7 posts from August 2020

Brilliant Contracts Podcast From Hoffman & Wilkinson-Ryan

posted by Mitu Gulati

I suspect that slipsters already know about this podcast.  But, just in case any of you have not, I wanted to flag Promises, Promises by Dave Hoffman and Tess Wilkinson-Ryan.  This is especially wonderful if you are teaching contract law via zoom this term and need additional content to add to what you are doing already. The podcast has been my savior in that it brightens my mood so much to hear these two brilliant scholars have fun talking through the classic cases while I'm on long walks. (Indeed, today I discussed their discussion of Hamer v. Sidway with Anna Gelpern for over an hour while I was walking).

Listening to the conversations between Tess and Dave makes me remember why I wanted to be an academic in the first place -- and it was not to write boring law review articles with ridiculous numbers of footnotes. It was at least in part to have conversations like the ones Tess and Dave have on their podcast (ideally, with some good scotch at hand).  I imagine that it is a special treat to be a student in their classes (or to be their colleague).

Bravo, my friends. Bravo.

The podcast is available on iTunes, Spotify and a bunch of other places.  

p.s. I wonder whether I might be able to persuade them to do an episode on the Gold Clause cases.  Hmmm.

Episode Two of Clauses and Controversies: Imperial Chinese Bonds

posted by Mark Weidemaier

Mark Weidemaier & Mitu Gulati

To prepare for later discussions about how to address the looming debt crisis caused by Covid-19, our first few episodes of Clauses and Controversies look backwards, albeit to historical events with current salience. Episode Two is our first official episode and is about pre-PRC Chinese bonds that have been in default since before World War II. One of us (Mitu) loves this topic and the other (Mark) increasingly flies into a rage whenever it comes up.

Our guests are the wonderful Tracy Alloway of Bloomberg (whose article about these bonds last year went viral), sovereign debt guru Lee Buchheit (who knows more about the history of these types of bonds than anyone – here’s the FT's Robin Wigglesworth on Lee), and Alex Xiao, a former student who is working on a paper on this topic.

The subject of defaulted Chinese bonds is back in the news, largely in connection with U.S.-Chinese trade talks. (Are there trade talks?) A group of ardent Trump supporters have apparently accumulated a bunch of these bonds. Izabella Kaminska of the FT wrote about this a recently, and so did Fox Business a couple of days ago. (The Fox Business piece was a bit more enthusiastic, shall we say, than the others.) Previous lawsuits seeking to enforce them have failed on sovereign immunity and statute of limitations grounds, so these investors are lobbying the President to negotiate a recovery for them as part of his trade talks. And there is some reason to think the administration might be interested. The President is inclined to anti-China and anti-Chinese rhetoric, and these defaulted bonds are an opportunity to indulge that impulse further. Plus, Chinese institutions hold huge amounts of U.S. government debt, and some have floated the loony idea that these defaulted Chinese bonds could be used to offset some of that debt. For a deeper dive, here is a fun piece, The Emperor’s Old Bonds, by three former students.

So, why do we have a love hate relationship with these bonds? Here are the remarks we sent our expert guests as a prelude to asking for their views.

Continue reading "Episode Two of Clauses and Controversies: Imperial Chinese Bonds" »

Clauses and Controversies podcast

posted by Mark Weidemaier

Mark Weidemaier & Mitu Gulati

Both of us are teaching 1L Contracts online this semester and fear we also may have to do the same for our joint Duke/UNC sovereign debt class next semester. One silver lining is that we have been forced to think of ways to break up the normal class routine. One of these ways is that we are creating a podcast titled "Clauses and Controversies." Thanks to our superb producer, Leanna Doty, the first three episodes are up on iTunes, and Soundcloud, and Overcast. We wanted to come up with something to expose students to ideas and topics that excite us, while giving them a chance to hear conversations with our favorite commentators who study and work on contracts and sovereign debt. The timing seemed right, too, as the economic fallout of Covid-19 may cause many sovereign debt defaults and restructurings.

There is no global mechanism for efficiently and fairly handling a global wave of sovereign financial distress and default. The wave almost hit this past March, when the financial system hit a sudden stop as people seemed to finally recognize the pandemic. Since then, massive infusions of Official Sector capital have allowed government borrowing to continue. But another sudden stop may be in the offing, and even if not the long-term economic damage of the pandemic may tip governments into insolvency.

The first episode is an introduction, which sets out what we hope to do with the series and then gets into the ongoing dispute over whether investors can seize Venezuela’s prize oil refinery in Texas. The absence of a handful of words in the PDVSA governing law clause might make all the difference. But we don’t think it should. (For anyone seeking a deeper dive into the issue, see here.)

We owe an immense debt to our friends in the business who have been so generous in giving us their time, energy, and insight. We also owe a debt to Dave Hoffman and Tess Wilkinson-Ryan for providing us with inspiration with their brilliant contract law podcast series, “Promises, Promises." Fair warning: they are much more brilliant and hilarious than we are. It must be a treat to be in their classes.

Student Loan Relief Update

posted by Alan White

Student loan relief provisions required by the CARES Act expire on September 30. Those protections included 1) for all federal direct loans: zero interest and automatic payment forbearance, 2) credit towards IDR and PSLF forgiveness for the 6 months covered by the Act, and importantly, 3) suspension of wage garnishments and other collections on defaulted loans. The Act called for student loan borrowers to receive notice in August that payments will restart October 1 and that borrowers not already in income-driven repayment plans can switch, so that borrowers with no or little income can remain on zero payments (but not if they were in default.)

The President’s Executive Memorandum calls on the Secretary of Education to take action to extend economic hardship deferments under 20 U.S.C. 1087e(f)(2)(D) to provide “cessation of payments and the waiver of all interest” through December 31 2020.  These deferments are to be provided to “borrowers.” The Memorandum does not specify which loan categories (Direct, FFEL, Perkins, private) should be included, nor whether relief to borrowers in default should continue. Advocates also note that the Memorandum is vague as to whether borrower relief will continue automatically, or instead whether students will have to request extended relief, as under the Education Department’s administrative action just prior to passage of the CARES ACT. As of this writing the Education Department has posted no guidance for borrowers or servicers on its web site. Servicers will need guidance soon, and borrowers meanwhile will be receiving a confusing series of CARES Act termination letters and conflicting information about the latest executive action. UPDATE - USED has apparently issued guidance to collection agencies saying that borrowers in default are included in the Executive action so that garnishments and other collection should remain suspended through December 31, 2020.

The HEROES Act passed by the House would extend all borrower relief until at least September 30 2021, would bring in all federal direct, guaranteed and Perkins loans, and would grant a $10,000 principal balance reduction to “distressed” borrowers. The House also included an interesting fix to the Public Service Loan Forgiveness program so that borrowers will not have to restart their ten-year clock towards loan forgiveness when they consolidate federal loans. In lieu of any extended student loan relief, Senate Republicans have proposed that borrowers just be shifted to existing income-dependent repayment plans. Existing IDR plans already allow zero payments for borrowers with zero or very low income, but do not stop the accrual of interest. They are not available to borrowers in default, so wage garnishments and collections for borrowers who were in default before March would resume October 1 under the Republican proposals.

Virtual Conference on Income Share Agreements

posted by Dalié Jiménez

As many of you know, I direct the Student Loan Law Initiative at UCI Law, a partnership with the the Student Borrower Protection Center (SBPC). We recently announced a series of grants supporting empirical work on student loan law, including Slipster Adam Levitin!

Our partner, SPBC has also been very busy. As income share agreements have become a growing fixture in the student loan law marketplace, SBPC has put on a virtual conference series taking a deep dive into the legal underpinnings of ISAs and arguing that the the existing consumer protection framework already applies to these financial products. Each week has had a 90-min panel and a paper. The final panel in the series, on ISAs and State Law, is happening today at 2pm ET/11am PT (join live by clicking on "register" at the top right).

The first panel focused on the definition of credit and tackled the question of how to classify ISAs under federal consumer financial law. Oregon Attorney General Ellen Rosenblum delivered the keynote. The paper was written by Joanna Peart and Brian Shearer. Joanna was the former Enforcement Chief of Staff and Acting Principal Deputy Enforcement Director for the Consumer Financial Protection Bureau. Brian is the Legal Director of Justice Catalyst.

The second panel focused on the fair lending risks inherent in ISAs. FTC Commissioner Rohit Chopra was the keynote for the day’s event and the paper was written by Stephen Hayes and Alexa Milton. Stephen Hayes is a partner and Alexa Milton is an associate at Relman Colfax.

Today's final panel focuses on the application of state consumer lending and consumer finance laws to ISAs. The accompanying paper was written by Ben Roesch, an attorney at Jensen Morse Baker. Today's panel will be moderated by Jillian Berman from Marketwatch and also include panelists from the Oregon Department of Justice and National Consumer Law Center, among others.

Even if you cannot make this week’s panel live, all the expert panel discussion and papers will be available on the conference website: emergingrisks.org. And if you're interested in more student loan law research, join our mailing list.

Most of What You Read about the Bankruptcy Filing Rate Is Wrong

posted by Bob Lawless

A popular narrative is that bankruptcy filing rates are increasing dramatically. That is not true. If you want to know what is happening with the bankruptcy filing rate during covid-19, the best source is Ed Flynn's analyses over at the American Bankruptcy Institute (current analysis here with a historical archive here). Here some facts, using my own data as well as Flynn's very useful numbers:

  1. Total bankruptcy filings have had some modest gains in recent weeks after falling off the cliff early in the crisis, but total filings remain down 33% on a year-over-year basis.
  2. The number of chapter 11s filings has been very artificially inflated by counting affiliate filings. If one only counts the "parent" and "solo" filings, the chapter 11 rate actually declined in July!
  3. The decline in chapter 13 filings has been much deeper than the decline in chapter 7 filings.

Before expanding on each of these points and like I wrote in an earlier post with the same theme, I am not Pollyannaish about the economy. Things are as bad as they seem. My plea is for accuracy. An understanding of whether and when people turn to the bankruptcy system to help them deal with their business or personal issues makes that system more effective.

Continue reading "Most of What You Read about the Bankruptcy Filing Rate Is Wrong" »

OCC Suggests "Fair Access" Rulemaking to Require Banks to Finance the Oil and Gas Industry

posted by Adam Levitin

Just when you think it can't get more ridiculous... The Office of Comptroller of the Currency, which hasn't taken racially discriminatory lending seriously, is concerned about banks' discriminatory refusal to serve the oil and gas industry. In fact, the OCC is so concerned that it is suggesting legal theories so farfetched that would be laughed out of a courtroom if it actually tried to act on them. 

The underlying issue here is that banks seem have gotten cold feet about financing fossil fuels. Why? Any number of reasons, including that their investors don't like it (ESG), that global warming threatens their own balance sheets, that oil and gas prices right now are so low that investment in the sector might not be a good business move, and that there's huge risk to fossil fuel projects' value based on the 2020 election outcome. But Senator Dan Sullivan of Alaska wants to drill in the Arctic and has expressed concern about banks' unwillingness to fund global warming to the OCC.

In response, the Acting Comptroller of the Currency, Brian Brooks, wrote a letter to Senator Sullivan that can only be described as verging on legal malpractice in the service of political expediency while pushing a vision of economic regulation that looks like communist China. 

Acting Comptroller Brooks argues that 12 U.S.C. § 1(a):

requires the OCC to ensure that banks provide "fair access" to financial services. Decisions by major banks to deny the oil and gas sector, among other targeted industries, access to financial services may violate that statute. Accordingly, the OCC will examine the possibility of issuing regulations defining fair access to provide clarity to banks and customers alike.

Let's take a look at 12 U.S.C. § 1. The relevant section states:  

There is established in the Department of the Treasury a bureau to be known as the “Office of the Comptroller of the Currency” which is charged with assuring the safety and soundness of, and compliance with laws and regulations, fair access to financial services, and fair treatment of customers by, the institutions and other persons subject to its jurisdiction.

12 USC 1 is a general expressive statement of the general purposes of the OCC. It's not even a "be excellent to each other" sort of exhortation. It is not by any stretch a provision creating any substantive rights or obligations. If OCC tried to use this as the basis for a "fair access" rulemaking, as Brooks suggests, the rulemaking would get thrown out by a court on an APA challenge in a hot minute. 12 USC 1 authorizes the OCC to do precisely nothing. 

Whatever 12 USC 1 is, it is not a roving commission for the OCC to undertake rulemakings about "fair access" and "fair treatment", etc. It is not a free-standing authorization to undertake any sort of rulemaking. It is very plainly not a delegation by Congress. Furthermore, the suggestion that "Decisions by major banks to deny the oil and gas sector ... access to financial services may violate that statute" is risible. 12 USC 1 is at most an obligation on the OCC, not on banks. It's embarrassing to see the OCC put forth such a legal argument.  

Note that what Brooks is proposing is the flip-side of the allegations made against Operation Chokepoint, namely that regulators were discouraging banks from lending to certain disfavored industries. Now Brooks is talking about forcing banks to lend to certain favored industries. That sounds like ... communist China. It makes my head spin. 

(btw, where are the conservatives who bitch about affordable housing goals and the CRA? Aren't they up in arms that a financial regulator is talking about forcing banks to lend to someone?)  

But let's say that I'm wrong and Brooks is right. Consider the implications. Imagine what a Comptroller with a different political tinge might have with provisions such as "fair treatment of customers" and "fair access to financial services". Who needs UDAAP when you've got "fair treatment"? Who needs CRA, when you've got "fair access"? If Brooks wants to weaponize 12 USC 1, he might want to first recognize that "fair" is a word that progressives can do a lot more with than he can.  

Contributors

Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

News Feed

Categories

Bankr-L

  • 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.

OTHER STUFF