash” to “the benefits of an agnostic digital payment platform.” We think this is a consequential shift.

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Welcome to Guestbloggers Bill Maurer and Stephen Rea

posted by Katie Porter

Credit Slips welcomes Bill Maurer as a guest blogger this week. Bill is NOT a lawyer! Isn't that great? (We all need an occasional break from lawyers, even those of us who are lawyers.)

But Bill is one of my colleagues at the UC Irvine School of Law, where he has a joint appointment. He is a cultural anthropologist whose work focuses on law, property, and money and finance. Of great interest to Slips readers will be Bill's expertise on payment systems, and particularly on mobile money. He is the Director of the Institute for Money, Technology, and Financial Inclusion, a Gates Foundation-funded center for academic and policy research.

Bill's recent paper, Regulation as Retrospective Ethnography: Mobile Money and the Arts of Cash, examines how we are integrating mobile money products into our understanding of money, which traditionally has meant cash. He also has published work on BitCoin, Islamic banking, offshore financial structures, and other payments issues.

Bill will be joined by Stephen Rea, a graduate student in anthropology at UC Irvine. Stephen also is affiliated with the Institute for Money, Technology, and Financial Inclusion and has co-authored a forthcoming paper with Bill and another scholar on mobile money agents in the developing world.

We look forward to their insights.

Evaluating Mandatory Financial Education in Bankruptcy

posted by Katie Porter

In 2005, Congress amended bankruptcy law to require individual debtors with primarily consumer debts to complete an "instructional course on personal financial management" to be eligible to receive a discharge of their debts. Adding financial education as a bankruptcy requirement divided the bankruptcy community, even debtor advocates, judges, academics, and others who almost uniformly did not like the 2005 amendments. Part of the mixed sentiment about the financial education may be that it is hard to dislike something as innocuous-sounding as education (although Professor Lauren Willis makes a good case against it in this article). And there were certainly bigger fish to fry in opposing the 2005 laws. Still, many complained that this was one more example of creditors getting Congress to lard on duties for debtors, driving up the cost and work of obtaining bankruptcy relief and setting up debtors to have their cases dismissed if they tripped up by failing to complete the educational course.

Dr. Deborah Thorne and I have a new study that looks at how debtors themselves feel about the mandatory financial education course. It is a chapter in this book, Consumer Knowledge and Financial Decisions (ed. Douglas Lamdin, Springer, 2012) and available to read here. In the 2007 Consumer Bankruptcy Project, we asked debtors whether they believed that the information from the financial education class 1)would what they learned in the financial education class have helped them avoid bankruptcy originally, and 2) would help them avoid financial trouble in the future. While only 33% thought a financial instruction course similar to the one required of bankruptcy debtors could have helped them avoid filing, 72% thought it would help them avoid future financial trouble. As we report in detail in the chapter, some demographic groups were much more positive about the value of financial education than others.

Continue reading "Evaluating Mandatory Financial Education in Bankruptcy" »

Littwin on Bankruptcy Without a Lawyer

posted by Bob Lawless

A few weeks ago, Katie Porter noted the release of the new book, Broke: How Debt Bankrupts the Middle Class. We are trying to feature posts from the authors of Broke about their contributions. Today's post comes from Professor Angela Littwin of the University of Texas School of Law and a founding member of Credit Slips:

After a long absence, I am temporarily back on Credit Slips, blogging about my contribution to Broke, the new book edited by Credit Slips’ own Katie Porter. My chapter is about consumers who file for bankruptcy without a lawyer (known as filing “pro se”). The chapter is entitled The Do-it-Yourself Mirage: Complexity in the Bankruptcy System. which should give you a pretty good idea of my take on the matter. Using data from the 2007 Consumer Bankruptcy Project, I found that pro se filers were significantly more likely to have their cases dismissed than their represented counterparts. My most interesting result deals with education. My analysis suggests that consumers with more education were significantly more likely than others to try filing for bankruptcy on their own, but that their education didn’t appear to help them navigate the process. Pro se debtors with college degrees fared no better than those who had never set foot inside a college classroom. I argue that bankruptcy has become so complex that even the most potentially sophisticated consumers are unable to file correctly.

This bad news, however, is not the entire story.

Continue reading "Littwin on Bankruptcy Without a Lawyer" »

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  • 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, click here to visit the page for the list and then click on the link for "Subscribe." 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.

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