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The Consumer Financial Protection Bureau's new study (published 3/25/14) regarding payday loans has received substantial press coverage over the past couple days. The study focuses on repeat customers and finds that 80% of payday loans effectively are rolled over--that is, another loan is taken out within 14 days of repayment of the prior loan. (Some states have legislated cooling-off periods for payday loans; in those states, loans cannot be rolled over, but customers are free to come back a few days later.) The study further finds that the loaned amount goes up as loans are rolled over and that nearly 50% of all loans are in a sequence at least 10 loans long. This means that payday loans generally are not used by customers as short-term "stopgap" loans to keep them out of a cycle of debt. Rather, customers are in debt effectively for months, as Credit Slips contributor Nathalie Martin's research previously has suggested.



Posted 2 weeks 5 days ago

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As I mentioned in my previous post, in the final two posts in my stint as guest blogger detailing the latest amendment of the Spanish Insolvency Law, I’ll take a break from discussing personal insolvency to focus on another current issue in Spain that very recently led to a partial amendment to the Insolvency Law: out of court refinancing and restructuring agreements. I have a personal interest in sharing the situation here in Spain because I am deeply interested in hearing comments on the main issues I identify as regards the amendment. To begin, I will briefly outline the amendment’s main features. I’ll then identify four main issues with the amendment – two in this post and two in my final post.



Posted 2 weeks 6 days ago

The IRS has spoken:  Bitcoins are property, not currency.  This was hardly a surprise, but it has some important implication that tells us a lot about what it takes to make a currency work.  
Satoshi
For a payments geek, the real lesson from the IRS Bitcoin ruling is that for a currency--or any payment system--to work, its units must be completely fungible.  One reason dollars work really well as a currency is that one $20 bill is entirely fungible with another $20 bill.  This means that when I pay, I don't have to make a decision about which $20 bill to use (unless I have some idiosyncratic attachment to the crisp ones or the like). It means that when I accept a payment, I don't care which $20 bill I am given, in part because I know that my ability to spend that $20 bill will not depend on which $20 bill it is.  If payment were in, say, camels, then it would probably matter a great deal which camel were tendered.  Camels aren't fungible. And we know that's not going to make for a very good payment system. 
So what does this have to do with Bitcoin?  



Posted 3 weeks 57 min ago

Shutterstock_161010305The amicus briefs in support of Argentina's petition for certiorari are in (and most can be found here). As Anna notes, Mexico's brief may be the most pertinent, as that country is ideally positioned to refute the false CACs-solve-everything premise underlying the Second Circuit's decision. The others cover a range of issues, although they mostly stay on familiar turf. I'll give a few of the highlights below the jump.



Posted 3 weeks 1 hour ago

Today is the day for filing amicus briefs with the U.S. Supreme Court in NML v. Argentina (pari passu case). Brazil, France, Mexico, the Jubilee Network and Nobel Laureate Joseph Stiglitz are all asking the court to take the case. Others will doubtless come in on all sides; then the court might ask for the United States to say something ... it's a long story; stay tuned.
For now, I only highlight Mexico's priceless intervention against the courts' misuse of Collective Action Clauses (CACs)  in the pari passu argument. Recall that according to the Second Circuit, NML v. Argentina has no policy significance because CACs can be used since 2003 to bind holdouts in a sovereign debt restructuring. No holdouts, no lawsuits, no pari passu. This happens to be completely wrong because CACs specifically provide for dissent and mechanisms to hold out, and because not all debt instruments have CACs.



Posted 3 weeks 1 day ago

As noted by America's finest news source here.



Posted 3 weeks 4 days ago

At a conference on consumer bankruptcy policy over the weekend in Athens, Greece (a place that knows all too well about consumer financial distress) and again today in class, I confronted a really nagging, fundamental problem of bankruptcy policy: For whose benefit do modern societies develop consumer bankruptcy laws, and do these systems actually deliver such benefits? In my view, the most convincing and common explanation for why existing systems offer debt relief to consumers is that relieving their suffering redounds to the greater benefit of society at large (see, e.g., section I.9, pp. 26-40, in the World Bank's Report). The problem is that I know of no empirical proof of this essential assertion.



Posted 3 weeks 5 days ago

Crimea Every elementary school summer I was shipped out of Leningrad on a two-day train journey to the Black Sea, where a succession of family members would make me eat tomatoes and roast in the sun for three months to store vitamins for the winter. A human conserve. My Soviet engineer parents would rent a room in someone's rickety dacha on the outskirts of Sevastopol--one rouble per bed, except for the high-end place with lace-trimmed pillowcases that went for one-fifty. The fellow to the right  was our landlord, already chocolate-brown in early June, sleeping it off next to his sandy-brown boxer, when we were still fresh-from-the-north gray-green (photo courtesy dad).



Posted 4 weeks 17 hours ago

If you are looking for trite and oversimplified assertions about bankruptcy stigma, then stay away from the latest issue of the American Bankruptcy Law Journal. In those pages, Professor Michael Sousa from the University of Denver has a wonderful paper reporting on his interviews with consumer bankruptcy debtors in Colorado. You can find a preprint version of the paper on SSRN. I had the pleasure of commenting on the paper at a conference earlier in the spring. Sousa is a new voice in the area of consumer debt who demonstrates with this paper the potential to make important contributions in the field.
Sousa treats bankruptcy stigma as the complex and nuanced topic it is. Methodologically, the paper is very careful. The interviews are presented for what they are, without trying to make them tsupport claims they cannot. Sousa is careful not to make claims about generalizability. Instead, the interviews provide insights about how the debtors perceived their bankruptcies and suggest hypotheses to for future work that will take us toward more generalizable conclusions. Sousa's findings on the relative lack of stigma among the self-employed are new and specifically suggest profitable areas of research. Overall, the debtors interviewed for the paper express feelings of stigma toward their bankruptcy.



Posted 4 weeks 17 hours ago

It’s time for us to pick up this story again. Late last week, the U.S. Department of Education finally released an 841-page notice of a new proposed final Gainful Employment Rule (GER) aimed at predatory, debt-laden higher education, particularly at for-profit colleges.  The for-profits enroll about 13 percent of the total higher education population but account for about 31 percent of all student loans and nearly half of all loan defaults.
The new rule seems to have a better chance of withstanding an inevitable legal challenge than DOE’s 2012 version, and it gets tougher on career colleges in a few ways outlined below, although it's still pretty forgiving to the colleges.

The regulation would apply not just to the for-profits but also to certain non-degree certificate programs at public and non-profit schools, both of which are expected to pass muster under the rule at a higher rate than the for-profit schools.  Based on FY 2010, four million students attend all “gainful employment” programs, which receive about $36 billion a year in federal student grant and loan funds, $26 billion of that in loans that students can’t discharge in bankruptcy absent “undue hardship.”



Posted 4 weeks 21 hours ago