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Consumer Watchdog Proposes New Rules to Curb Abuses by Debt Collectors

Noting that debt collectors trigger more consumer complaints than any financial product or service, the Consumer Financial Protection Bureau (CFPB) unveiled plans yesterday to rein in the most serious abuses, the Pittsburgh Post-Gazette reported today. “We are considering proposals that would drastically overhaul the debt collection market,” CFPB  Director Richard Cordray, said. “This is about bringing better accuracy and accountability to a market that desperately needs it.” Roughly 1 in 3 consumers were contacted by a creditor or collector trying to collect a debt in the past year, the CFPB said. The largest segment of complaints involve continued attempts to collect a debt that a consumer said was not their debt in the first place, or had already been repaid or discharged in bankruptcy, Cordray said. The changes would apply to third-party debt collectors, including many debt buyers. New rules for first-party collectors, such as credit card companies and payday lenders, will be addressed “soon” but separately. The National Consumer Law Center praised the proposed curbs, saying that they would “significantly strengthen” consumer protections. Still, the group said the changes did not go far enough. The group also said it was disappointed that the proposal did nothing to raise penalties for abusive practices.

Judge Denies Request to Expose More Archdiocese Assets to Abuse Claims

A legal request to widen the scope of assets included in the Archdiocese of St. Paul and Minneapolis’ bankruptcy proceedings filed by survivors of clergy sexual abuse has been rejected, Pioneer Press (Minnesota) reported yesterday. Bankruptcy Judge Robert J. Kressel denied the motion, which ultimately sought to consolidate the archdiocese’s assets to reflect what the survivors believe is a more accurate representation of its financial reach. The survivors’ committee (the official committee of unsecured creditors) alleges that the archdiocese has attempted to shield many of its assets over the years to protect itself and its bank account from legal claims made by survivors. It argues that the archdiocese has some $1.7 billion in assets — far more than the $49 million it has listed in its bankruptcy filings. The committee has accused  the archdiocese of vastly undervaluing assets such as the Cathedral of St. Paul and tucking money away in other corporations to shield it from creditors. It’s also claimed that the archdiocese’s roughly 200 parishes should be considered part of its assets. An attorney representing the survivors committee called the judge’s decision disappointing and said an appeal would be forthcoming. The archdiocese filed for bankruptcy in January 2015 as it faced an onslaught of new abuse claims after Minnesota lawmakers opened a three-year window for claims that had previously been barred by the statute of limitations.

Detroit Prices First GO Bonds Since Bankruptcy

Detroit sold its first general obligation (GO) bonds since exiting bankruptcy in 2014, lured back into the market to refund debt by near-record low interest rates and high demand from investors, Reuters reported today. The city's 10-year tax-exempt debt yielded 2.34 percent, or 0.92 of a percentage point higher than top-rated municipal bonds as measured by Municipal Market Data's (MMD) triple A scale. That was significantly better than when it sold revenue bonds nearly a year ago. The bonds are backed by state aid, so the sale is not solely a vote of confidence in the city's turnaround story since it exited bankruptcy in December 2014. Continuing caution over Detroit reflects concern that while the city is heading in the right direction its financial condition is still tenuous. Some fear the city could declare bankruptcy again, possibly within 10 years, with an even more painful outcome for investors than before. The city sold a total of $608.9 million in bonds, issuing $223.8 million in tax-exempt securities. Even though the deal is backed by state funds, tighter spreads highlight demand for tax-free debt and investors' "reach for yield" in the current near-record low interest rate environment.

Atlantic City to Receive Loan to Stave Off Default

Atlantic City, N.J., is about to get a long-awaited state loan to help it stave off default and possibly bankruptcy, the Associated Press reported today. But it will pay a steep price if it can’t pay it back: The state will be able to step in and seize prized assets like a much-coveted water utility, and a former airport property that could be home to a huge development. The City Council called an emergency meeting to accept the $74 million loan to help the nearly broke city get through the rest of the year. Moody’s Investors Service warned that the city likely would default on a $3.4 million debt service payment if the loan did not go through by Monday. The funds will relieve the short-term pressure as it tries to come up with a fiscal reorganization that would prevent the state from taking over its finances and major decision-making power in November. The loan is part of a wider agreement between the city and Gov. Chris Christie that was reached earlier this year giving Atlantic City until early November to get its financial act together. The deal avoided a state takeover that would have taken effect this summer.

Amid FBI Probe, Opa-Locka Manager Resigns as City Nears Bankruptcy

Just a day after City Manager David Chiverton stunned elected leaders by resigning his office in the course of a federal criminal investigation, Opa-Locka, Fla., officials announced they were close to broke and would not be able to pay their workers come September, the Miami Herald reported yesterday. With just $350,000 left in the general fund, Opa-Locka may have to consider bankruptcy. The impoverished city has been under the oversight of a state financial emergency board since June. Florida Inspector General Melinda Miguel said that she was riled by the city’s failure to meet critical deadlines in filing a budget and recovery plan by Aug. 1 in what was once a firm deadline. Miguel blasted the city’s elected leaders, saying that they were not doing enough to keep costs down or tackling the critical problems that threaten the entire operation of the city. The revelations about the city’s grim financial picture provided even more drama that began with news that Chiverton had stepped down. A target of an ongoing FBI probe into corruption in Opa-locka, Chiverton took a leave of absence this spring after it was revealed that he paid himself tens of thousands in unused sick and vacation pay to which he was not entitled. Local business owners working as informants for the FBI paid Chiverton and other city officials thousands of dollars in bribes to get operating licenses and water connections.

Gawker Founder Nick Denton Wins Temporary Reprieve from Hulk Hogan Judgment

A Florida appeals court temporarily lifted the threat of personal bankruptcy hanging over Gawker Media LLC founder Nick Denton as a result of a heated legal battle with former wrestler Hulk Hogan, The Wall Street Journal reported on Wednesday. The judge’s ruling prevents Terry Bollea, the wrestler’s real name, from enforcing a $140 million invasion-of-privacy judgment handed down in Florida earlier this year over sex tape that the blog published in 2012. The judgment, which is being appealed, led Gawker to file for chapter 11 protection last month. Denton is personally liable for $10 million of the judgment and jointly liable, along with former Gawker editor A.J. Daulerio, for another $115 million. Without court protection, Mr. Denton has said he can’t afford to pay the judgment and would have no choice but to file for bankruptcy. The ruling, made in response to an emergency request by Denton and Daulerio, protects them until the court can hold another hearing on the matter. The court didn't require Denton or Daulerio to post a bond or to pledge assets to secure the ruling. Lawyers for Denton and Daulerio said that they should be able to pursue their appeal of the $140 million judgment without facing financial ruin. The request “is warranted here because forcing the defendants into bankruptcy was the true purpose of this case all along.”