postings by Pamela Foohey

Consumer Bankruptcy, Done Correctly, To Help Struggling Americans

posted by Pamela Foohey

Today, Senator Elizabeth Warren unveiled her new plan to reform the consumer bankruptcy system. The plan is simple, yet elegant. It is based on actual data and research (including some of my own with Consumer Bankruptcy Project co-investigators Slipster Bob Lawless, former Slipster, now Congresswoman Katie Porter, and former Slipster Debb Thorne). Most importantly, I believe it will make the consumer bankruptcy system work for American families. And, as a bonus, it will tackle the bad behavior that big banks and corporations currently engage in once people file, like trying to collect already discharged debts, and some non-bankruptcy financial issues, such as "zombie" mortgages.

In short, the plan provides for one chapter that everyone files, combined with a menu of options to respond to each families' particular needs. It undoes some of the most detrimental amendments that came with the 2005 bankruptcy law, including the means test. In doing so, it sets new, undoubtedly more effective rules for the discharge of student loan debt, for modification of home mortgages, and for keeping cars. It also undoes "smaller" amendments that likely went unnoticed, but may have deleterious effects on people's lives. Warren's plan gets rid of the current prohibition on continuing to pay union dues, the payment of which may be critical to allowing people who file bankruptcy to keep their jobs and keep on their feet. Similarly, the plan eliminates problems debtors face paying rent during their bankruptcy cases, which can lead to eviction.

One chapter that everyone files means that the continued racial disparities in chapter choice my co-authors and I have documented will disappear. No means test, combined with less documentation, as provided by Warren's plan, means that the most time-consuming attorney tasks will go away. Attorney's fees should decrease. Warren's plan also provides for the payment of fees over time. People will not have to put off filing for bankruptcy for years while they struggle in the "sweatbox." Costly "no money down" bankruptcy options should disappear. People will have the chance to enter the bankruptcy system in time to save what little they have, which research has shown is key to people surviving and thriving post-bankruptcy.

Continue reading "Consumer Bankruptcy, Done Correctly, To Help Struggling Americans" »

Supreme Court Grants Cert To Decide Fate of Repossessed Cars in Bankruptcy

posted by Pamela Foohey

Yesterday, the SCOTUS granted certiorari in City of Chicago v. Fulton, 19-357, to resolve a circuit split about whether a creditor's inaction in not returning property repossessed pre-petition can violate the automatic stay. The split arises predominately from chapter 13 cases in which, pre-petition, creditors repossessed or cities impounded debtors' cars. As the petition for cert stated, this issue is of significant practical importance. As Slipster Bob Lawless, former Slipster Debb Thorne, and I set forth in our new paper based on Consumer Bankruptcy Project data, Driven to Bankruptcy (Wake Forest Law Review, forthcoming 2020), bankruptcy courts deal with more than a million cars in every year. Creditors will have repossessed, but not disposed of some of those cars, and cities (for instance, Chicago) and municipalities will have impounded some of those cars.

In our new paper, we note that bankruptcy seems to be an important tool for some people to keep their cars, including getting their cars back from creditors and impound yards. As will be decided by the Supreme Court in addressing the issues regarding the automatic stay raised by the circuit split, if debtors need to request that bankruptcy courts order creditors or cities to return their cars after they file bankruptcy, the usefulness of filing bankruptcy will decrease, potentially significantly. Stated differently, people need their cars now -- to get to work, to get food, to get their kids to daycare, to get to the doctor. For some households, one of the biggest benefits of filing bankruptcy seems to be that their creditors must turn over repossessed and impounded cars as soon as the debtor files . The question now is -- is that actually what the Code provides? 

There's Still Time to Register for NCBJ 2019

posted by Pamela Foohey

The National Conference of Bankruptcy Judges' annual conference is happening soon – Wednesday, October 30 through Saturday, November 2. I'm delighted to be part of this year's education committee. The 2019 conference features some panels that include Slipsters and touch on Slipsters' research. (If you're thinking of attending, "semi early bird" registration, with its lower costs, ends at the end of September.)

Particularly noteworthy is the American Bankruptcy Law Journal symposium, "Equitable Powers of the Bankruptcy Court 40 Years After the Enactment of the Bankruptcy Code," which will be framed as a mock-Senate Judiciary Committee hearing during which a panel of experts will discuss and debate bankruptcy courts' equitable powers. The symposium features Slipsters Jay Westbrook and Melissa Jacoby.

Also worthy of mention are two panels that deal with consumer bankruptcy hot topics, both of which happen to touch on issues that recent papers analyzing Consumer Bankruptcy Project data have considered in depth. First is a panel titled, "Porsches and Clunkers – A Road Trip Through Car Issues." The description for the panel asserts, "many consumers file chapter 13 petition to save their cars, which are essential to maintaining their jobs." In our latest article, Driven to Bankruptcy, Slipster Bob Lawless, past Slipster Debb Thorne, and I rely on Consumer Bankruptcy Project data to assess the veracity of that assertion (among other questions related to cars, car loans, and bankruptcy). As detailed in my recent post about that article, we find a subset of bankruptcy cases that may be labeled "car bankruptcies," in which the debtor owns a car (or cars) and little else. In these cases particularly, debtors may find themselves in chapter 13 to save their cars.

Continue reading "There's Still Time to Register for NCBJ 2019" »

Driven to Bankruptcy — New Research from the Consumer Bankruptcy Project

posted by Pamela Foohey

In America, people drive — to work, to the doctor, to the grocery store, to their kids' daycare, to see their aging parents. Research shows that car ownership increases the probability of employment and number of hours worked; households without cars have lower incomes and are more likely to be in poverty. In short, cars are essential. Household financial distress can threaten people's cars, and with them, the day-to-day stability that car ownership brings. People thus may file bankruptcy, in part, to save their cars.

Although there is a substantial literature on financial distress and home ownership, the literature on car ownership, financial distress, and bankruptcy is thin. In Driven to Bankruptcy (available via SSRN, forthcoming in the Wake Forest Law Review), Slipster Bob Lawless, past Slipster Debb Thorne, and I document what happens to car owners and their car loans when they enter bankruptcy.

In brief, we find that people who file bankruptcy own automobiles at the same rate as the general population. This means that over the last ten years, 15.1 million people filed for bankruptcy owning 16.4 million cars. The majority of these cars, particularly a household's most valuable car, entered bankruptcy encumbered with a hefty loan. And most debtors want to keep their cars, particularly their most valuable and second most valuable cars.

Continue reading "Driven to Bankruptcy — New Research from the Consumer Bankruptcy Project" »

Ditech, Reverse Mortgages, Consumer Concerns, and Section 363(o)

posted by Pamela Foohey

A couple days ago, Judge Garrity Jr. of the Bankruptcy Court for the Southern District of New York issued a 132 page opinion denying confirmation of Ditech's proposed plan. Ditech, of course, is an originator and servicer of mortgages, including reverse mortgages. Its plan contemplated sales of both its forward and reverse mortgage businesses--free and clear of customers' claims and defenses. As reported at various times since Ditech filed in February 2019, homeowners have claims that Ditech did not credit mortgage payments properly, levied improper fees, failed to recognize tax payment plans, and wrongly foreclosed on homes.

Beyond its sheer length, the opinion is noteworthy for a couple reasons. First, the sales of mortgage businesses in the context of a plan raised the question of whether § 363(o) applied. Section 363(o) deals with consumer credit transactions subject to the Truth in Lending Act and provides that if any "interest" in such a transaction is purchased through a sale, then the buyer must take all the claims and defenses related to the consumer credit transaction. Ditech, of course, wanted to sell free and clear of those claims, through the plan. In holding that § 363(o) does not apply in the plan context, Judge Garrity Jr. provides a detailed analysis of the section's legislative history. This history includes removal of language about application to reorganization plans by an amendment proposed by Senator Phil Gramm (which was approved), and Senator Gramm's continued opposition to the addition of § 363(o) in its entirety because he claimed it would, among other things, encourage people to make up grievances against mortgage originators and servicers. (As many readers likely know, Senator Gramm spearheaded the Gramm-Leach-Bliley Act.)

Continue reading "Ditech, Reverse Mortgages, Consumer Concerns, and Section 363(o)" »

Counting Healthcare Chapter 11 Filings: Are There More Than Expected?

posted by Pamela Foohey

This post is co-authored with my student, Kelsey Brandes, rising 3L, IU Maurer School of Law

Reports of hospitals, physician practices, healthcare systems, and clinics filing for bankruptcy have become seemingly increasingly well publicized in recent years. At the beginning of this year, Pew released a study detailing why rural hospitals are in greater financial jeopardy in non-medicaid expansion states in the wake of the ACA. This may foreshadow more hospital closures and possibly more bankruptcy filings. With this in mind, one of my students at Indiana University Maurer School of Law, Kelsey Brandes (with whom I'm co-posting), decided to survey healthcare businesses that had filed chapter 11 between the beginning of 2008 and the end of 2017 with the goal of assessing how many healthcare businesses filed chapter 11 and why they filed, as based on their disclosure statements and other filings.

This survey found that, after combining jointly-administered cases, on average, 38 healthcare organizations filed per year during the study's ten year period, as shown by year on this graph.

Healthcare Post Graph

Continue reading "Counting Healthcare Chapter 11 Filings: Are There More Than Expected?" »

Liked Evicted? -- Read Maid

posted by Pamela Foohey

MaidStephanie Land recently tweeted this depressing statistic: "a single parent would have to work 140 hours a week at minimum wage to pay for basic necessities." And Land would know. Her new memoir -- Maid: Hard Work, Low Pay, and a Mother's Will to Survive -- chronicles her time as a single mother working as a house cleaner and just scraping by on the combination of her paycheck and various forms of government assistance. In telling her story of ending up a single mother living in a homeless shelter with effectively no family or friends to turn to for help, of figuring out how to make a little money working insanely hard, and of dealing with the stigma of asking for government "handouts," Land weaves a narrative about life on the financial precipice that sticks with you. And embedded in her story are glimpses into the lives of her clients, through which Land creates portraits of the trials of (usually) better off families who nonetheless struggle in different ways.

In short, read her memoir. It's fantastic. And if you're not totally convinced that you must read it right now, there's more after the jump.

Continue reading "Liked Evicted? -- Read Maid" »

Procedural Justice and Corporate Reorganization

posted by Pamela Foohey

I just posted to the Social Science Research Network my response -- Jevic's Promise: Procedural Justice in Chapter 11 -- to Jonathan Lipson's recent article about Czyzewski v. Jevic Holding Corp. and structured dismissals. In his article, The Secret Life of Priority: Corporate Reorganization After Jevic, Lipson frames Jevic as about process, as compared to its usual frame as about priority. Drawing from this frame, my response focuses on Jevic's implications for procedural justice and corporate reorganization.

The process values that Lipson identifies--particularly participation and procedural integrity--align with research about what people want from the justice system's procedures. This procedural justice research also teaches that the process of adjudication is as important as the final outcome. Combining Lipson's arguments with procedural justice research, I argue that corporate reorganization's process has been co-opted in the name of value preservation. I also rely on Slipster Melissa Jacoby's recent work conceptualizing corporate bankruptcy as a public-private partnership, which she's blogged about here and here, in arguing that Jevic's emphasis on process should embolden bankruptcy courts to more rigorously assess chapter 11's procedures. In the response, I provide two examples.

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Update on Catholic Dioceses's Chapter 11 Filings, Fall 2018 Edition

posted by Pamela Foohey

A few weeks ago, Marie Reilly (Penn State Law, University Park) posted to SSRN a new paper, Catholic Dioceses in Bankruptcy, which details the outcomes of the eighteen chapter 11 cases filed by Catholic dioceses and religious institutes since 2004. The paper discusses some of the issues that I have blogged about individually over the past few years -- of note, RFRA and fraudulent conveyances, as well as the long-running Minneapolis and Saint Paul diocese case that ended in a settlement agreement which increased payout to sexual abuse claimants by $50 million from the debtor's original proposed plan. The paper also includes a succinct overview of how canon law, business organizational law, and property law interact in these cases. In short, if you are looking for a primer on broader issues that might emerge in future chapter 11 cases filed by dioceses, or simply interested in how a few area of law converge in these cases, this paper is worth a read.

The last chapter 11 filing that Reilly's paper discusses is that of Crosier Fathers and Brothers in Minnesota in June 2017. Since then, one more archdiocese filed chapter 11 -- San Juan at the end of August 2018. The Archdiocese of Agana (in Guam) also announced that it expects to file by January 2019. Like other dioceses, Agana's stated need to file stems from its struggles with more than 180 sexual abuse claims. But the Archdiocese of San Juan's case presents a couple unique issues.

Continue reading "Update on Catholic Dioceses's Chapter 11 Filings, Fall 2018 Edition" »

New Consumer Law Conference - Call for Papers

posted by Pamela Foohey

Exciting news for consumer law scholars. To the best of my knowledge, the first ever conference in the United States dedicated expressly to scholarship in the field of consumer law is happening in February 2019 at the new Berkeley Center for Consumer Law and Economic Justice. Details from the call for papers:

The Berkeley Center for Consumer Law and Economic Justice, its director Ted Mermin, and co-organizers Abbye Atkinson, Kathleen Engel, Rory Van Loo, and Lauren Willis are pleased to announce the inaugural Consumer Law Scholars Conference (CLSC), which will be held the afternoon and evening of February 21 and all day February 22, 2019, in Berkeley, CA.

The conference will support in-progress scholarship, foster a community of consumer law scholars, and build bridges with scholars in other disciplines who focus on consumer issues. The bulk of the conference will consist of paper workshop sessions at which discussants, rather than authors, introduce and lead discussions of the papers. Everyone who attends a session will be expected to have read the paper; everyone is a participant. The conference will also feature keynotes by leading practitioners and prominent policymakers, as well as time to discuss ideas and collaborate informally.

Details about how to submit a work-in-progess and logistics after the break.

Continue reading "New Consumer Law Conference - Call for Papers" »

Pets and Financial Distress

posted by Pamela Foohey

Last weekend, The New York Times published an opinion piece about animal shelters, Are We Loving Shelter Dogs to Death? It highlighted the sad reality that nationwide shelters are horribly overcrowded. According to the piece, a "big part" of shelters' overcrowding "is poverty: An estimated one-quarter of shelter animals are there after their owners have surrendered them because of family dysfunction or financial pressure." For instance, a family might not have enough money for vet bills. Or a family must relocate to less expensive housing that does not accept pets. The example in the piece that stood out to me most was families' inability to pay fees and fines related to their pets being picked up by animal control.

Reading the piece -- particularly the parts about fines -- led me to wonder more about pets and financial distress and bankruptcy. And to a broad question for Credit Slips readers. What have been your experiences regarding pets and financial distress, both pre-bankruptcy and in bankruptcy?

Older Americans’ Rising Bankruptcy Filings

posted by Pamela Foohey

Older Americans (age 65 and over) are increasingly likely to file bankruptcy and now comprise a larger proportion of the people who file bankruptcy -- and the effects are not small. Using data from the Consumer Bankruptcy Project, in a new working paper just posted to SSRN -- Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society -- my co-authors (past Slipster Debb Thorne, Slipster Bob Lawless, and past Slipster Katie Porter) and I find a more than two-fold increase between 1991 and now in the rate at which older Americans file bankruptcy. We further find an almost five-fold increase in the percentage of older persons in the bankruptcy system. The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect.

In the paper, we link older Americans’ increased filing rates with the shrinking social safety net. A story published today in the New York Times (on actual paper and on the front page!) does an exceptional job of both describing our study and detailing the ways in which the risks of aging have been off-loaded onto older Americans: “vanishing pensions, soaring medical expenses, inadequate savings.” The story also highlights the financial and life travails of a few older Americans who filed bankruptcy. Their struggles stem from declining income, lost insurance, and unmanageable medical expenses.   

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Access to Justice, Consumer Bankruptcy Edition

posted by Pamela Foohey

The Great Recession, the CFPB's creation, the rise of debt buying, changes in the debt collection industry, and advances in data collection have encouraged more research recently into issues of access to justice in the context of consumer law and consumer bankruptcy. This spring, the consumer bankruptcy portion of the Emory Bankruptcy Development Journal's annual symposium focused on access to justice and "vindicating the rights of all consumers." Professors Susan Block-Lieb, Kara Bruce, Alexander Sickler, and I spoke at the symposium about how a range of consumer law, finance, and bankruptcy topics converge as issues of access to justice.

We recently posted our accompanying papers (detailed further below) to SSRN. My essay overviews what we know about the barriers people face entering the consumer bankruptcy system, identifies areas for further research, and proposes a couple ideas for improving access to bankruptcy. Susan Block-Lieb’s essay focuses on how cities can assist people dealing with financial troubles. And Kara Bruce’s and Alex Sickler’s co-authored essay reviews the state of FDCPA litigation in chapter 13 cases in light of Midland Funding v. Johnson and explores alternatives to combat the filing of proofs of claim for stale debts.

Continue reading "Access to Justice, Consumer Bankruptcy Edition" »

More on "Undue Hardship" and Student Loans in Bankruptcy

posted by Pamela Foohey

Following up on Bob's post earlier this week about the Department of Education's request for information (RFI) regarding evaluating "undue hardship" claims in adversary proceedings to discharge student loans, a group of 23 academics, including myself, also submitted written comments in response. The effort was spearheaded by Slipster Dalié Jiménez. Matthew Bruckner (Howard Law), Brook Gotberg (Missouri Law), and Chrystin Ondersma (Rutgers Law) also were part of the drafting team.

Our primary recommendation is that the Department establish ten categories of borrower circumstances under which the Department would agree to the borrower’s discharge of federal student loans. As with the ABI Commission on Consumer Bankruptcy's comments (and the National Bankruptcy Conference's comments), our categories are designed to offer objective criteria for when the Department should agree to a discharge of student loans. The overall aim of the proposal is to establish clear, easy-to-verify, dire circumstances that merit the Department’s acquiescence to a student loan discharge and thereby promote the efficient use of taxpayer funds. To this end, we also recommend that the Department accept "reasonable proof" that a borrower fits into one of the ten categories without engaging in formal litigation discovery. Our response also calls on the Department to collect and release more data about federal student loans.

Tax Reform and Nonprofit Bankruptcy

posted by Pamela Foohey

It's Tax Day! When the new tax bill was debated late last year, a few reports noted an unintended consequence of the bill's expansion of the standard deduction might be decrease people's charitable contributions, in turn harming nonprofits. After the bill passed, I continued to hear comments about the increased standard deductions' potential to cause financial problems for nonprofits, and saw estimates of a loss of $2 billion to the sector. Financial problems, of course, make me think of bankruptcy. And nonprofits make me think about religious organizations, which are the nonprofits I've studied the most in the context of bankruptcy. Tax Day seems like an appropriate day for some thoughts about the tax reform's possible connection to nonprofits' chapter 11 filings, particularly churches' chapter 11 filings.

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Education Department Request for Information on Student Loan Discharge in Bankruptcy

posted by Pamela Foohey

Following up on Alan White's post from this morning about the Education Department's draft notice about debt collection laws applicable to student loan debt collectors that prompted a Twitter moment, some more student loan news from the Education Department. Last week, it posted a less Twitter-popular request for information on evaluating undue hardship claims in adversary proceedings seeking discharge of student loan debt. The summary in the request:

"The U.S. Department of Education (Department) seeks to ensure that the congressional mandate to except student loans from bankruptcy discharge except in cases of undue hardship is appropriately implemented while also ensuring that borrowers for whom repayment of their student loans would be an undue hardship are not inadvertently discouraged from filing an adversary proceeding in their bankruptcy case. Accordingly, the Department is requesting public comment on factors to be considered in evaluating undue hardship claims asserted by student loan borrowers in adversary proceedings filed in bankruptcy cases, the weight to be given to such factors, whether the existence of two tests for evaluation of undue hardship claims results in inequities among borrowers seeking undue hardship discharge, and how all of these, and potentially additional, considerations should weigh into whether an undue hardship claim should be conceded by the loan holder."

Responses must be received by May 22, 2018.

People’s Pre-Bankruptcy Struggles -- New Paper from the Consumer Bankruptcy Project

posted by Pamela Foohey

The current Consumer Bankruptcy Project (CBP)’s co-investigators (myself, Slipster Bob Lawless, and past Slipsters Katie Porter & Debb Thorne) just posted to SSRN our new article (forthcoming in Notre Dame Law Review), Life in the Sweatbox. “Sweatbox” refers to the financial sweatbox—the time before people file bankruptcy, which is when they often are on the brink of defaulting on their debts and lenders can charge high interest and fees. In the article, we focus on debtors’ descriptions of their time in the sweatbox.

Based on CBP data, we find that people are living longer in the sweatbox before filing bankruptcy than they have in the past. Two-thirds of people who file bankruptcy reported struggling with their debts for two or more years before filing. One-third of people reported struggling for more than five years, double the frequency from the CBP’s survey of people who filed bankruptcy in 2007. For those people who struggle for more than two years before filing—the “long strugglers”—we find that their time in the sweatbox is marked by persistent debt collection calls, the loss of homes and other property, and going without healthcare, food, and utilities. And although long strugglers do not file bankruptcy until long after the benefits outweigh the costs, they still report being ashamed of needing to file.

Continue reading "People’s Pre-Bankruptcy Struggles -- New Paper from the Consumer Bankruptcy Project" »

Other (Non-Religious) Non-Profit Organizations Also File Bankruptcy

posted by Pamela Foohey


NumberNRYesterday I posted about the number of religious organizations that filed chapter 11 between 2006 and 2017, and how their filings track fluctuations in consumer bankruptcy filings during those years. Non-religious non-profit organizations also file chapter 11, but in fewer numbers than religious organizations. As shown in this graph, between 2006 and 2017, a mean of 44 other non-profits filed chapter 11 per year (note: I count jointly-administered cases as one case).

 In comparison, a mean of 79 religious organizations filed chapter 11 per year between 2006 and 2017. Over these twelve years, 36% of all chapter 11 cases filed by non-profit organizations were filed by non-religious non-profits.

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Churches Are Still Filing Bankruptcy

posted by Pamela Foohey

Not only are religious organizations still filing under chapter 11. As in prior years, they continue to file under chapter 11 in line with fluctuations in consumer bankruptcy filings. Find a couple graphs below to show this. But first, some background.

In my prior work, I analyzed all the chapter 11 cases filed by religious organizations from the beginning of 2006 through the end of 2013. (I define any organization with operations primarily motivated by faith-based principles as religious.) I found that these chapter 11 cases were filed predominately by small, non-denominational Christian churches, which mainly were black churches (80% of more of their members are black). And, also, that the timing of the filings tracked consumer bankruptcy cases (chapters 7, 11, and 13), not business bankruptcy filings, but lagged by one year. That is, if consumer bankruptcy filings decreased in a given year, religious organizations' chapter 11 filings decreased in the next year. I linked this result to how religious organizations' leaders came to think about using bankruptcy to deal with their organizations' financial problems.

NumbersSince my original data collection, four years has passed. I thus recently identified all the religious organizations that filed under chapter 11 between the beginning of 2014 through the end of 2017. During these four years, religious organizations continued to file, but in smaller numbers per year, as shown in this graph (note: I count jointly-administered cases as one case).

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Lularoe, Other Multi-Level Marketing Companies, and Bankruptcy Filings

posted by Pamela Foohey

Several days ago, Stephanie McNeal at BuzzFeed News published a short piece on Lularoe's intersection with consumer bankruptcy filings. I've blogged about multi-level marketing (MLM) companies' potential role in bankruptcy filings a couple times. So when BuzzFeed sent me a list of twenty-four chapter 7 and chapter 13 bankruptcy filings from the past two years in which the debtor listed Lularoe as a part of its DBA or FDBA, I was intrigued. Much of what I could glean from the sample of those petitions and schedules I reviewed is in the short piece. The debtors' reports of past years' income from their Lularoe businesses show a precipitous decline in income, some schedules include unsecured loans from online lenders (seemingly to fund purchases of inventory), and most schedules include a large amount of credit card debt. The debtors also are overwhelmingly married with children, and the couples together owe quite a bit in student debt (over $50,000 on average).

Of course, as the story notes, there likely are many more filings stemming, in part, from Lularoe businesses, and these cases very likely are not representative of all the cases. But it was interesting to review them nonetheless. Lularoe reminds me very much of Rodan + Fields and Herbalife, two other well-known MLMs. Which led me to run the same search that BuzzFeed ran for Rodan + Fields and Herbalife. 

Continue reading "Lularoe, Other Multi-Level Marketing Companies, and Bankruptcy Filings" »

Lessons for the #BankBlack Movement from Mehrsa Baradaran's New Book

posted by Pamela Foohey

#BankBlack emerged on Twitter earlier this summer. The hashtag began as an encouragement to those protesting police brutality to move their money to black-owned banks, and is credited with growing the assets of black-owned banks by $6 million over the summer. A search on Twitter shows that the hashtag remains popular, and now is linked with #BlackWealth and #BuyBlack. Indeed, I found one tweet that claims that black-owned banks' assets have grown $20 million over the past 9 months as a result of the broader movement.

The motivation for these three hashtags relates to Professor Mehrsa Baradaran's recently-released (and fantastic) book, The Color of Money: Black Banks and the Racial Wealth Gap. In the book, she chronicles the rise and fall of black-owned banks as a vehicle to grow black wealth and combat predatory practices, such as red-lining, to help underserved, often low-income, predominately black communities. Since its release a couple weeks ago, the book has been reviewed in the Atlantic and the American Banker. Here, I want to highlight a couple of statistics and focus on what Baradaran's analysis suggests about the possibilities for the #BankBlack movement.

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More on Personal Debt and Multilevel Marketing Companies

posted by Pamela Foohey

Last year, I posted about John Oliver's segment on Last Week Tonight dissecting multilevel marketing (MLM) companies (aka pyramid schemes), and proposed a link between personal debt, bankruptcy, and MLM companies. Prominent MLM companies include Amway, Herbalife, the relatively new Rodan + Fields, and the even newer (to me, at least) LuLaRoe, through which women sell brightly-colored stretchy women's and kids' clothing. Indeed, posts about LuLaRoe--complete with mom and daughter wearing matching leggings--increasingly are overshadowing posts about Rodan + Fields in my Facebook feed. Since 2010, the MLM industry has grown 30%. LuLaRoe apparently adds 150 retailers a day (a figure unconfirmed by LuLaRoe). This all makes the MLM industry ripe for budget-crushing debt -- and for more news stories about that debts' effects on people's lives.

Quartz recently published such a piece, aptly titled: Multilevel-marketing companies like LuLaRoe are forcing people into debt and psychological crisis. Although the piece is far from a rigorous study of the financial pitfalls of joining a MLM, it is an interesting and entertaining read. It uses LuLaRoe to highlight the reality of MLMs: lots of self-empowerment language and lots of debt. According to an FTC study cited in the piece, 99% of people who join MLMs lose money.

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Taking Online Dispute Resolution To The Next Level

posted by Pamela Foohey

New HandshakeYesterday I purchased a travel alarm clock through Amazon. This morning, the manufacturer emailed me with instructions for its use, including a very important point about switching the travel lock button off to activate the clock. The clock apparently arrives in the locked condition, which has caused some customers confusion and led them to think that the clock was defective when it was not. The email made me think of a recently published book, The New Handshake: Online Dispute Resolution and the Future of Consumer Protection, by Professor (and former Slips guest blogger) Amy Schmitz and Colin Rule, who is the former Director of Online Dispute Resolution for eBay and PayPal.

The New Handshake surveys that current landscape of online dispute resolution and sets out a blueprint for how the Internet can help consumers worldwide deal with disputes arising from their e-commerce transactions. With more and more consumer transactions moving online (ten years ago, I likely would have purchased that travel alarm clock at the-somehow-still-semi-alive Radio Shack), the book's detailed ideas for how to design an effective dispute resolution system is increasingly important for businesses and for consumer advocates. As Schmitz and Rule note, largely gone are the days when transactions were sealed in person with a firm handshake, and class actions seem less and less effective overall -- which leaves both challenges and space to innovate for business and consumers. For my own interests, two parts of the books stood out.

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New Report on Car Insurance Redlining

posted by Pamela Foohey

Empirical studies have shown that minorities pay more for goods and services, and that they pay more to finance their purchases of those goods and services -- for instance, through subprime home and auto loans. Machine Bias, a new study from ProPublica and Consumer Reports, adds car insurance premiums to the list of what minorities can expect to pay more for. The study uses zip codes to analyze auto insurance premiums and payouts in four states, California, Illinois, Texas, and Missouri. It finds that major insurers charge up to 30% more in minority neighborhoods as compared to white neighborhoods with the same risk profile. The results mean that where someone lives matters even more, and could have devastating consequences on upward mobility. When faced with budget-busting car insurance bills, do people give up the cars they need to get to work? Or do they go out without necessities, such as food and medicine, so they can pay their car insurance premiums?

New Article from the Consumer Bankruptcy Project: Attorneys’ Fees and Chapter Choice

posted by Pamela Foohey

Many of us on Credit Slips have been part of the Consumer Bankruptcy Project (CBP), a long-term research project studying people who file chapter 7 and 13 bankruptcy. Several years ago, some of us blogged about the writings from the last CBP iteration in 2007.  In 2013, the CBP was relaunched as an ongoing data collection effort. The CBP’s current co-investigators – myself, Bob Lawless, Katie Porter, and Debb Thorne – recently posted “No Money Down” Bankruptcy, the first article analyzing data from the Current CBP (data from 2013-2015), combined with 2007 CPB data. The article focuses on the timing of when debtors are required to pay their bankruptcy attorneys to report on the increasingly prevalent phenomenon of debtors paying nothing in attorneys’ fees before filing chapter 13.

This nationwide phenomenon raises questions about how people are accessing bankruptcy and the extent of the benefits they receive from the system. The phenomenon also explains some prior findings about the intersection of race and bankruptcy filings. And it adds to our knowledge about regional disparities in the percentage of people who file chapter 7 versus chapter 13 bankruptcies.

Continue reading "New Article from the Consumer Bankruptcy Project: Attorneys’ Fees and Chapter Choice" »

Two Books About Selling Math and Its Consequences for Inequality

posted by Pamela Foohey

EconomismOver at Consumer Law & Policy Blog, Jeff Sovern recently discussed James Kwak's new book, Economism: Bad Economics and the Rise of Inequality, which mounts a convincing case against the blind application of Economics 101 to important policy questions, such as healthcare, international trade, the minimum wage, mortgages and other financial products, and taxes. Kwak details the consequences of "economism," which he defines as "the belief that a few isolated Economics 101 lessons accurately describe the real world." Kwak analogizes using economics in this way to justify widening socioeconomic inequality to prior century's reliance on religion and applications of Darwinian evolution to justify the social order of those times. Part of the lure of economism, and how it can be used as an effective justification, is that it seemingly is grounded in math. And math appears to many as absolute, complicated, and scary. 

Weapons of Math DestructionWhich made me think of another relatively new book, Cathy O'Neil's Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy. O'Neil chronicles the repercussions of relying on algorithms fed by big data to assess everything from grade school teachers' effectiveness to credit worthiness to which households politicians should target during election campaigns. When not used properly, these "weapons of math destruction" can entrench and perpetuate inequality.

Continue reading "Two Books About Selling Math and Its Consequences for Inequality" »

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" »

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" »

Linking Pyramid Schemes (aka Multilevel Marketing Companies) and Consumer Bankruptcy

posted by Pamela Foohey

A couple weeks ago, on Last Week Tonight, John Oliver started what promises to be the greatest pyramid scheme ever. In an effort to help him, watch the segment here (warning: language). More seriously, multilevel marketing companies that sell products directly to customers through salespeople working out of their homes (Herbalife, Amway, Nu Skin, the relatively new Rodan + Fields) operate by way of a concerning sales structure. Salespeople recruit salespeople, who recruit more salespeople, who recruit yet more salespeople. The salespeople at the top make money off of the salespeople at the bottom. And the salespeople at the bottom often are left with stockpiles of soon-to-expire product in their homes and garages. Indeed, as noted by John Oliver, in July of this year, Herbalife consented to a $200 million settlement with the FTC in which they agreed to change their business tactics. When asked about Herbalife's business model, FTC Chairwoman Ramirez said, "they were not determined not to be a pyramid."  

Now, the potential (probable?) connection to bankruptcy filings. There is evidence that people sign up to sell these products because they need to make extra money--which makes sense. Signing up to be a salesperson for a multilevel marketing company could be one of many coping tactics used by someone hopelessly deep in debt. Get a second job, sell some belongings, go without insurance or food . . . and try to sell products from your home. People may get the idea from friends or financial gurus. For instance, Dave Ramsey's website has a page titled, "Guide to Joining a Multilevel Marketing Company," which includes some of the same inspirational, "go-getter," pull yourself up by your own bootstraps, you hold the key to your own success language that accompany Facebook posts that try to entice people to join Rodan + Fields. Of course, that means it is your fault when you fail, right?

Continue reading "Linking Pyramid Schemes (aka Multilevel Marketing Companies) and Consumer Bankruptcy" »

CFPB Consumer Complaint Narratives: What They Say About Bankruptcy

posted by Pamela Foohey

The Consumer Financial Protection Bureau's consumer complaint database has contained narratives for over a year now. Each month, the CFPB publishes a report that summarizes the complaints received over the previous three months, and that focuses on a specific product and geographic area. (The latest report was published on August 31.) The higher-level summary offered by these reports is interesting and I have referenced them in class on occasion.

The consumer complaint narratives tell as interesting, but often different stories. However, they are harder to sort through systematically. In preparation for a symposium, I recently took a random sample of complaints with narratives published in the year period between May 2015 and April 2016. Having now read thousands of narratives, one trend stood out to me rather quickly -- narratives that talked about the consumer's prior bankruptcy or a relative's bankruptcy. About 5% of the narratives discuss bankruptcy.

Continue reading "CFPB Consumer Complaint Narratives: What They Say About Bankruptcy" »

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.

Initial Attorney Reactions to the New Bankruptcy Forms

posted by Pamela Foohey

Help ImageYesterday I spoke at the Oklahoma Bar Association's annual advanced bankruptcy seminar. My talk focused on my research into chapter 11 cases filed by churches, a few of which are from Oklahoma. But the seminar's timing aligned perfectly with the roll out of the new bankruptcy forms. And unsurprisingly the first hour of the seminar was devoted to introducing and discussing the forms. A debtor attorney who handles chapter 7, 11, 12, and 13 cases -- Brian Huckabee -- parsed through some of the forms and added some initial comments. My take-away is that debtor attorneys' chief concern is that the readability and understandability of the forms will make it easier for debtors to file pro se, taking work away from attorneys ("this is self-service!"), a concern which was raised during the public-comment period. A related concern was voiced by a chapter 7 trustee: that chapter 7 (and 13) trustees will end up spending more time working through each case.

Three items during the discussion stood out to me. The first two relate to the "self-service" nature of the forms, particularly the new forms' instructions and white space. The last item goes to an attachment to the proof of claim form, Form 410A -- Mortgage Proof of Claim Attachment. 

Continue reading "Initial Attorney Reactions to the New Bankruptcy Forms" »

Longest Running Catholic Archdiocese Chapter 11 Case Finally Ends

posted by Pamela Foohey

The Archdiocese of Milwaukee filed its chapter 11 petition on January 4, 2011. Yesterday, four years and ten months later, Bankruptcy Judge Susan Kelley confirmed the dioceses' reorganization plan. During those four plus years, the most contentious issue regarded a $55 million trust fund established rather suspiciously prior to filing to care for a cemetery. The parties were sent to mediation repeatedly, but the cemetery issue seemed to remain the hold up -- until the 7th Circuit ruled that the cemetery trust fund was not shielded from the Code's avoidance provisions by the Religious Freedom Restoration Act. After the 7th Circuit's ruling, the archdiocese revised its plan to distribute $21 million in total to sex abuse claimants. $16 million is coming from that cemetery trust fund. 

In comparison, the archdiocese's initial plan proposed to distribute $4 million in total to these claimants. The $21 million primarily will be split among 355 people. Though it is difficult to compare settlement amounts across diocese chapter 11 cases because of unknowns about abuse severity, state laws that apply to the underlying claims, and available insurance monies and other assets, the $21 million still makes Milwaukee's settlement one of the smallest based on the number of people to receive compensation.

Continue reading "Longest Running Catholic Archdiocese Chapter 11 Case Finally Ends" »

It Is Very Expensive To Be Poor

posted by Pamela Foohey

How BanksCash checking fees, prepaid card fees, money transfer fees, cashier's check fees -- all together, the unbanked pay up to 10% of their income simply to use their own money. And when lower-income people face an emergency, they must turn to expensive payday loans, title loans, and tax refund loans. As Mehrsa Baradaran (University of Georgia) writes in her new book, How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy, "indeed, it is very expensive to be poor."

How did this happen? And how might we begin to solve the problem? In her book, Baradaran details how banks and government are and always have been inextricably tied, with the government helping banks and the banks supposedly helping the public in return. But this "social contract" has eroded. The banking sector has turned away from less profitable markets, leaving people with small sums of money to deposit without a trustworthy place to stash their cash, and people in need of small sums of money to borrow nowhere to turn but fringe lenders. Moreover, these people understandably often are uncomfortable dealing with large banks. And the result is that an astonishing large chunk of the American population is unbanked or underbanked.

If the unbanked and underbanked had a trustworthy place to deposit their cash, some of the fees they pay simply to use their money would go away. This alone might allow families to stay financially afloat. Likewise, if they had the option to borrow small sums of money at reasonable rates, temporary financial emergencies may not set so many families up for a lifetime of financial failure. Which leads Baradaran to a proposal that I’m fond of (indeed, I’ve blogged about Baradaran’s thoughts on it before): postal banking.

Continue reading "It Is Very Expensive To Be Poor" »

Advertising and Payday and Title Lending: How Do Lenders Target Borrowers?

posted by Pamela Foohey

Are bigger payday and title lending companies better for low-income borrowers than smaller companies? Jim Hawkins (Houston Law Center) takes up that question in a new article which reports the results of his study of the advertisements of payday and title loan companies with storefronts in Houston, Texas. The results are quite timely given that the Consumer Financial Protection Bureau is poised to release regulations for payday lenders. Based on Colorado's experience with payday lending reform, these regulations have the potential to increase large lenders' market share. What might be the consequences of consolidation?

Hawkins begins to answer that question by comparing big and small lenders located in Houston based on their compliance with Texas regulations, prices, use of "teaser rates," and attempts to target minorities and women through storefront and online advertising -- all of which are practices that critics of payday and title lending have identified as particularly problematic or exploitative. His results overall are mixed. For instance, larger companies in Houston are more likely to feature minorities in advertisements, and smaller companies are more likely to feature women. Perhaps the most interesting finding is that there is price competition among these companies in Houston: larger companies tend to charge higher APRs than smaller companies. Given that the CFPB regulations will not cap interest rates, might there be unintended consequences of regulations that may bolster large lenders?

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" »

Searching CFPB Consumer Narratives

posted by Pamela Foohey

Yesterday the Consumer Financial Protection Bureau (CFPB) went live with its consumer complaint database, publishing over 7,700 consumer narratives detailing problems they have faced with banks, debt collectors, and other creditors. The CFPB also issued a request for information seeking public input on how it can make the data more useful to the public, including how to normalize the narratives to make them more comparable. Which prompted me to search through some of the narratives.

The website allows for viewing of the narratives online by products and services, as well as downloading of data. Some of the products are broken down by sub-product--such as medical specific debt collection and payday loan specific debt collection. The narratives in each product category seem to be searchable by words and phrases. For instance, I searched the payday loan product category by the name of a notorious lender.

Continue reading "Searching CFPB Consumer Narratives" »

Postpetition Wages Held by Chapter 13 Trustee Belong to Debtor Upon Conversion

posted by Pamela Foohey

In case you haven't seen it, the SCOTUS issued its unanimous opinion in Harris today, holding that postpetition wages held by the Chapter 13 trustee at the time a case is converted to Chapter 7 must be returned to the debtor. When the Fifth Circuit issued its decision that created the split with the Third Circuit, I blogged some thoughts, primarily focusing on statutory analysis. Now that the SCOTUS has weighed in, the practical question is: how can creditors protect themselves from the risk that the trustee will accumulate a large sum of postpetition wages? Today's opinion ends with that question and notes that the amount of postpetition wages a particular Chapter 13 trustee will be holding at the time of conversion will depend upon the practices of that trustee. In addition, as in the case before the Third Circuit, sometimes Chapter 13 trustees accumulate funds because creditors refuse to receive plan payments for whatever reason.

Today's opinion suggests that creditors can include a disbursement schedule in the Chapter 13 plan. The Third Circuit's opinion sets out a few other ideas (see fn 9), including requesting plan modification if a creditor is refusing to accept payments. Perhaps the most effective protection suggested by the Third Circuit is for the plan to provide that payments vest in creditors immediately upon receipt by the Chapter 13 trustee, and to include similar language in the order confirming the plan. The Third Circuit, however, explicitly noted that it was not ruling on whether such language would remove accumulated undistributed payments from revesting with the debtor upon conversion. Today's opinion notes that a plan that provides that payments are property of the estate (as the plan provided in Harris) does not change the outcome that undistributed postpetition wages revest with the debtor upon conversion. But that still seems to leave creditor vesting language as a potential way for creditors to protect themselves.

That New Song About Bills

posted by Pamela Foohey

You may have heard it. It was on the radio the last three mornings as I drove to work. It goes, "I got bills I gotta pay, so I'm gonn' work work work every day." It made me think about bankruptcy (naturally). And it is really catchy. The song's simply titled, "Bills," and is LunchMoney Lewis's debut single. The lyrics reference empty fridges, cars not starting, shoes without "soul," praying that cards won't be declined, and, of course, piles of bills. The music video features an adorable girl and her lemonade stand, complete with a credit card reader made out of cardboard.

When asked about the song, Lewis said: "I feel like people relate to 'Bills' no matter where you’re from. Whether you’re very middle class or you’re lower class or you’re in the projects or you’re upper middle class. We all get bills. . . . That’s why I wanted to turn it into something positive, like when you hear 'Bills' it kind of makes you feel happy, you know?" (full interview). The song made me smile, and apparently is rapidly climbing the pop charts.    

Check out the official video for some Friday fun.

Secured Credit, Churches, and Reorganization

posted by Pamela Foohey

Chapter 11's ability to empower true reorganization has received much criticism of late in light of an increasingly held assumption that most Chapter 11 cases end in a 363 sale of the debtor's assets. Around this time last year, the American Bankruptcy Institute and the University of Illinois College of Law co-hosted a symposium dedicated to discussing secured creditors’ rights and role in modern Chapter 11. Papers from the symposium (including by Slips contributors) very recently became available here.

I was lucky enough to moderate a couple of the symposium panels. As I was listening to the discussion, I noticed that what I was hearing about secured creditors and 363 sales did not match  what I had observed in my study of how religious organizations (mainly smaller churches) currently use Chapter 11. To accompany the release of the symposium papers, I wrote a short piece describing how secured creditors influenced religious organizations' Chapter 11 cases in ways that did not lead to widespread sales, but rather, plans and settlements.

Continue reading "Secured Credit, Churches, and Reorganization" »

Auto Title Loans: Like Payday Loans, But Larger and Riskier

posted by Pamela Foohey

The Pew Charitable Trusts today released a report focusing on the market for auto title loans. The report brings together data from a wide variety of sources (including Slips contributor Nathalie Martin's work) to provide a clear, succinct, and thorough overview of the mechanics of this under-studied industry. It also, and most interestingly, includes the results of Pew's nationwide survey of borrowers and discussions with focus groups.

The empirical data underscore how similar auto title loans are to payday loans, and how regulation of this part of the alternative finance industry also is greatly needed. The report is particularly timely in light of the Consumer Financial Protection Bureau's anticipated upcoming release of payday loan rules, and its field hearing tomorrow in Richmond on payday lending.  

People reported taking out auto title loans for similar reasons as to why they take out payday loans: they make less than $30,000 a year and primarily need money to meet everyday expenses, though some use the money to pay unexpected expenses. People also reported having other options to borrow money or cut expenses. Even so, they focused on the ease of getting money, relying on lender location and advertisements, and word of mouth, rather than comparison shopping or considering other ultimately less expensive ways to obtain credit. What is perhaps most disturbing is that a sizable portion of people reported paying back these loans via the exact means that they rejected when taking out the loans: borrowing from friends and family, going to banks or credit unions, and using credit cards.

Continue reading "Auto Title Loans: Like Payday Loans, But Larger and Riskier" »

Archdiocese's Potential Fraudulent Transfer Not Protected by RFRA, First Amendment

posted by Pamela Foohey

The Archdiocese of Milwaukee’s Chapter 11 case remains the longest running Chapter 11 case filed by an Archdiocese or other Catholic entity. It filed in January 2011, and because of religious-based objections to the application of the Code's fraudulent and preferential transfer provisions, Bankruptcy Judge Susan Kelley has declined to rule on any reorganization plan until the objections are settled.

The main hang-up is an April 2007 pre-petition transfer of $55 million from the Archdiocese’s general accounts to a trust earmarked for maintaining cemeteries--generally known as the "Cemetery Trust Fund." Post-filing, the Archbishop, acting in his role as the trustee of the Cemetery Trust Fund, sought a declaratory judgment from the bankruptcy court that the $55 million would never be part of the Archdiocese's bankruptcy because the First Amendment and/or the Religious Freedom Restoration Act (RFRA) barred the application of the Code's avoidance provisions. The action was defended by the Unsecured Creditors' Committee -- because the DIP was just a tad conflicted given that it acts through its sole corporate member, the Archbishop.

The question made its way up to the 7th Circuit, which issued a long awaited opinion today. The rulings are: (1) RFRA is not applicable because it only applies to suits in which the government is a party, and the Creditors' Committee is not the government; and (2) the Archbishop's free exercise rights are not violated by application of the Code's generally neutral principles that are narrowly tailored to support a compelling government interest in protecting creditors. In short, the Archdiocese decided to file under Chapter 11 and now it cannot seek a religious exemption for purported fraud.

Continue reading "Archdiocese's Potential Fraudulent Transfer Not Protected by RFRA, First Amendment" »

Churches as an Alternative to Payday Lenders

posted by Pamela Foohey

Payday loans are exceedingly expensive, often trapping borrowers into a cycle of rolling their loan over for many months while interest compounds. Postal banking has been suggested as a way to provide people with better access to less-expensive loans. And the CFPB has indicated that it intends to regulate payday and similar high-cost loans (maybe that will happen soon?). In the meantime, some churches apparently have taken matters into their own hands.

A recent Washington Post article describes how churches in Virginia have helped some of their members secure manageable loans from the Jubilee Assistance Fund (very apt name) and the Virginia United Methodist Credit Union. ("Faith-based" credit unions exist across the country and also offer loans to churches. A few of these credit unions end up as creditors in churches' Chapter 11 cases). The article reports that similar church-run lending programs are sprinkled across the country, with churches in some states seemingly having more coordinated efforts.

In the face of the payday industry, these programs undoubtedly are a blessing to the lucky church members who are able to obtain loans. The existence of these programs--and the interesting personal stories in the article--perhaps show how crucial regulation of the high-cost lending industry is, as well as indicate how desperately many people want and would benefit from access to lower-cost lending options.

Bankruptcy Attorney Advertising in the Digital Age

posted by Pamela Foohey

Yellow Pages--maybe not so much anymore. Websites, AdWords, and social media--yes, yes, and occasionally.

Little has been written about bankruptcy attorney advertising. The last Credit Slips post focused on bankruptcy attorneys' ads in the 2013 Yellow Pages and surveyed the wording that attorneys used to describe their roles as debt relief agencies. One of the comments on the post suggested that the Yellow Pages remained a fruitful advertising venue for consumer bankruptcy attorneys. But my current research seems to point in a different direction.

As part of my research regarding nonprofits' use of reorganization to deal with financial distress, over the last year, I've spoken with 76 attorneys who represented religious organization debtors in their Chapter 11 cases. Many of these attorneys' practices are predominately consumer debtor oriented. Half of the attorneys maintain practices that are at least 70% consumer debtor work. The attorneys also are located across the country--from Massachusetts to Colorado to California.

As part of the interviews, I asked the attorneys if and how they advertise their practices. The results are anecdotal, but the attorneys' experiences may signal a switch from print and television advertising to complete reliance on websites, Internet leads, and social networking sites.

Continue reading "Bankruptcy Attorney Advertising in the Digital Age" »

Prepaid Card Use on the Rise Among Unbanked and Underbanked

posted by Pamela Foohey

Prepaid CardLast week, the FDIC released its 2013 National Survey of Unbanked and Underbanked Households. Some of the Survey's results were similar to the FDIC's 2009 and 2011 surveys. 7.7% of households were unbanked. Another 20% of households were underbanked. I took note of the Survey because its maps of unbanked and underbanked rates by state have been receiving some attention online. But what I think is more intriguing are the Survey's questions about prepaid cards.

General purpose reloadable prepaid cards, though still a small segment of the consumer financial
products market, have grown rapidly in past years -- from $28.6 billion in 2009 to close to $65 billion in 2012 (as previously discussed). Consistent with this growth in dollars, the Survey found that prepaid card use had increased among all households from 2009 to 2013 -- from 9.9% to 12%. More interestingly, the share of unbanked households that used prepaid cards had increased more dramatically -- from 12.2% in 2009 to 17.8% in 2011 to 27.1% in 2013. By comparison, 19.6% of underbanked households and 8.8% of fully banked households had used prepaid cards in 2013. When combined, unbanked and underbanked households comprised the majority (55%) of prepaid card users in the previous 12 months.

Continue reading "Prepaid Card Use on the Rise Among Unbanked and Underbanked" »

Online Payday Loans Cost More Than Storefront Payday Loans And Customers Are Harassed More Egregiously

posted by Pamela Foohey

Over the last couple years, The Pew Charitable Trusts has put together a useful series of reports regarding payday lending in the United States. The fourth installment was released on October 2. Its title is quite descriptive: "Fraud and Abuse Online: Harmful Practices in Internet Payday Lending". The report documents aggressive and illegal actions taken by online payday lenders, most prominently those lenders that are not regulated by all states: harassment, threats, unauthorized dissemination of personal information and accessing of checking accounts, and automated payments that do not reduce principal loan amounts, thereby initiating an automatic renewal of the loan(!). Storefront lenders engage in some of the same tactics, but online lenders' transgressions seem to be more egregious and more frequent.

Putting these disturbing actions aside, are consumers getting a better deal online than at storefronts? Given the lower operating costs, it is logical to assume that these exorbitantly expensive loans might be just that much less expensive if purchased online? Nope. Lump-sum loans obtained online typically cost $25 per $100 borrowed, for an approximate APR of 650%. The national average APR of a store-front lump-sum loan is 391%. Why the disparity on price and severity of collection efforts?

Continue reading "Online Payday Loans Cost More Than Storefront Payday Loans And Customers Are Harassed More Egregiously " »

Now Might Be the Time for the Longest Pending Catholic Diocese Chapter 11 Case to Settle

posted by Pamela Foohey

The Archdiocese of Milwaukee is one of 11 dioceses (plus 2 other Catholic-affiliated religious orders) to file under Chapter 11 -- and it likely will not be the last. All of the cases were filed in hopes of achieving global settlements of sexual abuse claims. The Milwaukee Archdiocese filed over 3.5 years ago, in January 2011, making it the longest running Diocese case. 6 of the 7 other dioceses that filed before it confirmed reorganization plans in an average of about 2 years after filing. The shortest time to confirmation was 10 months, while the longest was 2.75 years. The other diocese, San Diego, negotiated a settlement, via mediation, in approximately 9 months.

The Milwaukee Archdiocese and its creditors (predominately abuse claimants) have spent the last 3.5 years, despite a trip to mediation in 2012, primarily fighting over a $55 million trust fund established to pay for upkeep of the diocese's cemetery. Without the $55 million, abuse claimants are likely to receive no more than $4 million. The $4 million figure would be smallest settlement paid to abuse claimants in any of the Catholic Church bankruptcies so far. The cemetery trust issue is pending before the 7th Circuit. Meanwhile, attorneys' and other professionals' fees are rising, leading Judge Kelley to order the parties back to mediation, starting tomorrow.

Continue reading "Now Might Be the Time for the Longest Pending Catholic Diocese Chapter 11 Case to Settle" »

Lessons From Postal Banking's Past

posted by Pamela Foohey

Post OfficeMehrsa Baradaran (University of Georgia) has a short piece in Slate tracing the history of the U.S. Postal Banking system. In sum, post offices once were banks, the system was in place for over 50 years, and post offices can be banks again. Indeed, at its height, the postal banking system was used by millions of Americans. Then banks moved into the majority of cities and towns and offered customers a more attractive option than using postal savings depositories. But when these banks began leaving low-income neighborhoods in the 1970s, the postal banking system already had died a quiet death, leaving the market open to payday lenders and check cashing operations. As Adam pointed out in his op-ed in American Banker from earlier this year, and as Mehrsa's piece highlights, postal banking may be the key to the current lack of financial inclusion. The piece is a quick and interesting read.

Post office building image courtesy of Shutterstock.

Small-Dollar Loans to Servicemembers, the Electronics Version (or an Easy Way to Get Around the Military Lending Act)

posted by Pamela Foohey

Yesterday the Consumer Financial Protection Bureau, along with 13 state attorneys general (including from my new home state of Indiana), announced a $92 million settlement and issued an enforcement action against Colfax Capital Corporation and Culver Capital, LLC, known as Rome Finance, for targeting military families (and other consumers) with predatory loans to buy electronics, such as computers and televisions.

Rome Finance would offer credit to consumers for the purchase of such electronics primarily at mall kiosks near military bases, promising instant financing and no money down. Rome Finance then jacked up the price of the electronics, thereby masking true finance charges and APRs, withheld information on bills about balances and payments, and violated various states' laws in collecting the debts. In some instances, service members would receive statements indicating that the APR on their loan was 16% when the APR really was over 100%. The scheme is a reminder of the endless variations that companies peddling alternative financing / high-cost credit may use, and how broad laws against predatory lending need to be in order to be effective.

Continue reading "Small-Dollar Loans to Servicemembers, the Electronics Version (or an Easy Way to Get Around the Military Lending Act)" »

Do Debtors or Creditors Get Undisbursed Chapter 13 Plan Payments Upon Conversion? -- A New Circuit Split

posted by Pamela Foohey

Chapter 13 trustees handle millions of dollars in plan payments every year. At some point in likely a sizable portion of cases, the trustee accumulates these payments instead of distributing the funds to creditors. What happens if a debtor's case is converted while the trustee has this accumulated money in its account? In 2012, the 3rd Circuit, in a majority opinion, held that the trustee must return the funds to the debtor (see decision here). Yesterday the 5th Circuit held that the trustee must distribute the funds to creditors (see decision here), thus creating a split on an issue that, as the Fifth Circuit stated, "has divided courts for thirty years," though only had previously produced one appellate court decision squarely on point.

With only one-third of Chapter 13 cases making it to discharge, the issue potentially affects a good number of debtors and involves a significant amount of money in total. Each individual debtor may (or may not) be entitled to a large sum of money in his or her estimation. In the 3rd Circuit case, the Chapter 13 trustee had accumulated over $9,000 in undistributed payments. In the 5th Circuit case, the trustee was holding about $5,500 in undistributed payments. And to the extent there isn't at least a local rule to rely on, Chapter 13 trustee probably would like clearer guidance on the issue.  

Continue reading "Do Debtors or Creditors Get Undisbursed Chapter 13 Plan Payments Upon Conversion? -- A New Circuit Split" »

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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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