Ian Fletcher

Ian Fletcher has passed away. He was a very important figure in insolvency law in England and elsewhere and a giant in the international side of our field. His passing is a great loss of a wonderful scholar and friend. His career is described on line at https://www.ucl.ac.uk/laws/people/prof-ian-fletcher and in a posting by the distinguished Dutch scholar Bob Wessels, http://www.bobwessels.nl/blog/2018-07-doc3-passing-away-of-prof-ian-f-fletcher/.

In the Festschrift in his honor I recounted how I met him:

I remember so well my first meeting with that great scholar and teacher Ian Fletcher. I had been astounded to come upon Cross-Border Insolvency: Comparative Dimensions (The Aberystwyth Papers). At a time when international and comparative insolvency was in its infancy, to come upon so sophisticated an editor and author was remarkable. As soon as I could, I hied myself to the very tip of Wales to meet him. I have learned from him and enjoyed his friendship ever since. One reason we fell in so quickly together was a common conviction that international juridical cooperation was a growing necessity and that insolvency presented perhaps the most pressing case for it. As he later put it in his outstanding treatise on international insolvency: “The increased awareness in recent times of the negative consequences of [the] international fragmentation of policy and approach to cross-border insolvency issues has fueled the quest for improved solutions.”

As part of the Internationalist Principle, he wisely advised that: “flexibility and pragmatism must be substituted for the dogmas so beloved of former ages.”

Passing of Ian Fletcher

It is with great sadness that the news reached my desk of the passing of Professor Ian Fletcher of University College London. Ian was a leading international insolvency expert, well known to all of us at Credit Slips, and we extend our condolences to his family and friends. Professor Bob Wessels has a tribute.

Access to Justice, Consumer Bankruptcy Edition

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.

Call for Papers on College Completion and Student Debt

For those of you writing on student loans, you may be interested in a new call for papers for a conference I am working to organize. On November 30, 2018, the Rappaport Center for Law and Public Policy, Boston College Law School, and the National Consumer Law Center will hold a daylong symposium on Post-Secondary Education Non-completion and Student Loan Debt on the Law School campus. Our call for papers is out and we are accepting submissions through midnight on Sunday, June 17, 2018. We are especially interested in proposals that examine some aspect of the interaction among student debt, college completion, and/or resulting socioeconomic outcomes. Do consider submitting.

Please support empirical study of decision making in business insolvency

Leiden University in the Netherlands has established an impressive strength in insolvency law studies. For example, following his retirement, the eminent Bob Wessels left his massive collection of literature on the subject to a foundation, which permanently lent the collection to the school as the Bob Wessels Insolvency Law Collection. Credit Slips readers can support the efforts of Leiden researchers without parting with their libraries by simply responding to a 15-minute online questionnaire. Niek Strohmaier is a Ph.D. candidate at Leiden conducting a study on judgment and decision making within the areas of business rescue and insolvency law. As he puts it, "We offer a novel perspective on these fields by utilizing the interdisciplinary nature of our research team and by adopting a social sciences approach with empirical research methods." If there's one thing that Credit Slips can rally around, it's empirical research! So I'm hoping we can show Niek our community spirit by responding to his survey at this link (http://leidenuniv.eu.qualtrics.com/jfe/form/SV_51GewBINfBAyfzv). The survey has received a good response from the professional membership of INSOL Europe, but I hope we can supercharge this qualitative data collection with responses from North America and elsewhere, as well. Thanks for your help!

Junk Cities: Insolvency Crises in Overlapping Municipalities

I have a new paper out on municipal insolvency. It's called "Junk Cities:  Resolving Insolvency Crises in Overlapping Municipalities," 107 Cal. L. Rev (forthcoming 2019).  The paper is co-authored with Aurelia Chaudhury and David Schleicher. The launching point for the paper is the observation that there are frequently overlapping local government jurisdictions--cities, counties, school districts, water districts, park districts, hospital districts, sewer and sanitary districts, forest preserves, etc. These overlapping jurisdictions share a common revenue source--the same set of taxpayers. This means that they have correlated exposure to economic downturns or population declines. It also means that they face a common pool problem in terms of revenue generation, and they frequently lack coordination mechanisms whether formal or informal (such as political "machines").

The correlated economic exposure plus the common pool problem for revenues increases the likelihood of simultaneous financial crises for these overlapping jurisdictions. Chapter 9 bankruptcy, unfortunately lacks the tools to deal with the inter-governmental coordination problem. The techniques used for handling multi-entity debtors in Chapter 11--joint administration, deemed consolidation for voting and distribution purposes, and (in the extreme) full substantive consolidation do not work for municipalities that lack common corporate control and have much clearer separation of assets and liabilities.  Chapter 9 does not currently have the capacity for considering a shared revenue source that is not an asset per se.  Our paper identifies the nature of the overlapping municipal financial crisis problem, discusses why Chapter 9 is inadequate, and proposes a number of solutions ranging from incremental doctrinal improvements in Chapter 9 to the adoption of a "Big MAC Combo" (or perhaps a "supersize Big MAC") mechanism for coordinating the finances of overlapping municipalities. The abstract is below the break. 

Coming Soonish to a Bookstore Near You

Assuming you still have those in your town. If not, also available for preorder now is my forthcoming book, entitled The Law of Failure.  It is my attempt to consider all of American business insolvency law as a whole. Not just bankruptcy but also assignments, receiverships, and even oddball things like Nevada's campground receivership provisions.

Summer Associate Arbitration Clauses: Why Disclosure Isn't Enough

This weekend a mini-scandal erupted over the law firm Munger, Tolles requiring its summer associates to sign pre-dispute arbitration clauses. Munger, Tolles was rightly shamed into rescinding the practice, but one suspects that Munger, Tolles isn't the only firm doing or contemplating doing this. 

I believe law schools have a particular duty to stand up here and protect their students. Law students seeking firm jobs are at an incredibly disadvantage in terms of both market power and knowledge. The students are often heavily leveraged and desperate to land a high-paying job with a large law firm in order to service their educational debt, and even when debt doesn't drive them, a summer associate position at a large firm is often seen as a stepping stone to career success. Law students really have no bargaining power in terms of their contractual relationship with summer employers.  It's take-it-or-leave-it, and leave-it isn't an option for law students.  Law students also lack knowledge about the importance of an arbitration clause in terms of the procedural and substantive rights they will surrender and knowledge about the firm culture they are stepping into and the likelihood it will result in a dispute of some sort (e.g., sexual harassment).  Whatever one thinks of the virtues of arbitration generally, this strikes me as a very clear cut case of pre-dispute arbitration agreements  being inappropriate.  I don't think it's a stretch to call such arbitration provisions unfair and unconscionable both procedurally and substantively.  (Does anyone think the firms are doing this for the summer associates' benefit?) 

I believe that the appropriate response for law schools in light of the situation is to refuse access to on-campus interviewing to any firm that requires its summer associates to sign an arbitration clause. Schools have done this when their students civil rights were being threatened both under don't-ask-don't-tell and in the era when firms would often refuse interviews to women and people of color. The right to have one's grievances heard before a court (including for race and gender discrimination!) is also a civil right.  It is a civil right that is fundamental to the whole endeavor of law schools, and schools should be just as vigilant to protecting their students civil rights in this instance as they have in the face of discrimination. 

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

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.

Bankruptcy's Lorelei: The Dangerous Allure of Financial Institution Bankruptcy

I have a new (short!) paper out, Bankruptcy's Lorelei:  The Dangerous Allure of Financial Institution Bankruptcy. The paper, which builds off of some Congressional testimony from 2015, makes the case that proposals for resolving large, systemically important financial institutions in bankruptcy are wrongheaded and ultimately dangerous. At best they will undermine the legitimacy of the bankruptcy process, and at worst they will result in crash-and-burn bankruptcies that exacerbate financial crises, rather than containing them.  The abstract is below.

The idea of a bankruptcy procedure for large, systemically important financial institutions exercises an irresistible draw for some policymakers and academics. Financial institution bankruptcy promises to be a transparent, law- based process in which resolution of failed financial institutions is navigated in the courts. Financial institutions bankruptcy presents itself as the antithesis of an arbitrary and discretionary bailout regime. It promises to eliminate the moral hazard of too-big-to-fail by ensuring that creditors will incur losses, rather than being bailed out. Financial institutions bankruptcy holds out the possibility of market discipline instead of an extensive bureaucratic regulatory system.

This Essay argues that financial institution bankruptcy is a dangerous siren song that lures with false promises. Instead of instilling market discipline and avoiding the favoritism of bailouts, financial institution bankruptcy is likely to simply result in bailouts in bankruptcy garb. It would encourage bank deregulation without the elimination of moral hazard that produces financial crises. A successful bankruptcy is not possible for a large financial institution absent massive financing for operations while in bankruptcy, and that financing can only reliably be obtained on short notice and in distressed credit markets from one source: the United States government. Government financing of a bankruptcy will inevitably come with strings attached, including favorable treatment for certain creditor groups, resulting in bankruptcies that resemble those of Chrysler and General Motors, which are much decried by proponents of financial institution bankruptcy as having been disguised bailouts.

The central flaw with the idea of financial institutions bankruptcy is that it fails to address the political nature of systemic risk. What makes a financial crisis systemically important is whether its social costs are politically acceptable. When they are not, bailouts will occur in some form; crisis containment inevitably trumps rule of law. Resolution of systemic risk is a political question, and its weight will warp the judicial process. Financial institutions bankruptcy will merely produce bailouts in the guise of bankruptcy while undermining judicial legitimacy and the rule of law.

The Bootstrap Trap

I just had the pleasure of reading Duke Law Professor Sara Sternberg Greene's paper The Bootstrap Trap.  I highly recommend it for anyone who is interested in the intersection of consumer credit and poverty law.  The paper is chok full of good insights about the problems that arise when low-income households strive for the goal of self-sufficiency, which results in the replacement of a public welfare safety net with what Professor Sternberg Green describes as a private one of credit reporting and scoring systems.  The paper shows off Professor Sternberg Greene's training in sociology with some amazing interviews, particularly about the perceived importance of credit scores in low-income consumers' lives.  

Other respondents referred to their credit reports or scores as “the most important thing in my life, right now, well besides my babies,” as “that darned thing that is destroying my life,” and as “my ticket to good neighborhoods and good schools for my kids.” Many respondents believed that a “good” credit score was the key to financial stability.

One respondent, Maria, told a story about a friend who was able to improve his score. She said, “He figured out some way to get it up. Way up. I wish I knew what he did there, because I would do it. Because after that, everything was easy as pie for him. Got himself a better job, a better place to live, everything better.” Maria went to great lengths to try to improve her score so that she, too, could live a life where everything was “easy as pie.”

Credit scores have become a metric of self worth and the perceived key to success.  

Jayfest and Bankruptcy Cases in the Supreme Court

Most of us Credit Slipsters enjoyed an absolutely fabulous symposium over the weekend celebrating the illustrious career of one of our own, Jay Westbrook. The Texas Law Review will publish a selection of several of the papers presented at the symposium (and TLR editors pulled off an amazing feat of organization in coordinating the travel and other logistics for this major event--kudos to them). All of the presentations were cutting-edge and extremely impressive, and many are available on the SSRN profiles of the authors listed in the symposium program. I want to highlight just one that I thought would be of particularly broad interest to Credit Slips readers.

The always impressive Ronald Mann described his recently released book, Bankruptcy and the U.S. Supreme Court. In his characteristically insightful and probing way, Mann looks into the private papers of the Justices for evidence of how and why they decide bankruptcy cases as they do. In his fascinating presentation at the symposium, he challenged conventional explanations of why the Court has construed the law to provide generally narrow relief (not only because of their boredom with the subject matter and/or a supposed adherence to narrow construction of statutory language) and offered provocative explanations based on, among other things, the presence (or absence) of a federal agency to advance a case for broader relief. The introduction of this new book immediately brought to my mind another recent and impressive analysis of Supreme Court bankruptcy jurisprudence, Ken Klee's Bankruptcy and the Supreme Court: 1801-2014. But Mann's latest contribution really seems to add something valuable, illuminating, and entertaining. Readers of this great new book will not find themselves, as Mann described one Justice's reaction to an oral argument, "in sleepy distress." Check it out, and watch for what will be a value-packed Texas Law Review symposium issue.

Comparative Insolvency Conferences of Note

I thought Credit Slips readers might be interested in using some holiday down-time to catch up on a couple of recent comparative insolvency conferences with particularly cutting-edge presentations, some of which are or will be available for viewing online (and many of the papers are available on SSRN or elsewhere).

First, on Nov. 23-24, the Notary College of Madrid offered its spectacular hall to host an international conference on consumer credit information privacy and regulation (day one) and the treatment of insolvency for SMEs and consumers (day two). The second day offered a particularly interesting presentation by one of the leaders of the EU Commission's initiative for a Directive on harmonization of European laws on preventive restructuring and second chance discharge relief (followed by a bit of constructively critical commentary by an American who fancies he knows something about European personal insolvency). Recordings of the entire conference were just posted to YouTube--most of the recordings are in Spanish, but the EU Directive and critical commentary presentations are in English after a short Spanish intro (nos. 8 and 9 of the 10 recordings). Congratulations to the architects of this fabulous event, who also made impressive presentations: Matilde Cuena Casas (Univ. Complutense de Madrid), Ignacio Tirado Martí (Univ. Autónoma de Madrid), and David Ramos Muñoz (Univ. Carlos III de Madrid).

Second, the following week offered a special, rare treat with the conference, Comparative and Cross-Border Issues in Bankruptcy and Insolvency Law, hosted by the Law Review of the Chicago-Kent College of Law. The line-up of panels on both comparative and cross-border issues was particularly impressive, and we were treated to a keynote by Jay Westbrook refining his latest thinking about cross-border coordination. The conference was live streamed, and the recordings are promised in the near future, but for now, the livestream page still has (scroll down to Day 1) the recoding of Adrian Walters's terrific paper on restrictive English interpretation of the notion of international cooperation. Again congratulations to the organizers of this fabulous event (who, again, gave very impressive presentations of their own): Adrian Walters, Chicago-Kent College of Law, and Christoph Henkel, Mississippi College School of Law.

Call for Commercial Law Topics (and Jargon!)

For the spring semester, I am offering advanced commercial law and contracts seminar for UNC students, and have gathered resources to inspire students on paper topic selection as well as to guide what we otherwise will cover. But given the breadth of what might fit under the umbrella of the seminar's title, the students and I would greatly benefit from learning what Credit Slips readers see as the pressing issues in need of more examination in the Uniform Commercial Code, the payments world, and beyond. Some students have particular competencies and interests in intellectual-property and/or transnational issues, so specific suggestions in those realms would be terrific. Comments are welcome below or you can write us at bankruptcyprof <at> gmail <dot> com. 

We also are going to do a wiki of commercial law jargon/terminology. So please also toss some terms our way through the same channels as above (or Twitter might be especially useful here: @melissabjacoby).

Thank you in advance for the help!

Whitford on Law School Financial Aid

Although technically emeritus and making history as a named plaintiff in a gerrymandering case before the U.S. Supreme Court, our commercial law colleague Professor Bill Whitford remains worried about law schools in a way in a way that connects with an issue well known to Credit Slips: student loans. Whitford's latest analysis of law school financial aid is forthcoming in the Journal of Legal Education but is available to us now on SSRN.

Academic News

The second edition of my Corporate Finance textbook is now available at finer booksellers, and Amazon too.  The companion website has also been updated – professors can get the password from their Aspen reps.

Taking Online Dispute Resolution To The Next Level

Yesterday 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.

New Report on Car Insurance Redlining

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?

Jevic Commentary

Just a cross-posting note: Jonathan Lipson and I comment on the U.S. Supreme Court's Jevic decision at the Harvard Law School Corporate Bankruptcy Roundtable.

New ABI Commission on Consumer Bankruptcy

The American Bankruptcy Institute announced this morning that it has convened a commission to study and propose reforms of the US consumer bankruptcy system. In light of the success of ABI's Chapter 11 commission, we can expect big things from this commission on Chapters 7 and 13. Some major names in consumer bankruptcy are among the 15 members of the commission, and Credit Slips is well represented, with Bob Lawless as Reporter and Katie Porter on the membership roster, along with one more super-prominent academic, professor-cum-judge-cum-professor Bruce Markell, now of Northwestern. I wish the commission had consulted Bob about its name. He would have pointed to his empirical work on small business debtors to suggest that this be called a personal bankruptcy commission, rather than consumer, but perhaps the inclusion of a good deal of small business debtors and business-related debts is taken as a given. Anyway, best wishes to the commission--we'll eagerly await its first reports and calls for comments!

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

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.

Everything You Wanted to Know About Bond Workouts But Were Afraid to Ask

There's a great new paper available on out-of-court restructuring and the Trust Indenture Act.   The New Bond Workouts is up on SSRN.  From the abstract it sounds pretty darn amazing—a new, empirically based analysis of bond restructurings that rediscovers a long-forgotten intercreditor duty of good faith: 

Brooklyn Law School Conference on Public Debt

On March 1, 2016, Credit Slips commenced a virtual symposium on Puerto Rico's financial crisis. Where do things stand today, a year later? And what governance lessons can be learned from municipal bankruptcy cases like Detroit for the public debt problems of tomorrow? Thanks to a fortuitously timed conference at Brooklyn Law School, a subset of Slipsters will be considering these very questions on Friday March 3, 2017. Check out the agenda and join us in Brooklyn - register here today.

Two Books About Selling Math and Its Consequences for Inequality

Over 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. 

Which 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.

Swindlers and Crooks Doing Backflips: New Balleisen Book on Fraud

Not a moment too soon, Princeton University Press has just released Fraud: An American History from Barnum to Madoff by historian & Duke University Vice Provost Ed Balleisen. (Some readers might be familiar with his earlier book on bankruptcy in Antibellum America).

As I learned when reviewing an earlier draft, Fraud is meticulously researched and completely fascinating, with plenty of careful attention to law and regulatory structures. The book's other virtues are well encapsulated by Kirkus:

"Balleisen casts a gimlet eye on the passing parade of hucksters and charlatans, peppering a narrative long on theory with juicy asides that build toward a comprehensive catalog of ‘Old Swindles in New Jargon’. . . . Ranging among the disciplines of history, economics, and psychology, Balleisen constructs a sturdy narrative of the many ways in which we have fallen prey to the swindler, and continue to do so, as well as of how American society and its institutions have tried to build protections against the con. But these protections eventually run up against accusations of violating ‘longstanding principles of due process,’ since the bigger the con, the more lawyers arrayed behind it."--Kirkus

Although it starts in the 19th Century, the book's breadth includes our recent "deregulatory" decades and the impact of that approach on fraud containment.  A book for our life and times for sure.

 

Scarcity, Money, and Undocumented Immigrants

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.

Recommended Reading: Empire of the Fund

It's that time of year again! Time to revisit and perhaps rebalance the investments in your retirement portfolio. While it is a sad fact that many people lack significant retirement savings, it is nonetheless useful for those interested in consumer finance (and investment companies, pensions, etc.) to think about how retirement savings plans work and to be able to offer some advice, for example, to debtors emerging from bankruptcy with their clean slate. William Birdthistle, of Chicago-Kent law school, has recently released Empire of the Fund, a magnificent new work on the most common vehicle that carries individuals' retirement savings in the US: mutual funds.

I have heard that Birdthistle, who teaches across town from me, is legendary in the classroom. Having read his new book, I'm not at all surprised. While his fairly esoteric subject matter made me hesitate to nominate his book in response to Katie's post, Birdthistle has really pulled one off here by managing to make a book about the structure and pitfalls of mutual funds and retirement savings ... extremely entertaining! It is masterfully written, with both erudite references to relevant comments by literary and historical figures, along with laugh-out-loud allusions to modern culture ("OMG! Friends, right! Mutual funds are lame!"). This book is an absolutely brilliant example of how to make a work on an otherwise dry financial subject not only accessible to the general public, but a real pleasure to read. It is no wonder the New York Times calls this "a lively new book."

How Consumers Use the CFPB's Complaint Function

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.

Civil Rights and Economic Justice in a New Era

Sharing news of this post-election civil rights conference on December 2, 2016 that, notably for Credit Slips, features pathbreaking research by Professors Mechele Dickerson and Bob Lawless (in collaboration with Dov Cohen and the late Jean Braucher) on the intersection of race with debt and bankruptcy and an exploration of how this research informs policymaking and advocacy going forward. Time permitting, I will address a different intersection between race and debt: collecting judgments arising from police misconduct when cities file for bankruptcy. Thanks to Professor Ted Shaw and the Center for Civil Rights for recognizing the role debtor-creditor research can play in the quest for equality. 

Register using this link.

 

Does Behavioral Economics Matter?

The New Republic (yes it still exists) has a piece about whether behavioral economics will have as much influence in a Clinton administration as it did in the Obama administration. The unspoken assumption of the piece is that behavioral economics actually had a big influence in the Obama administration. Here's the thing:  as far as I can tell, behavioral economics has been basically irrelevant in the Obama administration.

Yes, Cass Sunstein was the head of OIRA for part of the Obama administration. But when Sunstein went on a post-administration victory lap giving talks at a bunch of law schools (including at Georgetown), it was notable how few concrete examples he could give of the influence of behavioral economics on policy. There is, to be sure, an executive order suggesting that agencies subject to the order consider behavioral implications in their rulemakings, but the only concrete example Sunstein had was the transformation of the food pyramid into a food plate. (If you missed that change, well, you aren't the only one.) It's not entirely clear to me what great behavioral implication is from going from a pyramid to a plate, much less how much influence it had on how anyone eats.  There are, apparently, a bunch of other behaviorally-influenced moves according to a recent White House report.  But man, they are really small bore improvements on the margins (e.g., calling unemployed workers "job seekers" rather than "claimants"). If this is the highwater mark for behavioral economics, then it has truly fizzled as a policy move.  

Join us for the "The NCBJ at 90"

Will you be in San Francisco for the National Conference of Bankruptcy Judges annual meeting and related events? Please mark your calendars now for Thursday October 27, 3:oo pm Pacific Time: a special educational session honoring the 90th anniversary of the NCBJ.^* We (Profs. Gebbia, Simkovic, Pottow, and me, with great guidance and input from Judge Colleen Brown and Judge Mel Hoffman) will be discussing original historical research on bankruptcy courts and bankruptcy law conducted for this occasion. Early abstracts can be found on the NCBJ blog. In the meantime, Prof. Gebbia has been posting quizzes; I suspect some Credit Slips readers would ace these tests, but you won't know until you try!

So please do join us on October 27 to be part of this commemoration and conversation.

* The mission of the NCBJ, according to its website, is:

The National Conference of Bankruptcy Judges is an association of the Bankruptcy Judges of the United States which has several purposes: to provide continuing legal education to judges, lawyers and other involved professionals, to promote cooperation among the Bankruptcy Judges, to secure a greater degree of quality and uniformity in the administration of the Bankruptcy system and to improve the practice of law in the Bankruptcy Courts of the United States.

 

Are Consumer Protection Regulations Harming the Middle Class?

A new paper by Franceso D'Acunto and Albert Rossi, both at the University of Maryland's Department of Finance, contends that the Dodd-Frank Act resulted in "a substantial redistribution of credit from middle-class households to wealthy households", as lenders reacted to regulations by reducing credit to middle-class households and increasing it to wealthy households.  This conclusion is based on a regression analysis of loan and ZIP-code level HMDA data.  The redistribution point is a serious charge to be leveled at the Dodd-Frank Act, and you can bet that this paper is going to be repeatedly cited by Congressional Republicans in their attempts to repeal Dodd-Frank. 

Unfortunately, the paper is founded on a pair of mistaken factual claims about the legal landscape that are so staggering that I am puzzled how they could have been made in good faith. Once these mistakes are corrected, it becomes apparent that the paper's analysis cannot actually support its claims because it is testing the wrong thing.  The paper is observing changes in the mortgage market that pre-date the implementation of Dodd-Frank.  By definition, then, these changes cannot have been caused by Dodd-Frank.  What the paper shows (without realizing it) is that there has been a redistribution of credit from middle class households to wealthy ones, but that it wasn't caused by Dodd-Frank.  Whoops. 

Conference and Call for Papers: Consumer Protection and Economic Development, 25 Years of the International Association of Consumer Law

A Conference celebrating the 25th year of International Association FO Consumer law will be held July 16 to 19, in Porto Alegre (UFRGS), Brazil. The The purpose of the Conference is to provide a forum where leading international scholars, practitioners, representatives of the consumer organization, public authorities and business representatives can join to present and discuss together the fundaments, the challenges and the future of consumer protection worldwide.

Remembering Alan Resnick

One of the hardest things about teaching, whether in an informal setting or in a classroom, is telling someone that they are . . . ahem, WRONG. Or at least not right. Or could use improvement. Or there is an opportunity to improve. Something like that. . . . Professor Alan Resnick, a beloved bankruptcy scholar and practitioner, had a gift of helping others improve their work. He would generously and gently offer suggestions, always making those around him feel hope that the could improve. Whenever one worked with Alan, they felt profound gratitude that the bankruptcy world had his intellect and commitment.

Alan had a remarkable talent for drafting legislation, rules, and statutes. When I tried my hand at writing a simple amendment to a statute a few years ago, Alan reviewed my work. Rather than sending me a tangled redline that would have at least temporarily crushed my spirit, he picked up the phone, and kindly offered to "support" my effort. He spent hours that day teaching me considerations in drafting. Put another way, Alan rescued me from sure disaster. Over his 40 years of service to the bankruptcy world, his keen eye and amazing knowledge of bankruptcy law prevented hundreds of instances of poor drafting. This was not mere technical work. Alan's insight, which he passed along to those he taught and knew, was that any good idea could fail if the written law did not accurately and fully capture the idea. He truly was the guardian of the written Bankruptcy Code and Bankruptcy Rules.

Alan Resnick passed away on July 28 of complications from multiple myeloma. I lost a close family member to this cancer, and I find comfort in knowing that Alan undoubtedly brought his incredible spirit and optimism to battling this disease. Alan's family continues to work to find a cure for multiple myeloma.

We at Credit Slips welcome comments remembering Alan, as a person and a professional. I especially remember his laugh, which lightened many intense debates about bankruptcy policy.  Anyone who was lucky enough to hear Alan talk about the drafting mess of BAPCPA, the bankruptcy reform in 2005, observed both his passion for bankruptcy's purpose of a fresh start and his ability to find humor in a dark time. His memory reminds us to keep perspective and keep fighting the good fight. May he rest in peace, and may we honor Alan's memory by continuing to urge Congress to remedy every misplaced comma, incorrect cross reference, and hanging paragraph in the Bankruptcy Code that limits help for struggling families and failing businesses.

Porter's Modern Consumer Law

Credit Slips blogger Katie Porter has produced a new textbook in consumer law that anyone teaching the subject should consider adopting. Indeed, law professors not teaching consumer law should to take a look at it and consider whether they should add the class to their teaching portfolio. A 2013 poll on Brian Leiter's Law School Reports named consumer law as the number one "area of law which deserves more attention in the legal academy." Next academic year I will be picking up a new course, and the emergence of Porter's new text made the decision easy for me as to which course it will be.

In the preface, Porter makes explicit her three-pronged approach to the topic of consumer law:

1. The book situates consumer law within the business-law curriculum. "Consumer law is big business," she notes. Understanding the legal issues requires understanding the "deal," the information flow, and the market in which the transaction occurs. Porter expressly recognizes, "the world of consumer practice offers opportunities for lawyers to represent consumers (as government lawyers, policy advocates, and plaintiffs’ attorneys) and to represent businesses (as in-house counsel, defense attorneys, and
   lobbyists)."
2. The book provides a strong theoretical frame by situating consumer law at the intersection of tort and contract. The book does not present consumer law as a hodgepodge of cases and statutes loosely organized around the term "consumer." Rather it recognizes that a lot of what travels under the law of "consumer law" responds to the gaps that traditional contract and torts doctrines have when it comes to the issues that consumer transactions create.
3. The book explores where the social-science literature has learning for consumer law. Porter looks to see what psychology, sociology, marketing, and economics can add to our understanding of the legal issues. By doing so, the book explores the difference between law on the ground and law in the books. 

The book uses a problem-based method of instruction that will be familiar to users of Porter's co-authored bankruptcy textbook or my co-authored secured transactions textbook. The problems range from straight-forward statute readers to teach doctrine to tough client counseling problems that focus on real-world lawyering skills.

More information, including a table of contents and a sample chapter, can be found at Aspen Publishers.

The Bad CHOICE Act

I'm testifying before House Financial Services tomorrow regarding the "CHOICE Act," the Republican Dodd-Frank alternative.  My testimony is here.  It's lengthy, but it doesn't even cover everything in the CHOICE Act--there are just too many bad provisions, starting with the idea of letting megabanks out of Dodd-Frank's heightened prudential standards in exchange for more capital, then moving on to a total gutting of consumer financial protection, and ending with a very poorly conceived good bank/bad bank resolution system executed through a new bankruptcy subchapter.  The only good thing about the Bad CHOICE Act is that it has little chance of becoming law any time soon. 

Law & Society, 2016 Panels on Household Finance

If you happen to be at the 2016 Law & Society Association meetings in New Orleans, stop by the panels from the Collaborative Research Network (CRN) on Household Finance. This group got its start as an international collaborative studying overindebtedness thanks for the leadership of people like the late Jean Braucher, Johanna Niemi, Iain Ramsay, and Bill Whitford. We have scholars from all over the world and from diverse disciplines thinking about how law on the ground affects household financial outcomes. Below the fold is a listing of panels, topics, and presenters for this year. If you are an academic and want to be on the CRN email list, contact me or Credit Slips blogger Dalie Jimenez.

Digital Wallets: The Honor All Devices Rule

Every wondered how ApplePay works?  What the whole deal with Chip cards is?  Those contactless readers at stores?  If you're looking to nerd out on 21st century payment technology...and its legal and business implications, look no further.  I have a new paper out entitled Pandora’s Digital Box:  Digital Wallets and the Honor All Devices Rules.  The paper was commissioned by the Merchant Advisory Group, a retail industry trade association that focuses on payment issues.  The paper, which benefitted from interviews with the payments teams from a number of the largest merchants in the US, covers the range of technologies known as "digital wallets," including mobile wallets like ApplePay and Samsung Pay (with the magnetic stripe emulation).  The paper focuses on the potential benefits, but particularly the risks posed by digital wallets to merchants, and the legal implications, which are primarily antitrust issues.  

The basic issue with digital wallets is that they aren't all the same in terms of costs and benefits, but merchants have to accept them equal on an all-or-nothing basis.  Digital wallets involve lots of different technological and business arrangements that affect security, control over data, control over customer relationships, IP litigation risk, choice of payment method, and cost of payment.  Some wallets are very attractive to merchants; others less so.  Merchants, however, cannot accept digital wallets selectively or condition the terms of acceptance for particular wallets.  This is because Visa, MasterCard, and American Express all have so-called "Honor All Devices" rules that require merchants to accept payments without discrimination from all devices using any technology accepted by the merchant.   The arrangement has the nasty (but probably not coincidental) effect of foreclosing entry to digital wallets that offer cheaper payments, such as those that use PIN debit or ACH.   

If this sounds a bit like a redux of the Honor All Cards rule and the two previous monumental rounds of antitrust litigation that produced (first on the tying of signature-debit and credit, second on the tying of different credit products, among other things), well, you're right. The problems that arise with the Honor All Devices rule show that things have not been properly resolved in terms of anticompetitive behavior in the payment card space, and the issues are just migrating over to new technologies.  

Learn about Teaching Consumer Law in Beautiful Santa Fe May 20-21, 2016

On May 20-21st, the Center for Consumer Law at the University of Houston Law Center will present “TEACHING CONSUMER LAW IN OUR POPULAR CULTURE AND SOCIAL MEDIA.” Sponsored by the University of New Mexico School of Law, this is the only Conference in the world dedicated to the teaching of consumer law.

This year’s Conference features 25 speakers, including the respected U.S. consumer law scholars, as well as presenters from nine other countries. Topics include discussions of new and innovative teaching techniques, substantive consumer law updates, a detailed discussion of the CFPB, empirical studies on consumer law issues, and numerous presentations of consumer law in other countries, such as Iraq, Japan, Nigeria, the EU, Nigeria, Denmark, and China.
 
The Conference will be held in Santa Fe, New Mexico, one of the most unique cities in American. A Conference brochure and registration form will be available shortly. In the meantime, please save the date. To view the tentative schedule and register , click here.
 
Richard Alderman and I look forward to seeing you in Santa Fe.

 

 

 

 

 

That OTHER Consumer Agency: Why the FTC remains important

Since the launch of the CFPB, we haven't blogged as frequently at Credit Slips about the Federal Trade Commission (FTC). It remains hard at work, and in fact, I think has used some of the shift of some of its responsibilities to the CFPB to focus on a number of cutting edge issues. For example, their conferences and reports on big data analytics are top notch.

Chris Hoofnagle, UC Berkeley, has written an excellent book about the FTC and its approach to privacy. In part, it is an institutional history, using the FTC Act's passage and the advertising cases of the 1960s and 1970s to understand how and why the FTC is approaching privacy concerns today. The digital economy, the socialization and personalization of consumer finance, and alternative scoring algorithms all present new questions for privacy law. His thoughts on how the FTC developed in reaction to troubling applications of the common law are particularly useful in thinking about how courts might interpret new issues created by CFPB regulations. Business practitioners, consumer advocates, and academics will all benefit from Hoofnagle's analysis.

FTC Privacy Law and Policy also contains a look at the FTC's role in policing credit reporting agencies and the credit reporting regulations. Hoofnagle is even-handed, pointing to both successes and weaknesses on that front.

This is definitely worth a read, and I'm happy that it's available in paperback at an affordable price. I think the book also would make a great foundational text in a seminar on consumer law.

Truthiness, Or the Shenanigans of Executoriness

For the first time in nearly two decades of wrestling with section 365 of the Bankruptcy Code, I feel like I really understand the practical problems with the notion of "executoriness," as well as a constructive way forward. This enlightenment arrived via a great new paper by Jay Westbrook and his former student, Kelsi Stayart (who passed the July bar and was admitted in November--yay!), entitled "The Abolition of Dysfunctional Contracts in Bankruptcy Reorganizations." This paper lays out with razor sharpness the problems that courts have encountered with using "executoriness" as a gateway to applying section 365 to important contracts like options, IP licenses, LLC operating agreements, and non-compete covenants. The ABI's Chapter 11 Reform Commission does not come out of this looking very good, at least in its appraisal of the case law on executory contracts. The only well-settled rule, as Westbrook and Stayart reveal, is that "executoriness functions only as a saboteur." The argument is persuasive, the analysis of the current (sad, chaotic, and frequently contradictory) state of affairs is lucid and entertaining, and the proposed solution (refocusing on state law and hard policy compromises) is compelling. This paper is a must-read for professors preparing to teach a class on section 365 in the coming weeks, as well as for the ABI Commission members, who seem to have really dropped the ball on this one.

AALS & The Slips

Quite a few Credit Slips bloggers and former guests are panelists at the session the Debtor-Creditor Section of the Association of American Law Schools (AALS) meeting.The session is entitled, "Bankruptcy for the Ninety-Five Percent: Making the System Work for Small and Medium-Sized Businesses and Sole Proprietors" and will take place on Saturday from 1:30 - 3:15 PM. If you are at the AALS meeting, check it out. Panelists and discussants are Matthew Bruckner, Andrew Dawson, Pamela Foohey, Margaret Howard, Melissa Jacoby, Ed Morrison, Foteini Teloni, and Jay Westbrook. The moderator is Gene Wedoff, recently of the U.S. Bankruptcy Court for the Northern District of Illinois. 

Foohey on Black Churches in Bankruptcy

Credit Slips blogger Pamela Foohey has a new article on SSRN, "Lender Discrimination, Black Churches, and Bankruptcy." This paper builds on her previous work about churches in bankruptcy to dig into the demographics of which churches end up in bankruptcy court. From her abstract: "Churches with predominately black membership — Black Churches — appeared in chapter 11 more than three times as often as they appear among churches across the country. A conservative estimate of the percentage of Black Churches among religious congregation chapter 11 debtors is 60%. The likely percentage is upward of 75%. Black Churches account for 21% of congregations nationwide."

Foohey discusses the various reasons why black churches would be overrepresented in chapter 11. I suspect there will be a lot of debate about the paper's conclusions, but it is hard to argue with the notion that race matters in bankruptcy as it does across so many parts of life in the U.S. (h/t to Mechele Dickerson's work). Foohey's paper will get bankruptcy experts talking again about why and how it matters, even if there is disagreement on the specifics.

No Way to Run a Railroad: Scholars' Letter on the Trust Indenture Act Amendment

A large number of bankruptcy and corporate finance scholars, including several Slipsters, signed on to a letter to Congressional leadership regarding the proposed omnibus appropriations bill rider to amend the Trust Indenture Act. We don't all agree on how to interpret the Trust Indenture Act, on whether it should be amended, or on what amendments should look like, but we are all agreed that it shouldn't be done through this sort of backroom process. As Professor Douglas Baird of Chicago put it, "This is no way to run a railroad." Any amendment of the Trust Indenture Act should proceed with the customary procedural checks of legislative hearings and opportunity for public comment.  The Trust Indenture Act is simply too important a statute to amend on the fly. 

Indiana Adds Some Bankruptcy to Its Bar Exam

Bernie Trujillo emailed me from Valparaiso University with the news that the Indiana bar examiners have added some bankruptcy law to the state bar exam. Specifically and effective February 2018, the Indiana bar exam will include "Indiana debt collection, including garnishment, attachment, and bankruptcy exemptions." A few years back, I noted that bankruptcy law was fair game on the Texas bar exam. Indiana's move appears to double the number of states with coverage of any bankruptcy law on the state exam. Regardless of whether bankruptcy law needs to be covered, I think it is probably a good thing to add coverage of judicial remedies. Every year in my courses, a fair percentage of the students seem surprised to learn that all those judicial decisions they study in the first year are not self-enforcing.

Indiana's move also bucks a trend noted by Slipster Jason Kilborn of declining coverage of commercial law law on state bar exams. In addition to debt collection law, Indiana is adding secured transactions to the list of subjects.

UPDATE (11/17/15): Bernie pointed out that secured transactions was already covered under the heading "commercial law," which is no longer listed. The change was to scale back "commercial law" to "secured transactions." Because sales is tested under the heading "contracts" by the Multistate Bar Exam, the Indiana change is effectively the same as Jason noted with the move by the Multistate Bar Examiners with regard to their essays -- dropping negotiable instruments/UCC Articles 3 and 4.

Who "Presides" over Chapter 13 Plan Confirmation Hearings?

Temple Law Review will soon publish a volume honoring Bill Whitford, based on a conference from last fall. That event was particularly special for an additional reason: it turned out to be the last opportunity, for many of us, to spend time with another inspiring leader in our field, Jean Braucher. 

My own short contribution, on judicial oversight in chapter 13 bankruptcies, has just been posted here. We will share the word when the entire volume is available - including, I believe, a piece from Jean.

Gavel image courtesy of Shutterstock

Tired of Dealing with Students' Exams?

As exam grading season looms, some professors lament. I actually enjoy reading exams, as at least a few students usually write something fairly comical. For those academic readers, the American Board of Certification is seeking additions to its faculty committee. The main task is to design and grade the certification exams.

It's a great way to perform a public service and get ideas for your classes. Consumer and business topics are both possibilities, and the entire process turns out to be quite fun. I served for several years and felt like, particularly as a younger academic, it was a great way to discuss exam strategies with more experienced colleagues. Academics do not need to be certified by the ABC to participate. If you are interested, please contact Laura Bartell of Wayne State University Law School, who is Dean of Faculty.

 

The Myth of the Disappearing Free Checking Account

A regular trope sounded by opponents of consumer financial regulations is that the regulations have resulted in the disappearance of free checking. Whether it's the Durbin Interchange Amendment, the CFPB, or the Dodd-Frank Act in general, all are variously blamed for the supposed demise of free checking.  As it turns out, free checking is a little like Mark Twain--reports of its death have been greatly exaggerated.  Most Americans with bank accounts report paying nothing for their services.  The prevalance of such respondents has actually increased since 2010, from 53% to 61% of respondents. 

Recycling News

    Catching up on some posting in other places:

• The Columbia Blue Sky Blog recently featured a summary of my article on the treatment of failed clearinghouses under Dodd-Frank. Interestingly, the EU recently opened the door to something similar to what I've been suggesting. Thanks to Colleen Baker for pointing that out.
• And over at Dealb%k, I look at LSTA's recent rejection of the ABI's chapter 11 reform proposals in light of two recent retail bankruptcy cases.

Covenant Banking

A new book out by University of Minnesota Law Professors Claire Hill and Richard Painter proposes a really intriguing proposal for disciplining wayward financial services firms: "covenant banking." The problem, as Hill and Painter observe, is that when things go badly at a financial institution, the burden is borne by shareholders, not by the managers, who have portable human capital and whose compensation is not typically subject to clawback. In essence the problem, as Hill and Painter see it, is that bankers lack "skin in the game." And Hill and Painter have a plan to fix it.