Supreme Court Rescinds Consideration of Case on Recharacterization of Debt
The Supreme Court issued an order today rescinding the certiorari grant in PEM Entities v. Levin, saying that it was "improvidently granted." According to the order, the "joint motion of PEM Entities LLC and Province Grande Olde Liberty, LLC to confirm party status is dismissed as moot." The High Court had granted cert in the case in June to resolve a split of circuits by deciding whether bankruptcy courts should employ state or federal law in recharacterizing debt as equity. Click here to read the June analysis of the case by ABI's Bill Rochelle.
U.S. to Help Remove Debt Burden for Students Defrauded by For-Profit Chain
Nearly 25 years after a nationwide chain of beauty and secretarial schools was closed for defrauding students, the Department of Education has agreed to help victims wipe clean their burdensome federal student loan debts, the New York Times reported today. More than 36,000 students — mostly low-income, immigrant women — who attended schools run by Wilfred American Educational Corp. could potentially be affected by the settlement, which was approved by a federal court judge on Tuesday. “The department has been collecting on these loans for decades, including by garnishing wages and intercepting income tax refunds,” said Jane Greengold Stevens, the director of litigation at New York Legal Assistance Group, a nonprofit representing the former students. “Finally, by entering this settlement, the department is providing the students an opportunity to get out from under the burden of these loans.” Even as this decades-old case is being resolved, Education Department officials, attorneys general, lawmakers, advocates and former students are battling over more recent cases involving the erasure of billions of additional dollars in federally guaranteed loans that were taken out by students who were defrauded. “We hope the lawsuit, and the settlement, will encourage the department to take steps in the future to prevent for-profit schools from engaging in fraudulent activity, to keep borrowers from becoming victims in the first place,” Greengold Stevens said.
Lawmakers Want Banks Punished over Massive Ponzi Scheme
Lawmakers are asking a top federal regulator to crack down on several banks connected to a mid-2000s Ponzi scheme, arguing the government hasn’t done enough to get victims compensation, The Hill reported today. The bipartisan group called on the Office of the Comptroller of the Currency (OCC) to punish several banks for holding funds for Allen Stanford, convicted in 2012 of running the second-largest Ponzi scheme in U.S. history. In a letter to Acting Comptroller Keith Noreika dated Aug. 8, Reps. Roger Williams (R-Texas), Bill Posey (R-Fla.), Charlie Crist (D-Fla.) and Vicente González (D-Texas) asked the OCC to update them on efforts to hold the banks accountable, compensate victims and prevent similar schemes from happening again. Stanford stole billions from customers who thought they were purchasing certificates of deposit. In reality, Stanford enriched himself off the $8 billion investment scheme and is serving a 110-year sentence in federal prison. Though Stanford will likely spend the rest of his life in prison, his victims are still attempting to claim restitution from banks that acted as the U.S. connections to Stanford’s Antigua-based bank. Such firms provided correspondent banking services in the U.S. for Stanford, allowing him access to the country’s financial system.
A Mortgage Mystery: What Happens to ARMs When Libor Goes Away?
The Libor index is going away, and for U.S. consumers, its demise is most likely to be felt in adjustable-rate mortgages (ARMs), the Wall Street Journal reported on Tuesday. ARMs — where the interest rate rises and falls with broader indexes — are often closely tied to Libor, or the London interbank offered rate. While ARMs are out of favor these days, they are still a sizable portion of the mortgage market, and once Libor disappears it is unclear to what those mortgages would be pegged. U.K. authorities recently said Libor would be phased out over the next five years due to allegations bankers manipulated it, which could prove troublesome for borrowers, lenders and investors in mortgage securities. “In a fairly short amount of time, no one is going to know how to compute what the next payment is going to be” for this kind of mortgage, said Lou Barnes, a capital markets analyst with Premier Mortgage Group in Boulder, Colo.
Commentary: Today’s Financial Crisis: We Forgot the Financial Crisis of 2007
The measure of a true financial crisis is that money itself comes into question, according to a Wall Street Journal commentary today. The global financial crisis began 10 years ago this week, when a French bank suspended three money-market funds. What savers thought was money turned out to be merely credit, and the realization rapidly trashed U.S. money-market funds and the global banking system. There is little risk of a repeat any time soon. While there is plenty of financial innovation going on, the amounts being parked in modern money alternatives are relatively small, at least outside of China. The danger is that investors are complacent to an extraordinary degree, lulled into a false sense of security by the extraordinarily calm markets. There is no margin of error, and if investors turn out to be wrong it will be a nasty shock.
Participate in Next Consumer Commission Meeting on Sept. 15 at NABT
The Committee on Chapter 7 of the ABI Commission on Consumer Bankruptcy will hold a public meeting during the National Association of Bankruptcy Trustees (NABT) on September 15 from 12:30 to 2:00 PM in the Marriott New Orleans in New Orleans, Louisiana. Attendees are invited to speak at the public meeting. For more information, including submission guidelines, please click here.
A list of topics under consideration by the Commission is available on the Commission’s website at https://consumercommission.abi.org/. To submit any comments or suggestions for the Commission, please e-mail [email protected].
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New on ABI’s Bankruptcy Blog Exchange: PHH to Pay $75M False Claims Act Settlement with DOJ
PHH Corp. will pay the Justice Department $75 million to settle a False Claims Act investigation of its underwriting practices on government-insured mortgages and loans sold to Fannie Mae and Freddie Mac, according to a recent blog post.
To read more on this blog and all others on the ABI Blog Exchange, please click here.
