Help us Brainstorm how the Bankruptcy System Could be Fairer to Low-income People and People of Color

This past month, Nathalie (Martin) and I gave a talk at the Tenth Circuit Bench and Bar Conference on Credit, Race, Class, and Bankruptcy. After recounting some of the historical reasons for persistent wealth, income, and debt gaps among different races and ethnicities, we shared these slides to show that wealth and debt inequalities persist to this day.

In one news story that was only a month or so old, one family’s home appraisal in Maryland jumped almost $300,000 when the family covered all evidence that a Black family lived in the house. This was just one of several articles in the last two years alone. We found similar examples from Florida, Colorado, California, and Ohio, all within the last two years.

After that, we began a conversation about how the bankruptcy system and rules might unintentionally have a disparate impact on all low-income people, including many persons of color. As one example, we displayed this form from the bankruptcy court in Connecticut, which essentially announces the dismissal of chapter 7 cases with little explanation of why, before a debtor can even respond:

After groups in our session shared about problems, they came up with a list of things we could do within the system to help make it fairer for low-income people and persons of color, even without amending the Bankruptcy Code. Several judges shared things they already do to help low-income persons, including creating alternative systems for communicating with the court and for filling documents, for pro se persons without PACER, as well as creating a fund for translators for pro se debtors.

We seek more input on this topic from our CreditSlips readers. What have you seen happen in bankruptcy court, by way of local practice or rule, that could have a disparate impact on low-income people, many of whom are persons of color? In what ways might we tweak the system, even a little, to help ameliorate this impact? We appreciate your thoughts in the chat or to either of us by email. We plan to gather everything we learn and write about it. As most of us know, the little things are often the big things when it comes to equity justice.

New Book Alert: Delinquent

The University of California Press has published Delinquent: Inside America's Debt Machine by Elena Botella. 

Botella used to be "a Senior Business Manager at Capital One, where she ran the company’s Secured Card credit card and taught credit risk management. Her writing has appeared in The New Republic, Slate, American Banker, and The Nation."

Here's the description from the publisher between the dotted lines below: 

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A consumer credit industry insider-turned-outsider explains how banks lure Americans deep into debt, and how to break the cycle.

Delinquent takes readers on a journey from Capital One’s headquarters to street corners in Detroit, kitchen tables in Sacramento, and other places where debt affects people's everyday lives. Uncovering the true costs of consumer credit to American families in addition to the benefits, investigative journalist Elena Botella—formerly an industry insider who helped set credit policy at Capital One—reveals the underhanded and often predatory ways that banks induce American borrowers into debt they can’t pay back.

Combining Botella’s insights from the banking industry, quantitative data, and research findings as well as personal stories from interviews with indebted families around the country, Delinquent provides a relatable and humane entry into understanding debt. Botella exposes the ways that bank marketing, product design, and customer management strategies exploit our common weaknesses and fantasies in how we think about money, and she also demonstrates why competition between banks has failed to make life better for Americans in debt. Delinquent asks: How can we make credit available to those who need it, responsibly and without causing harm? Looking to the future, Botella presents a thorough and incisive plan for reckoning with and reforming the industry.

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Looking forward to reading this book! Also expecting to see more from the University of California Press of direct interest to Credit Slips readers in the years ahead. 

Tort Law, Social Policy... and Bankruptcy

I cannot tell you what to think about the fact that the long-running Clifford Symposium on Tort Law and Social Policy, at DePaul University College of Law in Chicago, kicks off with a bankruptcy panel this year.  The official title of the conference this year is Litigating the Public Good: Punishing Serious Corporate Misconduct. Much of the June 2-3 conference is scheduled to occur in person but online observation is available and free: register here. 

Bye, Bye, ABI

I have been an American Bankruptcy Institute member since June 1999, but I have finally made the difficult decision to allow my membership to lapse after 22 years at the end of next month. 

I've been thinking about this for some time. Academic friends had been suggesting to me for years that they were uncomfortable with some of ABI's practices, and I was shocked when ABI sharply raised my membership dues for the first time in two decades a few years ago. I've been thinking since then about the value proposition of my membership, and I had begun to notice that I seemed to be getting very little value for my increased dues ... and then I received the first of several renewal notice emails.

When I reviewed the renewal webpage, I recalled my friends' concerns about ABI's objectionable practices as I saw what seemed to me to be a troublesome new practice. For years, I have simply renewed and paid electronically, with no "gotcha" commitments. This year, for the first time, I noticed that I had to select a box indicating that I agreed to have my membership auto-renewed and my credit card auto-charged for future dues. Perhaps it's irrational, but this really stuck in my craw. I envisioned one of those misleading commercials for leggings or bamboo socks that suck you into an auto-renewal scheme, and more importantly, I recalled the FTC's concerns about the abusive auto-renewal trend that seems to have popped up in recent years. States have begun to pass anti-auto-renewal laws to curb this abusive practice. I understand, of course, that auto-renewal is convenient and desirable for many people, and the checkbox on ABI's renewal page would be unobjectionable if it were optional. But forcing members to "agree"--again, for the first time ever--to auto-renew and auto-pay in the following years (or navigate back into the electronic membership labyrinth and manage to figure out how to cancel this auto-renewal in time to avoid it) is a shocking practice for an organization that purports to stand for (among other things) protecting consumers. Unseemly at the very least.

Harmony or Mismatch? A virtual event on mass torts and bankruptcy on February 28

Just wanted to make sure Credit Slips readers were aware of this virtual event at noon Eastern/3 Pacific on February 28. Bonus: a link to a masterful analysis of the topic by Professor Elizabeth Gibson that the Federal Judicial Center published in 2005. (click here for information and registration)

Annotated Bibliography of Histories of Debt and Bankruptcy

I just read a really fabulous annotated bibliography of books (alas, articles by such luminaries as Emily Kadens are excluded) on the history of credit, debt, and bankruptcy in the United States. Many of my favorites are on here, along with a few new entrants with which I was, embarrassingly, unfamiliar. This is a great resource for new lawyers and law professors, in particular, but also for anyone interested in this fascinating history and/or looking for something to help while away the cold, blizzard-bound winter hours. Enjoy! 

Law School Rankings: How Much do They Really Matter?

I've long assumed that law school rankings are very important to law student choices regarding where to attend school. After all, why else would law schools themselves care so much about the rankings -- sometimes even hiring and firing deans based on this single variable (my assumption here is the most in the academy don't see there to be much of substance in the rankings -- but I may be wrong).

A wonderful new study from Albert Yoon and Jesse Rothstein, "Choice as Revelation" two of my favorite empiricists in the academy (I loved their prior paper about mismatch), challenges the conventional wisdom.  As I understand the core finding, students don't attach much difference to small differences in rankings. They care about other things in these choices among close competitors.  Strikes me that this is an important finding.

This is not to say that students don't care at all about rankings; they do -- especially at the very top (Harvard, Stanford, Yale).  After that though, not so much.  

The abstract reads:

Education is a credence good. While the virtues of education are widely embraced, its qualities are difficult to discern, even among its consumers. The sizeable and increasing cost of tuition – as in the case of U.S. law schools – only add to the stakes. In response, law school rankings have emerged, with the purported goal to help students make more informed choices. While these rankings have generated both interest and debate, an important question has remained unanswered: how do prospective law students perceive these schools? Drawing upon data provided by the Law School Admissions Council (LSAC), we analyze the universe of law school applications for the period 1989 through 2017, creating a revealed preference ranking of law schools based solely on where applicants choose to matriculate given their offers of admission. We find that applicants strongly prefer Yale, Stanford, and Harvard, and to a lesser extent other schools in the top 20, but do not draw such sharp distinctions outside of these schools. For all but the very top schools, we cannot rule out that schools adjacent in the rankings are equally preferred by admitted students. We also separately analyze the application, admission, and matriculation stages of the law school matching process. Applicants apply broadly, we find, but that admissions and matriculation decisions hew closely to academic indicators. Our revealed preference rankings are similar those of the U.S. News law rankings at the top but bear little resemblance for the remaining schools. Our rankings offer a compelling alternative to commercial rankings, which are opaque and highly manipulatable. Our analyses also highlight the limitations of ordinal rankings, which by themselves can suggest meaningful differences amongst alternatives where they do not exist.

The Miscalculations Underlying Miller & Zywicki's Payday Loan Paper

Earlier this month Professors Todd Zywicki and Thomas Miller, Jr. wrote an op-ed in the Wall Street Journal arguing against payday loan regulation, based on their new empirical paper. Miller & Zywicki wrote:

Our findings will startle the rule writers at the CFPB. Contrary to the research cited in the CFPB’s 2017 rule, which claimed that “loans are almost always made at the maximum rate permitted,” we found that neither fees paid nor loan amounts inexorably rose to maximum allowable levels when those allowable levels were reasonable.

The implication is that there must be price competition among payday lenders with supply and demand setting prices, vitiating the need for regulation.

The problem is that Miller and Zywicki have incorrectly calculated the maximum fees permitted in numerous states. They wrongly assume that the effective rate charged for the first $100 of credit also applies to higher amounts. In fact, in many states, there is either a tiered, decreasing rate or a rate plus a flat fee included in any loan. As a result, Miller & Zywicki calculate the maximum permitted fees as being substantially higher than they in fact are in every state in which they find lenders are not pricing up to the legal limit.

Once this error is corrected, Miller and Zywicki’s figures actually confirm a truth that has long been obvious to anyone who has ever looked at payday loan pricing: there is no price competition, as lenders virtually always price up to the legal limit.

If my (lengthy) analysis below the break is correct, Professors Miller and Zywicki ought to retract both their op-ed and their paper. This is the sort of error for which op-eds and research papers are properly retracted. While Professors Miller and Zywicki might be opposed to payday regulation on ideological grounds, they surely do not want to base their claims on erroneous calculations of state fee caps.

The Blurring of Tech and Finance

I have an op-ed in ProMarkets about how Apple leverages control of the iPhone's NFC chip to push the dominance of its platform into new areas that let it hoover up more consumer data. The NFC (near field communication) chip is what lets the iPhone do contactless payments for ApplePay.  Apple strictly controls access to the NFC chip--it doesn't let AndroidPay use it, for example. But the NFC chip's uses extend beyond payments.  Apple is now using it to let the iPhone operate as a car key and a hotel room key. The catch? If you're a car manufacturer or hotel and you want this cool technology to work with your product, you're going to need to share some of the consumer data with Apple. 

What we're seeing here is an example of the increased blurring between tech companies and financial services companies, tied together by troves of consumer data.  This is a development that ultimately challenges the traditional regulatory boundaries of FTC and CFPB and is going to raise all sorts of issues for antitrust, consumer protection, and data privacy for years to come.

A Better Way to Deal with Student Loan Debt

My Georgetown colleague Jake Brooks and I have an op-ed in Politico about the best way to address the student loan debt problem. We argue that existing proposals for outright student debt relief, whether $10k, $50k, or everything, are problematic, at least standing on their own, particularly because they fail to address the student loan problem going forward. Instead, we see income-driven repayment (IDR) plans as a key part of addressing the problem. 

New Year, New Data in Your Credit Score

During 2021, reports from the CFPB and consumer advocates spotlighted the role of credit scoring in people's financial growth or stagnation and decline. These reports emphasized racial and ethnic disparities in credit scores and in complaints about errors in credit reports. Congressmembers introduced three draft bills aimed at improving credit reporting. Given the problems with traditional credit reports and scores, along with barriers to access to credit and other opportunities faced by the credit invisible, the idea of alternative credit scoring was raised repeatedly last year -- in reports, news stories, and in the draft bills. Seemingly in reaction, starting now, Experian is adding data about "buy now, pay later" loans to credit reports. Soon after Transunion announced that it was “well on [its] way” to including the same data.

Sara Greene and I have a new paper about credit reporting and scores, "Credit Scoring Duality," that focuses on the benefits and potential problems of adding alternative data to credit scoring models. Adding more data to credit scores, at first, may seem appealing. More data = better, more accurate scores? However, the use of this alternative data will not necessarily make the credit invisible or people with low credit scores more attractive. Much of the additional data proposed suffer from the same demographic disparities as the data already incorporated into credit scores. That is, in general, the people supposedly helped by inclusion of alternative data are likely to perform below-average on these inputs. Beyond replicating already present disparities, Greene and I worry that pointing to alternative credit scoring as a solution will distract from larger, systemic issues that are shown by disparities in credit scores. For more details, see our draft paper.

Non-Debtor Releases

I have an op-ed in Bloomberg Law about the abuse of non-debtor releases. Many chapter 11 attorneys argue that non-debtor releases are an essential all-purpose deal lubricant and that the excesses of a few cases—Purdue Pharma, Boy Scouts—shouldn't result in throwing out the baby with the bath water. I disagree. There's no question that non-debtor releases can grease a deal (and let's put aside the questionable practice of attorneys negotiating plans that give them releases as well). But so what? There's also a little thing called due process. It's only within the tunnel vision of chapter 11 that reorganization trumps all. Hopefully the Nondebtor Release Prohibition Act, which passed out of the House Judiciary Committee last month will become law and clarify the matter. 

Indeed, are non-debtor releases actually so important for practice? Chapter 11 lived with them for years before Mansville and even after Mansville it was years before they started being used in non-asbestos cases. Indeed, can anyone actually point to a case where a debtor would have had to liquidate and jobs would have been lost but for non-debtor releases? Perhaps there is such a case, but if so, it's the exception.

Take Purdue Pharma. What would have been the alternative to boughten releases for the Sacklers?  Perhaps a liquidating plan, but I'm not sure that it would have resulted in any job loss, just a going-concern sale. And the estate could have sold its own litigation claims against the Sacklers or put them into a litigation trust. To be sure, one might argue that the boughten releases for the Sacklers are a better deal economically for the estate, and that's the proper measure when considering a settlement of estate claims, but I do not see how the estate—or any bankruptcy judge—can constitutionally impose a settlement of creditors' direct claims against non-debtors. It doesn't comport with due process and it's pretty clearly an uncompensated taking.

I'm sure some readers will disagree, and comments are welcome. Further affiant sayeth not. 

Who extracts the benefits of big business bankruptcy?

The Deal has a new podcast called Fresh Start hosted by journalist Stephanie Gleason. Stephanie and I recently chatted about big bankruptcies with litigation management at their core and the stakes those cases raise. We covered a lot of ground along the way, including non-debtor releases and the SACKLER Act, notice and voting, forum shopping, equitable mootness, the homogeneity of the restructuring profession, bankruptcy administrators and the United States Trustee system, and the skinny clause of the Constitution at the heart of all of this. We begin by reminiscing about the mass tort and future claims discussion during the deliberations of the National Bankruptcy Review Commission, for which Elizabeth Warren was the reporter, and how much has changed. Check it out here.

Scholars' Letter in Support of Saule Omarova

President Biden has nominated Cornell Law Professor Saule Omarova to be the next Comptroller of the Currency. While the Office of the Comptroller of the Currency is not a well-known government agency outside of bank regulation circles, it is among the most important in financial regulation because it is the prudential regulator of national banks—the largest banks in the United States. The OCC is also the primary consumer protection regulator of all national banks with less than $10 billion in net assets, and the Comptroller is a member of the FDIC board. In short, this is a position with substantial influence over the banking industry. 

This week, numerous scholars of financial regulation (including me) sent a letter in support of the nomination to the Chair and Ranking Member of the Senate Banking Committee. We believe that Professor Omarova would make an outstanding Comptroller, and we hope that she will receive a fair hearing even from those who might disagree with her on policy questions. Professor Omarova is a lawyer's lawyer with impeccable credentials for the job. After completing a PhD and JD, she worked at the leading banking law firm and then in the GWBush Treasury Special Advisor to then Under Secretary Randal Quarles, now the Fed's Vice-Chair for Supervision. Her scholarship is careful, restrained, and masterful, and her co-authors include the top banking attorney in the US.  Not only is Professor Omarova's knowledge of banking regulation unsurpassed within the academy, but she would bring a welcome change to the OCC as the first Comptroller who wasn't a either a banker, bank lawyer, or bank lobbyist when nominated. Her independence is much needed at an agency that has often seen banks as its customers, rather than as its regulatory charges. 

Unfortunately, some of the financial services industry opposition to Professor Omarova has veered into xenophobic and McCarthyite dog whistling based on Professor Omarova having grown up in the former Soviet Union. The hypocrisy in this anti-immigrant prejudice is astounding given the way that the same folks who are claiming that Professor Omarova is suspect because of her childhood in the Soviet Union have celebrated another former Soviet bloc immigrant-turned-bank regulator. The dog-whistling has gotten so bad that in a remarkable press release Senate Banking Committee Chair Sherrod Brown (D-Oh) threw down the gauntlet at the "Red Scare" character assassination coming not just from bank lobbyists, but from the Committee's Ranking Member, Senator Pat Toomey (R-Pa). 

The banking industry's decision to proceed through dog whistling suggests that it is reluctant to have it out over the substantive policy positions supported by Professor Omarova. But if you want to see a more sober and measured take on Professor Omarova from a law firm with numerous financial services industry clients, see Gibson Dunn's take here. What the law firm's take for its clients—rather than for political theater—suggests is that the sky won't fall with Comptroller Omarova, but that she will take a more skeptical view of bank activities outside of traditional core activity areas. In other words, it won't be business as usual. And that's the banking industry's real concern here. 

Recommended Reading: Bannon and Keith on Remote Court

Virtual court proceedings, an important public health intervention, have prompted many a judge and lawyer to envision heavy use of virtual hearings in more ordinary times - including in bankruptcy courts, which carry the highest federal court case load and feature financially distressed parties. The benefits of remote court are often touted, but what about the costs? Can "virtual justice" be achieved? To explore these issues, check out an article by Alicia Bannon and Douglas Keith of NYU's Brennan Center for Justice published in the Northwestern University Law Review.  

Here is the abstract: 

Across the country, courts at every level have relied on remote technology to adapt the justice system to a once-a-century global pandemic. This Essay describes and assesses this unprecedented journey into virtual justice, paying particular attention to eviction proceedings. While many judges have touted remote court as a revolutionary innovation, the reality is more complex. Remote court has brought substantial time savings and convenience to those who are able to access and use the required technology, but it has also posed hurdles to individuals on the other side of the digital divide, particularly self-represented litigants. The remote court experience has varied substantially depending on the nature of the proceedings, the rules and procedures courts put in place, and the relevant court users’ resources and tech savvy. Critically, the challenges posed by remote court have often been less visible to judges than the efficiency benefits. Drawing on these lessons, this Essay identifies a series of principles that should inform future uses of remote technology. Ultimately, new technology should be embraced when—and only when—it is consistent with fair proceedings and access to justice for all.

Recommended reading: Afsharipour on Women and M&A

For many reasons and no reasons, blogging on Credit Slips during the COVID-19 pandemic has not come easy, or at all, for me (Twitter, a different story). Rejoining the Credit Slips conversation by recommending scholarship relevant to bankrupty-land even if not directly about bankruptcy-land. 

Today's recommendation is an empirical study, Women and M&A, by Professor Afra Afsharipour.  

Chapter 11 has become the forum for lots of mergers and acquisition activity, including and particularly in sales outside of plans. Some think that's great and others are skeptical (I have work in progress that further tallies the costs of unbundling chapter 11's package deal, or what I call bankruptcy a la carte). While Professor Afsharipour's article does not focus on M&A in bankruptcy, the law firms appearing in the study will be familiar names in the larger chapter 11 practice world. 

Many readers likely will have a prediction about the demography of the people taking the lead in M&A. Check out how your prediction compares to Professor Afsharipour's findings and why her findings matter. Read more about and download the article here.  

In Memoriam: Walter W. Miller, Jr. (1932–2021)

Wally Miller, my bankruptcy professor at BU Law back in the 1990s, has passed away. He is quite directly the reason why I became interested in bankruptcy.

The Department of Education Can Help With Student Loans in Bankruptcy

With the Second Circuit's decision last week regarding private student loans, student loan discharge in bankruptcy is in the news. As Slipster Adam Levitin blogged, the "big picture" effect of this decision--and the 5th and 10th Circuits--is unclear. They could affect a broad swath of private student loans and they possibly could bring more bankruptcy filings to deal with a portion of people's student loan debt. Regardless, though, federal student loans remain presumptively non-dischargeable.

If the people who file bankruptcy with both private and federal student loans (which, I suspect, likely is many people with student loans), debtors will need to bring undue hardship discharge requests. A possible additional effect of these decisions may be to increase undue hardship requests, provided that debtors and attorneys think they are worth making. Research by Jason Iuliano (Utah Law) suggests that debtors may be more successful in these actions than the general public or even many consumer bankruptcy attorneys presume.

For federal students loans, the Department of Education plays a crucial role in undue hardship discharge requests. I recently published an essay in Minnesota Law Review Headnotes, co-authored with Aaron Ament and Daniel Zibel, who co-founded the National Student Legal Defense Network, regarding how the Ed Department should update its internal guidance for determining whether to contest a borrower’s request for an undue hardship discharge. The Ed Department presently seems to be wasting resources going after debtors with little ability to repay, regardless of whether their student loans are discharged. In the essay, we provide two options for how the Department can update its approach to bankruptcies to ensure that it calibrates its actions to make the promise of a fresh start more real for student borrowers.

Getting Ahead of Consumer Loan Defaults Post-Pandemic

On this Tuesday, the Supreme Court refused to lift a ban on evictions for tenants that the Centers for Disease Control and Prevention recently extended through the end of July. The eviction moratoria is one of a handful of debt pauses put in place by the federal government during the COVID-19 pandemic that are set to expire soon. The student loan moratorium ends on September 30. The mortgage foreclosure moratorium ends on July 31. In anticipation of the end of the foreclosure moratorium, this week, the CFPB finalized new rules that put into place protections for borrowers that servicers must use before they foreclose.

Student loans and mortgages are most people's two largest debts. But they are not the only large loans that people are in danger of getting behind on post-pandemic. Indeed, when student loan and mortgage debts become due, people may prioritize paying them ahead of car loans, credit cards, and similar. In a new op-ed in The Hill, Christopher Odinet, Slipster Dalié Jiménez, and I set forth how the CFPB can use its legal authority to steer a range of loan servicers to offering people affordable modifications. As a preview, we suggest that the CFPB should issue a compliance and enforcement bulletin directing loan servicers to make a reasonable determination that a borrower has the ability to make all required, scheduled payments in connection with any modification.

The piece is a short version of our new draft paper, Steering Loan Modifications Post-Pandemic, which we wrote as part of the upcoming "Crisis in Contracts" symposium hosted by Duke Law's Law & Contemporary Problems journal. The paper contains more about what federal agencies already are doing to get ahead of mortgage modification requests, about why similar is needed for the range of consumer loans, and about the reasoning behind our suggestion that the CFPB use its prevent what we term modification failures.

Bankruptcy on Last Week Tonight with John Oliver

The consumer bankruptcy system has made it to late-night television! The main segment on Last Week Tonight with John Oliver this week focused on bankruptcy. As described: "John Oliver details why people file for bankruptcy, how needlessly difficult the process can be, and the ways we can better serve people struggling with debt." Twenty minutes about consumer bankruptcy!

Per usual, it's a well-researched, understandable, and fast-moving segment, with dashes of dark humor. My favorite references Julianne Moore's character in Magnolia. To the well-research part: It is supported by a host of papers about consumer bankruptcy, including the work of several current and former Slipsters. Among them is Portraits of Bankruptcy Filers (forthcoming Georgia Law Review), the most recent article based on Consumer Bankruptcy Project (CBP) data, co-authored with Slipster Bob Lawless and former Slipster Debb Thorne. In Portraits, we rely on data from 2013 to 2019 to describe who is using the bankruptcy system, providing the first comprehensive overview of bankruptcy filers in thirty years.   

Also referenced are Life in the Sweatbox, former Slipster Angela Littwin's The Do-It Yourself Mirage: Complexity in the Bankruptcy System, Slipster Bob Lawless, Jean Braucher, and Dov Cohen's Race, Attorney Influence, and Bankruptcy Chapter Choice, and the ABI Commission on Consumer Bankruptcy's report. The segment closes by highlighting the Consumer Bankruptcy Reform Act of 2020 (and includes a bonus at the end, which you'll have to watch to find out what that's about).

Fairness and Flexibility: Understanding Corporate Bankruptcy’s Arc

I don't post most of my law review articles here, but my latest might be of some interest to Slips readers generally. In Fairness and Flexibility: Understanding Corporate Bankruptcy’s Arc, out now in the University of Pennsylvania Journal of Business Law, I trace the long history of American business reorganization law, starting with antebellum mortgage foreclosures under state statute, up to the present Restructuring Support Agreements (RSAs). I ultimately urge more judicial oversight of current practices – which I argue evidence an extreme of "flexibility" – lest chapter 11 face an even more extreme reform backlash because of increasing unfairness.

CBRA Op-Ed

I have an op-ed about the Consumer Bankruptcy Reform Act running on CNBC's site. Given that both collection moratoria and benefit extensions keep getting dribbled out in one to three month bites, we will definitely see an expiration of both as the pandemic wanes, and neither is sufficient for many households to address their arrearages.

Consider this (not in the op-ed): there's now 4.78% of mortgages that are 90+ delinquent. That's the third-highest level since 1978. Part of that is that there are virtually no foreclosures happening, but a lot of it is that the delinquencies aren't being cured. Once a household runs 90+ delinquent, cure gets very difficult—the arrearage is just too big. We are going to be looking at a lot of foreclosures down the road. Add to that a rental delinquency rate somewhere between 18% (Census numbers) and 23% (Nat'l Multifamily Housing Council numbers), and we've got a real mess looming. Unfortunately, it won't just be an economic problem or a personal tragedy for many families. It will be a political problem that will have long-term ramifications, just like the 2008 foreclosure crisis.  

Get your copy today!

The third edition of my Corporate Finance textbook is out and available for use in the Spring Semester. Among other new features, the new edition has a new case study (iHeart) and extensive coverage of CLOs, which are important players in finance before and after the onset of financial distress. Professors can contact me directly for access to a Dropbox folder that is chock full of class materials and background readings.

"Madden-Fix" Amicus

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! 

Restructuring Support Agreements and the "Proceduralist Inversion"

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. 

Commercial and Contract Law: Questions, Ideas, Jargon

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.

Update on Churches Filing Chapter 11 Bankruptcy

As parts of the country are counting ballots, I thought I'd post about counting church chapter 11 cases. The headlines about churches and other religious organizations filing chapter 11 still focus predominately -- almost exclusively -- on Catholic Diocese filings. As of June 2020, 27 Catholic religious organizations have filed chapter 11, as detailed on a site put together by Professor Marie Reilly. But Catholic religious organizations' filings are a very small sliver of churches filing bankruptcy, as my prior research has shown. The last time that I updated my count of religious organization chapter 11 cases was at the end of 2017, and the last time I updated denominations and demographics of the congregations that file was in 2013. Since then, I've continued to track religious organizations' chapter 11 filings, using the same methodology, through the end of 2019. 

Preliminary results are in. Highlights: churches, synagogues, mosques, and other religious organizations are still filing bankruptcy, and the denominations and demographics of the congregations that filed have remained basically the same.*

As shown on the graph to the right, between 2014 and 2019, an average of 59 religious organizations filed chapter 11 each year.** This is lower than the average of 87 cases between 2006 and 2013 that I've previously reported, but it is consistent with a decline and leveling off of consumer bankruptcy filings overall during this period. As I've noted, in the past, religious organization chapter 11 filings tracked personal bankruptcy filings, not business bankruptcy filings. This continues to be true.

Find tables with congregation denominations and demographics, and some more detailed discussion after the jump.

Taub's New Book on White Collar Crime (and its connection to bankruptcy)

I just finished Professor Jennifer Taub's new book, Big Dirty Money: The Shocking Injustice and Unseen Cost of White Collar Crime. The book has been out for a couple weeks and it's already receiving rave reviews. I'm a bit late to the party. But I wanted to add my praise to the chorus. And add a shout out to bankruptcy's place in the dealing with the cost of white collar crime. Taub's introduction starts with three quick examples: the Sackler family, Pacific Gas & Electric, and General Motors. The examples aren't about their bankruptcy cases. They are about actions prior to their chapter 11 filings which had to be worked out in bankruptcy. As I read, I thought -- that ended in bankruptcy, so did that, and, yep, bankruptcy for that one too. Taub's book, of course, is not about bankruptcy. But if you're interested in white collar crime backstories of some headliner bankruptcy filings, this book will help make those connections. And it will elucidate the big business of white collar crime in a captivating read. In short, highly recommended.

Bankruptcy, Credit, and Finance Panels at Upcoming AALS Meeting

As with (almost) all events now, the 2021 AALS Annual Meeting is going forward as a virtual conference at the beginning of January. Deadlines for calls for papers are approaching soon. For our professor readers, the Section on Financial Institutions and Consumer Financial Protection and the Section on Commercial & Consumer Law have calls that may interest you. Details about each below the break.

Congressional testimony on Small Business Lending regulation

I am testifying later today (virtually) before the House Small Business Committee on "Transparency in Small Business Lending."  My written testimony is here.

Here's the background: consumer credit is governed by an extensive regulatory regime, starting with disclosure regulation, but extending to some substantive term regulation, and regular supervision (inspections) of lenders. There is no equivalent system for business lending.

The lack of protections for businesses is because they are presumed to be more sophisticated entities, but the range of financial and legal sophistication among businesses varies considerably. In particular, small businesses are often much more similar to consumers, and in fact their borrowing is often based on the owner's personal credit and guarantied by the owner and collateralized by the owner's personal property.

This leaves small businesses vulnerable to abusive practices that were prohibited in the consumer credit markets in the 1960s, 70s, and 80s:  disclosure of credit costs in non-standardized and misleading terms (e.g., quoting daily interest rates, rather than annual percentage rates, as required for consumer credit by the Truth in Lending Act), and confessions of judgment (prohibited for consumers by the FTC Credit Practices Rule). 

The Committee's chairwoman, Rep. Nydia Velázquez, has proposed a bill that would extend some consumer credit protections to loans for under $2.5 million made to small businesses, as well as create a system for regulating brokers of small business loans. The bill is an important step forward. While there are some tweaks I'd like to see to it, I very much hope it advances and becomes law. 

 

No More Bailouts

I have a new white paper out from the Roosevelt Institute's Great Democracy Initiative. The paper, which is co-authored with Lindsay Owens and Ganesh Sitaraman, proposes a standing emergency economic stabilization authority to provide an off-the-shelf immediately available response to common problems that recur in national economic crises.

The motivation for the white paper is that in the past dozen years we've been through two rounds of massive ad hoc bailouts. We shouldn't be doing this on the fly. Instead, we need to have a suite of programs ready to go. Think of this as an "in case of emergency, break glass" approach.

Best Interest Blog

There's a new bankruptcy blog around:  the Best Interest Blog.  Welcome to the blogosphere!  

I'm delighted that the blog features a great post by my former student and research assistant Mitchell Mengden about the "J. Screwed" maneuver of stripping out collateral from the restricted group and then pledging it to other creditors. While the maneuver has been going on for a while, as Mitchell explains, it's interesting how infrequently underwriter's counsel has insisted on J. Crew provisions in bond indentures, although the use seems to be picking up in junk indentures. 

The Great American Housing Bubble

My new book, The Great American Housing Bubble:  What Went Wrong and How We Can Protect Ourselves in the Future was just released by Harvard University Press. The book is co-authored with my long-time collaborator, Wharton real estate economist Susan Wachter. It's the culmination of over a decade's worth of work on housing finance that began in the scramble of fall 2008 to come up with ways of assisting hard-pressed homeowners.

American Predatory Lending and the North Carolina model

My coauthor Ed Balleisen has co-founded a program on consumer lending of interest to Credit Slips readers. Its initial data collection is particularly useful in documenting the North Carolina experience and its implications for other states. The quote below is from Balleisen's post on Consumer Law and Policy:  

Data visualizations of statistics about the North Carolina mortgage market and consumer protection enforcement complement the oral histories, as do a set of policy timelines and memos about state- and national-level regulation of mortgage lending. Our key findings suggest that more stringent oversight of aggressive mortgage practices moderated the housing boom in North Carolina, and so partially insulated the state from the broad collapse in housing values across the country.

The Resurgence of Calls For Financial Literacy

Today is the last day of National Financial Literacy Month. At a time when the economy has come to a grinding halt, it seems pertinent to talk about financial literacy, or, more accurately, the fallacy of financial education. Agata Soroko recently published a short essay in Public Seminar -- The Financial Literacy Delusion. In it, she details how calls for financial education already are ramping up in light of the coronavirus's highlighting how little savings most Americans have. I suspected that the refrain that it's people's fault that they didn't have sufficient savings to cover a few months, and thus that they exacerbated the economic downturn with their inability to control themselves enough to save, would emerge with a vengeance in the coming months.

Combating that narrative will become more important than ever, as a matter of economic policy, but also of kindness and understanding to each other. Indeed, it's important right now as Congress considers how to help American families during the crisis. As Slipster Dalie Jimenez, Chris Odinet, and I wrote in our just-uploaded-to-SSRN essay, The Folly of Credit As Pandemic Relief, forthcoming in UCLA Law Review Discourse, in the CARES Act, Congress predominately provided relief to Americans in the form of credit products, not actual cash. This very likely will prove to be problematic because people will be unable to repay in the coming months, just as they are unable to pay for their necessities now. They simply do not have the money, and will not in the future because people still won't have sufficient income to accumulate meaningful savings. As Soroko writes, financial education cannot solve widening income disparities, rising costs, and wealth inequality--the roots of why many Americans have so little savings.

Save the Date: 3rd Annual Consumer Law Scholars Conference

To give us something to look forward to, the Berkeley Center for Consumer Law and Economic Justice recently announced that the third annual Consumer Law Scholars Conference (CLSC) will take place on March 4-5, 2021, at Boston University. The conference is organized by scholars well-known to Credit Slips: Kathleen Engel, Ted Mermin, Rory Van Loo, and Lauren Willis. I attended the inaugural conference at Berkeley Law a couple years ago. It brings together a great and diverse group of scholars working on a range of consumer-related issues. Some details from the announcement:

The conference will provide those who publish in the field of consumer law the opportunity to share their work with peers, give and receive feedback, and collaborate in setting a research agenda for the field as a whole. Speakers will include both leading scholars and prominent policymakers. Although the conference is focused on scholarship, practitioners are encouraged to attend.

The organizers will send out a call for paper in June. They welcome doctrinal, theoretical, and empirical approaches across a range of topics: common law contracts and products liability; UDA(A)P and disclosure laws; food, drug, and public health law; consumer lending, credit reporting, and fintech; loan servicing and debt collection; commercial speech and the First Amendment; federalism, preemption, and sovereign immunity as related to consumer transactions; regulation, supervision, and enforcement by public agencies; private enforcement; and the effect of the COVID-19 pandemic.

Coronavirus Will Hasten the Shift To App-Based Banking and Lending. How Will That Affect People's Pocketbooks?

Over at the Machine Lawyering blog -- organized and edited by the Chinese University of Hong Kong's Law Faculty’s Centre for Financial Regulation and Economic Development -- Slipster Nathalie Martin and I just posted some commentary about our new article, Reducing The Wealth Gap Through Fintech "Advances" in Consumer Banking and Lending, forthcoming in the University of Illinois Law Review. The article, in part, assessing new "advances" in fintech products that promise to provide people with lower-cost banking and lending options. We focus on prepaid cards for wages, early wage access programs, and auto lending apps. We conclude that these products more likely than not will prove to be disadvantageous to consumers. The article's connection to the wealth gap is the recognition that high-cost banking and lending products impede people's ability to convert income into savings. We put forth a few ideas about the hallmarks of banking and lending products that actually may help close the wealth gap by targeting Americans’ unequal access to banking and lending services. 

Nathalie and I, of course, wrote this article before the coronavirus pandemic. With stay-at-home orders and social distancing in effect, it is highly likely that people's already increasing use of online and app-based banking and lending products will increase even faster. If our analysis proves correct, the spoils of the increased shift will accrue more to providers than to consumers, and people may be able to save even less of their income. The pandemic has highlighted American's lack of savings. Hopefully helping Americans save will become more of a focus in the future.

Also, on the note of early wage access programs, when we drafted the article, we found effectively no published analysis of early wage access programs. As we were writing, Nakita Cuttino and Jim Hawkins kindly shared their draft articles with us. Both articles are now available SSRN and present interesting (and different) analyzes of early wage access programs. Nakita's article is titled, The Rise of "FringeTech": Regulatory Risk in Early Wage Access. And Jim's article is titled, Earned Wage Access and the End of Payday Lending.

Treasury Must Act Now To Protect Relief Payments From Debt Collectors

The CARES Act provides for direct "rebate" payments to American households. Treasury is gearing up to send some of those payments out soon. But Congress forgot to protect the payments from garnishment. American families may see needed funds deposited into their bank accounts only to watch that money disappear. Slipster Dalié Jiménez, Chris Odinet, and I just published a short piece on the Harvard Law Review blog detailing this problem and proposing a simple solution that Treasury Secretary Steven Mnuchin should implement ASAP. 

Who Teaches Bankruptcy Law?

A survey some years ago showed that bankruptcy was one of the law school courses most often taught by adjuncts rather than full time teachers. This has several impacts on the teaching of bankruptcy law. Full time teachers often have contact with one another and may meet at AALS or other professional meetings but  the adjuncts who teach bankruptcy may not have much interaction with other bankruptcy teachers. In addition,  although some of the adjuncts are judges, more of the lawyer- adjuncts are likely to be business bankruptcy lawyers and fewer to be consumer lawyers. Another survey years ago indicated that there were a number of chapter 11 courses being taught, but almost no advanced courses in consumer bankruptcy. At one time there was a sub-committee of the ABA Business Bankruptcy Committee focused on the teaching of bankruptcy in which full time and adjunct teachers met to talk about these topics. Recently the ABA created a new committee to study the role of adjuncts in legal education.

Elizabeth Warren's Work in the CMC Heartland Case

Elizabeth Warren’s bankruptcy work continues to be in the news, now with a Washington Post article on her work in the CMC Heartland case. Unfortunately, the Washington Post completely misses the point about why Elizabeth decided to work on this case. Let me correct the record about Elizabeth’s (very limited) role in the CMC Heartland case.

Call for Papers -- 2020 Boulder Conference on Consumer Financial Decision Making

The inimitable John Lynch emailed to let me know that the call for papers is open for the 2020 Boulder Conference on Consumer Financial Decision Making, to be held from May 17-19, 2020. Much more information, including how to submit an abstract for consideration, appears on their web site.

If you are interested in the sort of content we have at Credit Slips, this conference is for you. Several of the Credit Slips bloggers, including myself, have presented at the conference. The papers and discussions are high quality. The setting at the St. Julien Hotel is fantastic. And, after a day of conference discussions or when the conference is over, you are in Boulder, Colorado, in the spring. If you have a paper that fits, I highly recommend submitting.

Bankruptcy Future Claims—Elizabeth Warren Edition

Welcome to Credit Slips, the rarified world of “self-described bankruptcy nerds.” Today we’re looking at Future Claims—Elizabeth Warren Edition.

Now, it’s not every day that our humble group blog gets discussed in the New York Times. But as our former-co-blogger Elizabeth Warren continues to rise in the polls, the media and her opponents are taking a renewed interest in the bankruptcy consulting work she did when she was a law professor. Just recently, the New York Times ran a lengthy article on her past consulting workthat even referred our little “bankruptcy nerd” blog. (You might note that we now also offer sovereign debt, financial regulation, and side salads. Come for the bankruptcy, stay for the pie.)

The NY Times piece discussed several cases that Elizabeth worked on, but it failed to clearly articulate the core bankruptcy principle that Elizabeth was fighting for that runs throughout most of the cases highlighted in the article and how Elizabeth’s work was consistently about making the economy and the bankruptcy system work for employees of companies in distress, retirees, and folks injured by a company’s product. To suggest otherwise is ridiculous and fundamentally misunderstands how the bankruptcy system is supposed to work.  

How to Deal with a $3 Trillion Bully

I don't like bullies.  And I just ran into a $3 trillion one.  JPMorgan Chase Bank, armed with six partners at two AmLaw 100 firms (Wilmer Hale and McGuire Woods) took the truly unusual step of filing an objection to an amicus curiae brief I filed in a 9th Circuit case called McShannock v. JPMorgan Chase Bank N.A. in support of neither party. Chase objects because the brief is late (which it is) and supposedly irrelevant to the disposition of the case. So why is Chase spending thousands of dollars on attorneys fees to object to an irrelevant brief, particularly when it claims no prejudice from the late filing?

Congratulations to Pamela Foohey!

Congratulations to Pamela Foohey on being named to the American Bankruptcy Institute's 40 Under 40 list for 2019!  Pamela joins Credit Slips own Dalié Jiménez (class of 2018) as an honoree. 

And it's been a great news day for our former co-blogger Katie Porter, who was not only the subject of an American Banker article, but was put on a SCOTUS short list. 

Amicus Brief on Valid-When-Made

I have filed an amicus brief regarding "valid-when-made" in Rent-Rite Super Kegs West, Ltd. v. World Business Lenders, LLC. The brief shows pretty conclusively that there was no such doctrine discernible in the law when either the National Bank Act of 1864 or the Depository Institutions Deregulation and Monetary Control Act of 1980 were enacted, and that subsequent cases consistent with the doctrine are based on a misreading of older law. 

Driven to Bankruptcy — New Research from the Consumer Bankruptcy Project

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.

New Guide to Money Judgment Collection/Defense

I excitedly tore into a small box this morning containing the first printing of my new book, Eyes on the Prize: Procedures and Strategies for Collecting Money Judgments and Shielding Assets (Carolina Academic Press 2019). Since the advent of the Bankruptcy Code in 1979, the study of how one collects a money judgment (or arbitral award) in law schools has become as rare as an involuntary bankruptcy petition against an individual debtor. But my students (and local lawyers) clamored for treatment of the topic for years, so I decided to do what I could to revive the subject. I was surprised at the diversity of approaches I found among the states (whose enforcement law applies to federal judgments, too, as described in the book), but I think I fairly survey the key variants by concentrating on a detailed exposition of the laws in New York, California, and Illinois, with a smattering of other salient state laws thrown in here and there (Texas, Florida, Pennsylvania, Iowa, etc.). In the past, I've used my state's statutes and a series of hypothetical practice problems (both of which included in this book) for years in my Civil Procedure classes, and the students have voraciously devoured that material. More detailed comparative knowledge has also sharpened my appreciation for how the battle between judicial lienholders and secured creditors works. I tried to offer soup-to-nuts coverage here, from discovery to asset protection to bankruptcy, so I think a lot of readers will find something useful, especially new practitioners who likely learned none of this in law school. A bit more of a preview than appears in the "Look inside" link on CAP's website is available for free download on SSRN, as well. Check it out--and let me know what you think!

Podcast on ALI Consumer Contracts Restatement

I did a podcast for the Consumer Finance Monitor Podcast about the American Law Institute's Consumer Contracts Restatement project.  It's not often that you will see me on the same side of an issue as the podcast's host, Alan Kaplinsky, an attorney at Ballard Spahr who represents financial services firms.  Indeed, I suspect the next time Alan is sitting across a table from me asking me questions, it will be at a deposition.  Given what a great radio voice Alan has, that might almost be fun. But our collaboration on this podcast goes to an important, but hard to understand thing about why both consumer groups and business groups are opposed to the Restatement.  

Both consumer and business groups are uncomfortable with the ALI acting as a private legislature, unchecked by any constituency.  But the real issue is that for consumer advocates, the Restatement is a bad project because it would bind all consumers to contractual terms that they do not agree with or even know about.  

In contrast, the concern for business groups is that the Restatement gives that small subset of consumers who litigate somewhat stronger tools.  These tools aren't strong enough to change the balance of power, but they are enough to be a pain for businesses, specifically a jettisoning of the parol evidence rule (i.e., it doesn't matter what the written contract says, the salesman's representations are admissible evidence) and a contract defense of deception that will apply to some contracts where UDAP would not (again, you've gotta worry about the sales rep's communications).  In other words, the concerns here aren't symmetrical, so this is not a situation where the Restatement is a moderate neutral position.  It's bad for all consumers, and it creates more litigation problems for businesses without creating meaningful consumer protections.   

 

ALI Consumer Contracts Restatement--More Problems with the Legal Research

More problems are emerging with the legal research underlying the American Law Institute's Consumer Contracts Restatement project.  The Consumer Contracts Restatement has been the subject of scholarly criticism for a while because of its novel quantitative empirical approach (case counting).  The Restatement stands on six empirical studies of consumer contracts.  While the current draft claims that these studies merely serve as confirmation for the Restatement's positions, which were supposedly arrived at through the traditional method of reading and distilling the law from the cases, all of the early drafts of the Restatement said nothing about this traditional method and only relied on the empirical studies, which now conveniently arrive at exactly the same positions.  

The first two scholarly works to examine the legal research underlying the Restatement were one by Professor Gregory Klass at Georgetown Law and another by yours truly with seven other ALI members.  These studies were basically looking for "false positives"--cases claimed to be relevant by the Restatement that aren't.  Both studies found an incredibly high rate of false positives--over 50% in some instances.  The Restatement had included in its case count, among other things, completely irrelevant cases, such as business-to-business cases, cases not involving common law contract disputes, duplicate cases, and vacated cases.  These types of errors were pretty shocking in what should be a document based on unimpeachable legal research.  A nice summary write-up of these studies by Professor Martha Ertman can be found over at JOTWELL (the Journal of Things We Like Lots).  

Now Professor William Widen at the University of Miami has done some digging on the Restatement's treatment of pay-now, terms-later contracts. Professor Widen's preliminary research has found that there's also a false negative problem--the Restatement has missed a number of state Supreme Court cases, many of which are contrary to its position.  Additionally, the Restatement seems to have missed a substantial number of state Supreme Court cases that make clear that providing "notice" in consumer contracts means actual knowledge, not merely notional notice.  In short, there is increasing evidence of serious problems with the legal research underlying the Restatement, both false positives and false negatives.  My sense is that with more time, research will adduce even more false negatives.  Given that the ALI likes to present itself as the gold standard of legal research, these problems should give ALI membership pause when considering approving the Restatement.  

ALI Consumer Contracts Restatement-What's at Stake

The American Law Institute's membership will vote next Tuesday (the 21st) on whether to approve the ALI's Consumer Contracts Restatement project.  Let me recap why you should care about this project:  it opens the door for businesses to use contract to abuse consumers in basically any way they want.  The Restatement would do away with the idea of a "meeting of the minds," as the touchstone of contract law for consumer contracts, and allow businesses to impose any terms they want on consumers, even if the consumers are unaware of the terms and haven't consented to them.  

Under the proposed Restatement, a consumer would be bound by any and all of a business's standard form terms if the consumer (1) assented to a transaction, (2) had notice of the terms, and (3) had a reasonable opportunity to review the terms.  In other words, the consumer would not actually have to know or agree to any of the terms to be bound by them.  The Restatement would replace meaningful assent with a legal fiction of notice.  That opens the door to consumers being deprived of all sorts of rights by contract, starting with arbitration, but then going on the privacy rights and continuing to disclaimer of warranties, etc.  If you think I'm being paranoid, go look at Walmart.com's Terms of Use. Few, if any, of those terms exist when you buy something from Walmart at a storefront, but the cost of larding on an extra term on the Internet is so low, that there's no reason for a business not to bury its whole Christmas wishlist in linked on-line terms and conditions.  

The Restatement strangely believes that courts will somehow police abuses of contract through unconscionability and deception, but this presumes (1) that consumers will litigate in the first place, and (2) that courts will stretch these constrained doctrines to prevent the enforcement of not just outrageous terms, but also quotidian unfair terms.  Do I have a nice bridge to sell you in Brooklyn if you think that's a trade-off that will help consumers....

A bipartisan group of 23 state Attorneys General has recently written publicly opposing the Restatement. That sort of opposition is unprecedented and is a sign that something is seriously amiss with the project. 

So, if you know an ALI member, urge them to attend the Annual Meeting session and vote against the Restatement!