Hawkins & Penner--Marketing Race and Credit in America

Past Credit Slips guest blogger, Jim Hawkins from the University of Houston, and his student, Tiffany Penner, alerted me to their recent publication in the Emory Law Journal entitled, "Advertising Injustices: Marketing Race and Credit in America." The paper takes an interesting approach to the issue of how consumer credit gets marketed in the United States. They visited fringe lending establishments as well as the web sites of these establishments and mainstream banks and looked at the persons used as models in their advertisements.

Although I have some questions about the magnitude of the effects--questions that come from how different government agencies Latino or Hispanic heritage sometimes as an ethnicity and sometimes as a racial identity--the core finding of the paper seems right. The models used in the advertisements send a signal about whether the financial service is "for people like you." How those people differ between mainstream banks and fringe lenders will not surprise anyone who has paid even a bit of attention to the structural racism that defines our economy. Hawkins and Penner close the paper with some thoughts on how the Equal Credit Opportunity Act and the Community Reinvestment Act might help fix the problems they identify.

UPDATE (9/26): My apologies to Ms. Penner for misidentifying her in the original title to this post.

Thoughts on Student Loans and the FRESH Start Act

A new bill from Senators Durbin and Cornyn promises a way out of student loan debt through a change in the bankruptcy laws. The Fresh START Through Bankruptcy Act of 2021 makes one principal change. After 10 years from the date they first came due, federal student loans would be freely dischargeable. Before 10 years, student loans would be dischargeable only if the debtor could show undue hardship, which is the standard currently. Private student loans would remain nondischargeable at all times except upon a showing of undue hardship. This is not the bill I would write, but it's a step in the right direction.

How could the bill be improved? First, ten years is too long. It is the entire regular repayment period for a federal student loan. Do we really think that debtors should have to struggle for ten years before becoming eligible for a student-loan discharge. For example, from our "Life in the Sweatbox" paper, 60% of the people who reported they struggled for at least two years before bankruptcy said they went without medical attention and 47% said they went without a prescription they needed. 

15 Years of Credit Slips

Today marks fifteen years of the Credit Slips blog. We started modestly on this date in 2006 while we were in the throes of doing all the tedious ground work for what would be the 2007 version of the Consumer Bankruptcy Project. After 15 years, I think I can reveal that I had originally proposed--and I am not making this up--a different name for the blog. Proof of the bona fides of that big reveal are to the right, which was the original mockup of the blog banner. Much, much wiser heads prevailed. The blog got a different name, and Credit Slips was launched. Many thanks to all of our bloggers over the years, both regulars and guests, but especially many thanks to our readers who have helped us create this little corner of the Internet that we will keep going as long as you'll have us.

Bankruptcy Filing Rates Not Rising, May Go Lower

The latest data from Epiq Systems shows that year-over-year bankruptcy filings dropped again in May after an increase in April. The April and May figures are particularly important because they give us two months of year-over-year comparisons with post-Covid data.

In April, there was an average of 1,860 filings per day which was an increase of 6.4% from the previous April. That uptick made me wonder whether we were beginning to see the long-predicted increase in bankruptcy filings because of the pandemic. That speculation proved premature because the May figure was 1,738 filings per day, which was not only a decrease from April but a year-over-year decline of 13.1%.

Whether the April increase or the May decrease ends up being the one-month blip is something we will learn over the next few months. It is that kind of insight you are looking for when you come to this blog--the future will reveal the future. It is much easier, however, to come up with a story that April was the anomaly than vice versa.

Bankruptcy filings are seasonal, spiking in the early spring. Ronald Mann and Katie Porter persuasively documented the reason for that is tax refunds going to pay the cost of the bankruptcy filing. Usually the effect runs from February to April with a peak in March. This year, the IRS tax filing statistics show that refunds ended up being higher overall than last year but started more slowly. There was also a third round of stimulus payments in March that capped out at lower-income levels and at levels that are more typical for bankruptcy filers. For these reasons, what we saw in April might have just been the usual annual seasonality in the filing rate, just pushed back a bit by later-filing tax filers and the stimulus money.

Welcome to Chris Odinet

On behalf of the other Credit Slips bloggers and myself, I would like to welcome Professor Chris Odinet as a guest blogger. Chris is a professor at the University of Iowa College of Law and is part of a new generation of scholars in the consumer finance space that our readers should know about. He already has an impressive list of scholarly publications and part of important conversations in consumer finance, especially fintech. Welcome, Chris, to Credit Slips.

Bankruptcy Filings Are Still Super Low--Don't Believe the Headlines

Headlines recently appeared in the usual places about a big March jump in bankruptcy filings. It is true that March 2021 total bankruptcy filings were 43,425 (according to the Epiq Systems data) and that was a 39.1% increase from February 2021. That looks like a big jump. Of course, March is a longer month, and in fact this March had four more business days than February--almost an entire extra work week. Calculating the filing rate per business day, the March 2021 filing rate was a 14.9% increase from February 2021.

That still feels notable, but let's be careful--very careful. Bankruptcy filings are at historically low levels. When any data series hits a trough and starts creeping back to an old base rate, the increases will feel really big although we are really only getting back to what we had experienced previously. The February filing rate was 1.13 filings per 1,000 persons, the lowest since January 2006 when bankruptcy filings fell to almost nothing after the surge to beat the effective date of the 2005 bankruptcy amendments. (To give you a sense of the surge, the October 2005 rate was 25.53 filings per 1,000 persons.)

Fantastic SBRA Resource from Judge Bonapfel

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!