All items from Credit Slips

Kudos to Joseph Cotterill at FTAlphaville for an excellent post on the obsession with the Rights-Upon-Future-Offers (RUFO) clause in Argentina's restructured bonds, which seems to be driving Argentina to a payment default on those very bonds. Judge Griesa is not buying it, though --  at a hearing on July 22, he again denied the Republic's request for a stay of his orders blocking restructured bond payments, unless Argentina pays the holdouts pro rata. He also deferred the hugely consequential decisions on paying creditors under English and Argentine-law bonds; that mess is for another post.



Posted 1 day 11 hours ago

On behalf of everyone at Credit Slips, I want to express our profound sadness at hearing of the tragic and untimely passing of Professor Dan Markel. a professor of law at Florida State University and a prominent criminal law theorist. Dan was the founder of PrawfsBlawg and a leader in the legal blogosphere. May his family and friends take some small comfort in knowing how Dan was considered a leader in his discipline.
His colleagues at PrawfsBlawg have a tribute with comments from many persons who knew, worked with and learned from Dan.



Posted 3 days 18 hours ago

In a long story in today's edition, the New York Times is reporting a bubble in often deceptive and abusive subprime auto lending on unaffordable terms, including very high rates of interest.  Although not quite the threat to the overall economy that the subprime mortgage bubble created eight or nine years ago, this apparent new bubble in lending for used vehicles has some similar features (targeting vulnerable consumers, lax underwriting, securitization, investors seeking high returns) and is causing significant pain for low income and unsophisticated borrowers.  A few regulators are mentioned in the story, but oversight so far seems to have been lax.



Posted 4 days 7 hours ago

Number 8Today marks the eighth anniversary of the launch of Credit Slips. That means we have been around long enough to get tenure at most universities. Now, if we only can get through the review letters.
One thing that I have learned from administering the blog is that its path is never linear. We have had a lot of comings and goings over the eight years, and I certainly can't predict what the next year will bring. Our goal will remain the same of trying to provide occasionally insightful commentary on topics in the credit, finance, and bankruptcy space that is of interest to opinion leaders in law, policy, and the media.
The comments on the blog continue to offer some of the best conversations on the Internet. The expertise and civility of the discussions prove that there are still places in this world where reasonable people can discuss different points of view without screaming at each other. 



Posted 6 days 2 hours ago

CFPBcomplaintsbyproductThis week the CFPB announced it's seeking public comments on a proposed policy that would allow consumers who file a complaint with the agency to share all of the (non-personally identifying) details of that complaint with the public as part of its Consumer Complaint Database. (Right now the database only identifies the financial product complained about, name of the company, and a category identifying the topic of the complaint).



Posted 6 days 8 hours ago

At today's House Judiciary Committee hearing on Operation Choke Point it seemed that Choke Point's critics are conflating a fairly narrow DOJ civil investigation with separate general guidance given by prudential regulators.  In particular, Rep. Issa attempted to tie them together by noting that the DOJ referenced such guidance in its Choke Point subpoenas, but that's quite different than actually bringing a civil action on such a basis (or on the basis of "reputational risk"), which the DOJ has not done.  



Posted 6 days 19 hours ago

Pop quiz:  what do payday lenders have in common with on-line gun shops, escort services, pornography websites, on-line gambling and the purveyors of drug paraphrenalia or racist materials?  
You can read my testimony for this Thursday's House Judiciary Committee, Subcommittee on Regulatory Reform, Commercial, and Antitrust Law's hearing on Operation Choke Pointo find out. Or you can just keep reading here.  

What all of these businesses have in common is that they are considered high-risk customers by banks. What makes these industries high-risk for banks? Many of their payments are disputed. Sometimes the issue is consumer fraud, sometimes merchant fraud:  happily married men vehemently deny subscribing to porn sites or having paid for an escort service. Or a payday lenders might demand an ACH payment without authorization.  All of this matters to banks because banks make various warranties when they transmit or demand payments within the payment system. If a payment isn't authorized, the bank can be stuck with the loss. 



Posted 1 week 2 days ago

A quick note on a couple of events today that might be of interest to Slips readers:
First, I'm participating in an ABI webinar about "chapter 14" and related topics.
Second, I'll be testifying in front of the House Judiciary Committee on proposed legislation to add a subchapter V to chapter 11, for financial institutions.
Otherwise, resume your summer and I'll bother you no more.



Posted 1 week 2 days ago

Chapter 13 trustees handle millions of dollars in plan payments every year. At some point in likely a sizable portion of cases, the trustee accumulates these payments instead of distributing the funds to creditors. What happens if a debtor's case is converted while the trustee has this accumulated money in its account? In 2012, the 3rd Circuit, in a majority opinion, held that the trustee must return the funds to the debtor (see decision here). Yesterday the 5th Circuit held that the trustee must distribute the funds to creditors (see decision here), thus creating a split on an issue that, as the Fifth Circuit stated, "has divided courts for thirty years," though only had previously produced one appellate court decision squarely on point.
With only one-third of Chapter 13 cases making it to discharge, the issue potentially affects a good number of debtors and involves a significant amount of money in total. Each individual debtor may (or may not) be entitled to a large sum of money in his or her estimation. In the 3rd Circuit case, the Chapter 13 trustee had accumulated over $9,000 in undistributed payments. In the 5th Circuit case, the trustee was holding about $5,500 in undistributed payments. And to the extent there isn't at least a local rule to rely on, Chapter 13 trustee probably would like clearer guidance on the issue.  



Posted 1 week 6 days ago

FolderRowTo what extent does secured credit law protect creditors from the consequences of mistaken actions made on their behalf? I wrote about this issue in March 2013. As discussed in that post, the bankruptcy court issued both a decision on the merits and a certification for a direct appeal to the U.S. Court of Appeals for the 2nd Circuit.
The 2nd Circuit has now certified the following question to the Delaware Supreme Court: 



Posted 2 weeks 4 hours ago