13 posts from December 2020

"Madden-Fix" Amicus

posted by Adam Levitin

I filed an amicus brief today in Becerra v. Brooks, the challenge brought by the California, Illinois, and New York attorneys general against the OCC's "Madden-fix" rule. Consider it a stocking stuffer for the Acting Comptroller, Brian Brooks, and a bit of goodwill toward mankind. 

Many thanks to my able counsel, Ted Mermin and Eliza Duggan from the Berkeley Center for Consumer Law & Economic Justice! 

The OCC Is a Problem Agency

posted by Adam Levitin

It's time to say it loud and clear: the OCC is a problem agency.

Here's a list of only some of the issues from the past year: the fair access rule, toleration of rent-a-banks, the valid-when-made rule, the true lender rule (that the FDIC notably didn't copy), the fintech charter, Figure's bank charter application, failure to deal with BoA's fair housing issues; failure to take JPM's unauthorized overdrafts seriously, even a ridiculous interpretation of preemption standards that came out today. (Does this laundry list of problems remind anyone of the FHLBB or OTS?)  

Continue reading "The OCC Is a Problem Agency" »

Regulatory Comments to the OCC on the Fair Access to Financial Services Rule

posted by Adam Levitin

I submitted comments to the OCC about its proposed rulemaking regarding Fair Access to Financial Services. I previously blogged on the topic here and here. There are a LOT of problems in this poorly thought-through rulemaking, starting with whether there is even statutory authority, continuing to its myriad inconsistencies with safety-and-soundness (and thank goodness for President Trump, who provides many helpful examples), going on to First Amendment problems, and then wrapping up with an antitrust analysis that would flunk any antitrust course—it doesn't even define a relevant product market! Sigh. 

74 Law Professors Sign Letter in Support of the Consumer Bankruptcy Reform Act

posted by Pamela Foohey

Last week, Senator Elizabeth Warren (D-MA) and Representative Jerrold Nadler (D-NY) introduced the Consumer Bankruptcy Reform Act of 2020 (CBRA). As Slipster Adam Levitin detailed, the CBRA proposes a single chapter structure designed to streamline the consumer bankruptcy process. This morning, 74 bankruptcy and consumer law professors sent to Senator Warren a letter in support of the CBRA.

As the letter states, the signatories support the CBRA because it "provides a thoughtful, workable, and comprehensive response to the problems that plague the current consumer bankruptcy system." Before I discuss the letter further, a disclosure: I spearheaded this letter and circulated it among bankruptcy and consumer law scholars for signature.

In detailing our support of the CBRA, the letter points out the key ways in which the current consumer bankruptcy system can fail to provide effective relief and can shut people out because they cannot afford an attorney. Adam's recent post discusses research about substantial regional differences in the use of bankruptcy and the disparate use of chapter 13 by Black households--and the consequences of these differences on bankruptcy's uniformity and on access to justice. The CBRA will simplify the filing process, reduce fees, and address racial and gender disparities. Its new chapter 10 will allow people to address their most pressing concerns, whether that be keeping homes, keeping cars, staying in rental property, or discharging debts. It also provides for a discharge of student loan debt. And it addresses debt collection in bankruptcy cases by expanding the FDCPA and giving the CFPB some supervision and enforcement authority in consumer bankruptcy cases.

Importantly, as noted at the end of the letter, the new single chapter is not a free ride. People who can pay will not be able to walk away from their obligations. Overall, the CBRA will address systemic issues and other problems that plague the current consumer bankruptcy system. Find the full letter from law professors here.

The New Thing in Contract Research - The Contract Production Process

posted by Mitu Gulati

Cathy Hwang and Matt Jennejohn, two of the brightest young stars of the contract world, just put up a paper summarizing their view of one of the exciting new directions that contract research is taking. They describe it as the study of contractual complexity ("The New Research on Contractual Complexity", is their title). But I don't like the term "contractual complexity" at all, since I simply cannot take seriously the idea that anything that lawyers do is all that complex.  Convoluted, confused and obscure, yes.  But complex? Hell no.  What I see their wonderful paper as being about is the new research on the production of contracts.  As they point out, it all starts from the foundations laid in a set of important papers by the brilliant Barak Richman.  Barak has long been puzzled as to why contract scholars have generally had little interest in how contracts are produced -- even though key assumptions about the production process form the backbone for theories and doctrines of contract interpretation (something that contract scholars, old and new, do care deeply about).

And now we have an entire cool new set of papers by folks like Rob Anderson, Jeff Manns, Dave Hoffman, Tess-Wilkinson Ryan, Michelle Boardman, Julian Nyarko, John Coyle, Mark Weidemaier, Adam Badawi, Elisabeth de Fontenay, Anna Gelpern and, of course, Cathy and Matt (and more).  Some using fancy empirical techniques well beyond my capacity (yes, those are complex), others use cool experiments (again, complex and beyond my skill level) and still others use interviews (yup, complex).

Three cheers for the study of how contracts are produced -- complex ones, confused ones and all the rest.

The ssrn link to Cathy and Matt's paper from the Capital Markets Law Journal is here

Their abstract reads:

In the last few years, the academic literature has begun catching up with private practice. In this essay, we review the growing literature on contractual complexity and outline its key insights for contract design and enforcement. Our purview is broad, capturing new theories and new empirical tools that have recently been developed to understand contractual complexity. We also propose avenues for future research, which we extend as an invitation to academics and practitioners as an opportunity to further the collective knowledge in this field. 

Fantastic SBRA Resource from Judge Bonapfel

posted by Bob Lawless

As Credit Slips readers know, the Small Business Reorganization Act added subchapter V to chapter 11 of the Bankruptcy Code earlier this year. My go-to resource on subchapter V has been a thorough summary written by Judge Paul Bonapfel of the U.S. Bankruptcy Court for the Northern District of Georgia. It is available for free on the court's web site, and with Judge Bonapfel's permission, I wanted to spread the word about the guide's availability. Judge Bonapfel has just done a November 2020 update of these materials with all of the recent cases. The update is a new chapter at the end of the materials that functions like a pocket part (for those of you who remember pocket parts!). Thank you Judge Bonapfel for this great service to the profession!

The Unconvincing Case for a Public Credit Registry

posted by Adam Levitin
Public provision—whether public options or public monopoly—has become all the rage in some progressive circles. I’d like to claim early mover status in this regard—back in 2009 I wrote a piece calling for public provision in payments, and in 2013 I wrote a piece underscoring the importance of public options and public provision in housing finance. One public provision proposal I haven’t previously commented on, but which has been troubling me for a while is the idea of a public credit registry. I’m sympathetic to consideration of public provision as a tool in the regulatory toolbox, and the idea is supported by a bunch of folks whom I very much respect, but I just don’t see the case here at all.  Public provision just isn’t a solution to most of the market failures in credit reporting. Moreover, even if there were a case, of all the possible priorities in consumer finance regulation, this seems really far down the list and a poor use of limited agency resources. 

Continue reading "The Unconvincing Case for a Public Credit Registry" »

The Consumer Bankruptcy Reform Act of 2020

posted by Adam Levitin

Today Senators Elizabeth Warren (D-MA), Dick Durbin (D-IL), and Sheldon Whitehouse (D-RI) and Representatives Jerrold Nadler (D-NY) and David Cicilline (D-RI) introduced the Consumer Bankruptcy Reform Act of 2020. This is the first major consumer bankruptcy reform legislation to be introduced since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Whereas BAPCPA introduced a number of major, but targeted reforms to consumer bankruptcy law (and also a few business bankruptcy provisions as well), the CBRA is a much more ambitious bill:  it proposes a wholesale reform of the structure of consumer bankruptcy law with an eye toward reduces the costs and frictions that prevent consumers from being able to address their debts in bankruptcy.

This is a long post with an extended overview of the bill. The bill's sponsors have a one-page version or a two-page summary, but I figure you're here at the Slips because you just can't get enough bankruptcy law, and we're happy to oblige. Let me start with a disclosure, though. I was privileged to provide assistance with the bill, along with several other Slipsters. That means I know what's in it, and I think it's a really good and important piece of legislation that I hope will become law. 

A New Chapter 10 for Consumer Bankruptcy (Eliminating Consumer 7s and Chapter 13) 

Whereas consumer bankruptcy has long existed in two primary flavors—liquidations (chapter 7) and repayment plans (chapter 13)—the CBRA proposes a single chapter structure (a new chapter 10).  Under the CBRA, individual debtors would no longer be eligible for chapter 7, and chapter 13 would be repealed in its entirety. All individual debtors with debts of less than $7.5 million would be eligible for chapter 10; those with larger debts would have to file for 11 (or 12 if they qualify).  It's important to keep this structure in mind when evaluating the CBRA. While the CBRA takes elements from chapters 7 and 13, the CBRA is not trying to replicate existing 7 or 13. That means if you come to CBRA with a mindset of "wait, that's not how we do it in 13," well, yeah, that's kind of the point. 

The CBRA is a huge bill (188-pages) with a lot of provisions. In addition to the new chapter 10, it also contains amendments to numerous provisions in chapters 1, 3, and 5 of the Bankruptcy Code, as well to certain federal consumer financial protection statutes. I'm not going to try to cover everything in detail, but I want to cover how chapter 10 would work, as well as some of the highlights from other provisions. This is a very long post, but I think it's important for there to be a clear statement of how chapter 10 would work because there will undoubtedly be some misinterpretations of the bill, and I'd like to see consideration of the bill be on its actual merits.  

Continue reading "The Consumer Bankruptcy Reform Act of 2020" »

Puerto Rico News

posted by Stephen Lubben

The President today announced he was appointing the following people to the PROMESA oversight board. It is not immediately clear which slots these people are filling (that is, who nominated these people).  There are three open (presidential) slots at present, but one of the people below is already on the board:

  • Andrew George Biggs, of Oregon [existing board member]
  • Dr. Betty A. Rosa, Ph.D., of New York
  • John E. Nixon, of Utah

Restructuring Support Agreements and the "Proceduralist Inversion"

posted by Adam Levitin

I'm usually fussing about bank regulation issues here on the Slips, but I do try to make time for my first love, business bankruptcy. Ted Janger and I have a short piece about restructuring support agreements out in the Yale Law Journal's on-line supplement. It's a response to David Skeel's excellent article about RSAs. Suffice it to say that we are a bit more skeptical that Skeel about the benefits of RSAs, which we see as a mixed bag that require some policing.

What's particularly fascinating to me and Ted, however, is the way that Skeel's article illustrates the way that "camps" of bankruptcy scholar have effectively swapped positions over time. The "bankruptcy conservatives"—law-and-economics camp—was historically associated with a concern about procedure over outcomes and criticized the "bankruptcy liberals"—the traditionalist camp—as too concerned about distributional outcomes. Yet now it is bankruptcy liberals who are urging adherence to procedural protections, while it is the bankruptcy conservatives who are cheering on procedurally suspect devices because of their effects. 

Figure's National Banking Charter Application: Illegal and Bad Policy

posted by Adam Levitin

It's not every day that I write a letter in opposition to the issuance of a bank charter. But that's what I just did. Here is my comment letter to the Office of the Comptroller of the Currency in opposition to the charter application for Figure, which is seeking to operate an uninsured national bank. Not only is that not legally permitted, but issuing such a charter would be jaw-droppingly terrible policy from both a safety-and-soundness and consumer protection standpoint. I often disagree with the OCC only policy issues, but chartering an uninsured national bank goes far beyond any reasonable policy position. 

There are lots of reasons to be concerned about Figure's application on its own, but what really worries me is that Figure will be the camel's nose under the tent. If it's possible to get a national banking charter without being an insured depository or subject to the Bank Holding Company Act or the Community Reinvestment Act, ever tech company and its mother is going to be lining up to become a national bank. 

Purdue's Poison Pill and the Broken Chapter 11 System

posted by Adam Levitin

Jonathan Lipson and Gerald Posner have an important op-ed about the Purdue bankruptcy in the NYT and how the DOJ settlement with Purdue is likely to benefit the Sacklers. What's going on in Purdue is troubling, but not just for its own facts. Purdue illustrates a fundamental breakdown of the checks and balances in the corporate bankruptcy system.

The basic problem is that debtors can pick their judges in a system that precludes any meaningful appellate review. That lets debtors like Purdue push through incredibly inappropriate provisions if they can get a single non-Article III judge of their choice to sign off. This happening in as high-profile and important a case as Purdue should be an alarm bell that things have gone off the rails in large chapter 11 practice. Where Purdue goes, chapter 11 practice in other cases will surely follow. 

Purdue is perhaps the most extreme illustration of the confluence of three trends in bankruptcy each of which is problematic on its own, but which in combination are corrosive to the fundamental legitimacy of the bankruptcy court system.  

  • First, there is a problem of debtors attempting to push ever more aggressive and coercive restructuring plans.
  • Second, there is the lack of effective appellate review of many critical bankruptcy issues.
  • And third, there is the problem of forum shopping, particularly its newest incarnation, which is about shopping for individual judges, not just judicial districts.

Put together this means that debtor are picking their judge, knowing that certain judges will be more permissive of their aggressive restructuring maneuvers and that there will never be any meaningful appellate review of the judges, who are free to disregard even clear Supreme Court decisions. A single judge of the debtor's choosing is effectively the only check on what the debtor can do in chapter 11. That is a broken legal system.  

Continue reading "Purdue's Poison Pill and the Broken Chapter 11 System" »

Commercial and Contract Law: Questions, Ideas, Jargon

posted by Melissa Jacoby

In the Spring I am teaching a research and writing seminar called Advanced Commercial Law and Contracts. Credit Slips readers have been important resources for project ideas in the past, and I'd appreciate hearing what you have seen out in the world on which you wish there was more research, and/or what you think might make a great exploration for an enterprising student. This course is not centered on bankruptcy, but things that happen in bankruptcy unearth puzzles from commercial and contract law more generally, so examples from bankruptcy cases are indeed welcome. You can share ideas through the comments below, by email to me, or direct message on Twitter.

Also, I am considering having the students build another wiki of jargon as I did a few years ago in another course. Please pass along your favorite (or least favorite) terms du jour in commercial finance and beyond.

Thank you as always for your input, especially during such chaotic times.

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