Credit Slips

Time 2020-09-21 05:02:38

Web Name: Credit Slips

WebSite: http://www.creditslips.org

ID:54129

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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. 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. DebtCon4 (aka the 4th Interdisciplinary Sovereign Debt Research and Management Conference) was all set to meet at the European University Institute tomorrow ... then #2020 tried to one-up snowzilla. But DebtCon does not quit--certainly not when exports crater, inflows turn into outflows, and debt levels go through the roof around the world--DebtCon doubles down, marches on, and smites the plague with a truly humbling show of global cooperation.When DebtCon4 in Florence had to be postponed to 2021, ten host committees around the world miraculously reconstituted as the first-ever virtual Distributed DebtCon (#DDebtCon), a two-week sovereign debt-a-thon spanning nine countries,* five time zones, and every continent save for Australia and Antarctica. *We counted - (1) Argentina, (2) Barbados, (3) China, (4) Italy, (5) Singapore, (6) South Africa, (7) Switzerland, (8) UK, (9) US - plus global and regional host organizations, including III (also co-sponsoring the event), CEPR, and ABFER. I suspect that slipsters already know about this podcast. But, just in case any of you have not, I wanted to flag Promises, Promises by Dave Hoffman and Tess Wilkinson-Ryan. This is especially wonderful if you are teaching contract law via zoom this term and need additional content to add to what you are doing already. The podcast has been my savior in that it brightens my mood so much to hear these two brilliant scholars have fun talking through the classic cases while I m on long walks. (Indeed, today I discussed their discussion of Hamer v. Sidway with Anna Gelpern for over an hour while I was walking).Listening to the conversations between Tess and Dave makes me remember why I wanted to be an academic in the first place -- and it was not to write boring law review articles with ridiculous numbers of footnotes. It was at least in part to have conversations like the ones Tess and Dave have on their podcast (ideally, with some good scotch at hand). I imagine that it is a special treat to be a student in their classes (or to be their colleague).Bravo, my friends. Bravo.The podcast is available on iTunes, Spotify and a bunch of other places. p.s. I wonder whether I might be able to persuade them to do an episode on the Gold Clause cases. Hmmm. Mark Weidemaier Mitu GulatiTo prepare for later discussions about how to address the looming debt crisis caused by Covid-19, our first few episodes of Clauses and Controversies look backwards, albeit to historical events with current salience. Episode Two is our first official episode and is about pre-PRC Chinese bonds that have been in default since before World War II. One of us (Mitu) loves this topic and the other (Mark) increasingly flies into a rage whenever it comes up.Our guests are the wonderful Tracy Alloway of Bloomberg (whose article about these bonds last year went viral), sovereign debt guru Lee Buchheit (who knows more about the history of these types of bonds than anyone – here’s the FT s Robin Wigglesworth on Lee), and Alex Xiao, a former student who is working on a paper on this topic.The subject of defaulted Chinese bonds is back in the news, largely in connection with U.S.-Chinese trade talks. (Are there trade talks?) A group of ardent Trump supporters have apparently accumulated a bunch of these bonds. Izabella Kaminska of the FT wrote about this a recently, and so did Fox Business a couple of days ago. (The Fox Business piece was a bit more enthusiastic, shall we say, than the others.) Previous lawsuits seeking to enforce them have failed on sovereign immunity and statute of limitations grounds, so these investors are lobbying the President to negotiate a recovery for them as part of his trade talks. And there is some reason to think the administration might be interested. The President is inclined to anti-China and anti-Chinese rhetoric, and these defaulted bonds are an opportunity to indulge that impulse further. Plus, Chinese institutions hold huge amounts of U.S. government debt, and some have floated the loony idea that these defaulted Chinese bonds could be used to offset some of that debt. For a deeper dive, here is a fun piece, The Emperor’s Old Bonds, by three former students.So, why do we have a love hate relationship with these bonds? Here are the remarks we sent our expert guests as a prelude to asking for their views. Mark Weidemaier Mitu GulatiBoth of us are teaching 1L Contracts online this semester and fear we also may have to do the same for our joint Duke/UNC sovereign debt class next semester. One silver lining is that we have been forced to think of ways to break up the normal class routine. One of these ways is that we are creating a podcast titled Clauses and Controversies. Thanks to our superb producer, Leanna Doty, the first three episodes are up on iTunes, and Soundcloud, and Overcast. We wanted to come up with something to expose students to ideas and topics that excite us, while giving them a chance to hear conversations with our favorite commentators who study and work on contracts and sovereign debt. The timing seemed right, too, as the economic fallout of Covid-19 may cause many sovereign debt defaults and restructurings.There is no global mechanism for efficiently and fairly handling a global wave of sovereign financial distress and default. The wave almost hit this past March, when the financial system hit a sudden stop as people seemed to finally recognize the pandemic. Since then, massive infusions of Official Sector capital have allowed government borrowing to continue. But another sudden stop may be in the offing, and even if not the long-term economic damage of the pandemic may tip governments into insolvency.The first episode is an introduction, which sets out what we hope to do with the series and then gets into the ongoing dispute over whether investors can seize Venezuela’s prize oil refinery in Texas. The absence of a handful of words in the PDVSA governing law clause might make all the difference. But we don’t think it should. (For anyone seeking a deeper dive into the issue, see here.)We owe an immense debt to our friends in the business who have been so generous in giving us their time, energy, and insight. We also owe a debt to Dave Hoffman and Tess Wilkinson-Ryan for providing us with inspiration with their brilliant contract law podcast series, “Promises, Promises. Fair warning: they are much more brilliant and hilarious than we are. It must be a treat to be in their classes. Student loan relief provisions required by the CARES Act expire on September 30. Those protections included 1) for all federal direct loans: zero interest and automatic payment forbearance, 2) credit towards IDR and PSLF forgiveness for the 6 months covered by the Act, and importantly, 3) suspension of wage garnishments and other collections on defaulted loans. The Act called for student loan borrowers to receive notice in August that payments will restart October 1 and that borrowers not already in income-driven repayment plans can switch, so that borrowers with no or little income can remain on zero payments (but not if they were in default.)The President’s Executive Memorandum calls on the Secretary of Education to take action to extend economic hardship deferments under 20 U.S.C. 1087e(f)(2)(D) to provide “cessation of payments and the waiver of all interest” through December 31 2020. These deferments are to be provided to “borrowers.” The Memorandum does not specify which loan categories (Direct, FFEL, Perkins, private) should be included, nor whether relief to borrowers in default should continue. Advocates also note that the Memorandum is vague as to whether borrower relief will continue automatically, or instead whether students will have to request extended relief, as under the Education Department’s administrative action just prior to passage of the CARES ACT. As of this writing the Education Department has posted no guidance for borrowers or servicers on its web site. Servicers will need guidance soon, and borrowers meanwhile will be receiving a confusing series of CARES Act termination letters and conflicting information about the latest executive action. UPDATE - USED has apparently issued guidance to collection agencies saying that borrowers in default are included in the Executive action so that garnishments and other collection should remain suspended through December 31, 2020.The HEROES Act passed by the House would extend all borrower relief until at least September 30 2021, would bring in all federal direct, guaranteed and Perkins loans, and would grant a $10,000 principal balance reduction to “distressed” borrowers. The House also included an interesting fix to the Public Service Loan Forgiveness program so that borrowers will not have to restart their ten-year clock towards loan forgiveness when they consolidate federal loans. In lieu of any extended student loan relief, Senate Republicans have proposed that borrowers just be shifted to existing income-dependent repayment plans. Existing IDR plans already allow zero payments for borrowers with zero or very low income, but do not stop the accrual of interest. They are not available to borrowers in default, so wage garnishments and collections for borrowers who were in default before March would resume October 1 under the Republican proposals. Free Kindle and ePub versions of the Bankruptcy Code are available through Credit Slips. For details and links, visit the original blog post announcing the availability of these files. As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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