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JPMorgan Prevails in $8.6 Billion Lehman Creditor Lawsuit

JPMorgan Chase & Co. prevailed in an $8.6 billion lawsuit brought on behalf of Lehman Brothers Holdings Inc. creditors who said that the bank abused its power by draining Lehman of critical liquidity in its final days, precipitating the global financial crisis, Reuters reported yesterday. U.S. District Judge Richard Sullivan rejected claims that JPMorgan exploited its "life or death" leverage as Lehman's main "clearing" bank to extract billions of dollars of collateral just before Lehman went bankrupt on Sept. 15, 2008. Creditors said that JPMorgan had no need for this despite volatile markets and extracted a windfall at their expense. But the judge said JPMorgan was entitled to demand collateral to secure Lehman's obligations and did not defraud Lehman into providing it. He also said that JPMorgan had no contractual obligation to extend credit to keep Lehman alive.

Puerto Rico Advisory Board Backed by Leader of U.S. House Panel

Rep. Tom Marino (R-Pa.), who has balked at legislation that would let some Puerto Rico government agencies seek bankruptcy, said that he’s instead pushing for the creation of a federal board to advise the island on its finances, Bloomberg News reported yesterday. Marino, chairman of the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law, said that the panel would be appointed by Congress and the Obama administration. He said that it would suggest how the territory could cut spending and take other steps — such as seeking an exemption from the minimum wage — to put an end to its chronic budget deficits and spur the economy. It wouldn’t take direct control. "Strictly advisory," he said. "This takes it out of the hands of the passions of the people of Puerto Rico." Read more

For further developments on Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage

Feds Order $44.1 Million in Relief for Illegal Debt Collection Tactics

An auto finance company and its auto title lending arm must overhaul their collection practices and provide consumers $44.1 million in cash relief and balance reductions to settle charges brought by the Consumer Financial Protection Bureau, Collections & Credit Risk reported yesterday. The enforcement action, announced Thursday, includes a $4.25 million civil penalty. Westlake Services LLC and Wilshire Consumer Credit LLC allegedly deceived consumers by calling under false pretenses and using phony caller ID information, falsely threatened to refer borrowers for investigation or criminal prosecution and illegally disclosed information about debts to borrowers’ employers, friends and family. The CFPB found that Westlake and Wilshire deceived borrowers into thinking they were being called by repossession companies, other third parties or even the borrowers’ own family and friends. The CFPB’s investigation found that the companies’ debt collectors used a web-based service, Skip Tracy, to place outgoing calls and choose the phone number and caller ID text that the call recipient would see.

Analysis: With Consumer Lenders Under Regulatory Glare, Big Banks Tighten Purse Strings

Consumer lending firms that focus on borrowers with weak credit have done surprisingly well in the last few years, the New York Times DealBook blog reported yesterday. Many survived the financial crisis of 2008, the Great Recession, and even went on to post strong profits in the face of an onslaught of new regulations. Now, though, these lenders face pressure from an unlikely source: the big Wall Street banks that have long provided the financial underpinnings for their operations. The large banks lend money to the consumer finance firms, which use it to make high-interest loans to individuals. But recently some banks have begun tightening the terms of the financing in a way that could have far-reaching implications for the consumer finance industry. The lenders have come under Consumer Financial Protection Bureau scrutiny for a range of practices that can lead borrowers to believe they are paying far less in interest and fees than they actually are.

Judge in Archdiocese Bankruptcy Balks at Adding New Costs

The federal judge overseeing the bankruptcy of the Archdiocese of St. Paul and Minneapolis questioned the need for more legal and other professionals to resolve the case during a court hearing yesterday, Minnesota Public Radio reported. The legal bill for the bankruptcy is already about $3.6 million. Now, the archdiocese wants a firm hired to represent sex abuse victims who might file claims against the church in the future. The estimated cost is $150,000. About 400 people filed abuse claims by an August deadline, but the archdiocese says some people could still come forward with legally viable claims of abuse that occurred before the church's bankruptcy filing and could argue they were not subject to the August cutoff. Russell Roten, an attorney representing insurers, said that a future claims representative would add some finality to the case by contemplating possible claims and seeing that funds are set aside to provide compensation. Read more.

A panel at ABI’s Winter Leadership Conference will provide further perspectives on issues surrounding diocesan bankruptcies. Click here to register for the conference. Early bird rate expires today!