In a report today that will likely lead to new regulations, the Consumer Financial Protection Bureau is taking a strong stance against lenders that use contract clauses to block consumers from going to court, American Banker reported today. At issue are arbitration clauses, which lenders have used for decades in contracts with consumers and businesses to force disputes to be settled outside of court through a third-party arbitrator. Although some lawmakers and consumer advocates have raised objections to such clauses, the Supreme Court has repeatedly upheld their use. But the CFPB could change that. In its 168-page report, the agency said that roughly 9 out of 10 clauses allow banks to prevent consumers from participating in class actions and that consumers almost never initiate an arbitration. Thus, mandatory arbitration clauses are more harmful than helpful to consumers. As a result, the agency appears likely to write new rules that could restrict or even eliminate the use of arbitration clauses. Arbitration clauses are commonly used by many financial service providers because they're a less expensive way of settling disputes. But the CFPB and consumer groups are concerned that forcing settlements outside of the courts strips away certain legal protections for consumers. They also argue that many consumers are not even aware of the arbitration clause embedded in contracts, some of which are far stricter than others. Read more. (Subscription required.)
RealtyTrac reported today that foreclosure activity in November was down 37 percent from a year ago and 15 percent from October, according to USA Today. November foreclosure starts fell to their lowest level since December 2005 -- before the historic housing bust began. Foreclosures may stage a "weak rally" in some markets next year as the last of the distressed homes left over from the recession are dealt with, according to RealtyTrac vice president Daren Blomquist. A foreclosure comeback that poses any major threat to the housing recovery is "highly unlikely," he says. States with the highest foreclosure rates in November were Florida, Delaware, Maryland, South Carolina and Illinois, according to RealtyTrac. More than 7.7 million homes have been lost to bank repossession via foreclosure, short sale or some other distressed sale since late 2006, RealtyTrac estimates. Read more.
ANALYSIS: UNLIKELY LEGACY OF MADOFF'S PONZI SCHEME
Five years after Bernard Madoff's Ponzi scheme made hedge funds seem scary, the industry got busy making them seem safe enough for everybody, the Wall Street Journal reported yesterday. "Liquid alternative funds" have become the hottest thing in the mutual-fund business. These portfolios -- essentially hedge funds with a longer, trendier name -- employ such strategies as betting on mergers, wagering that stocks will go down as well as up, and using derivatives like futures and options. Their assets are up 33 percent this year to more than $244 billion, with nearly $53 billion flowing as of Sept. 30, according to Strategic Insight, a fund-industry research firm. Since 1940, managers of mutual funds have been required to register with the Securities and Exchange Commission. Partly as a response to the Madoff scandal, the Dodd-Frank financial-regulation law, enacted in 2010, generally requires all investment firms managing at least $100 million to register with the SEC. As a result, many managers who previously ran only hedge funds became eligible to run mutual funds for the first time. At the same time, millions of investors, still smarting from their losses on stocks and bonds during the financial crisis, were looking for new ways to diversify. Hedge-fund managers now must disclose details about fees, strategies and operations that individual investors often couldn't get under previous regulations. That has boosted the sales pitch for alternative funds by introducing the word "transparency." Read more. (Subscription required.)
FED MOVES TOWARD USING NEW TOOL FOR SETTING RATES
An experimental bond-trading program being run at the Federal Reserve Bank of New York could fundamentally change the way the central bank sets interest rates, the Wall Street Journal reported today. Fed officials see the program, known as a "reverse repo" facility, as a potentially critical tool for when they want to raise short-term rates in the future to fend off broader threats to the economy. Of particular concern for the Fed is finding a way to contain inflation once the trillions of dollars it has sent into the financial system get put to use as loans. Under this system, the Fed would raise short-term interest rates by borrowing in the future against its large and growing securities portfolio. The Fed traditionally has managed short-term interest rates by shifting its benchmark federal-funds rate, an overnight intrabank rate. It did this by controlling how much money flowed into and out of the banking system on a daily basis. Small adjustments could significantly impact short-term rates. Since the Fed has pumped $2.5 trillion into the economy by purchasing bonds, the old system won't work unless the central bank pulls much of this money out. Instead, what Fed officials increasingly envision is a system in which it would tie up this money as needed by offering investors and banks interest on their funds. Read more. (Subscriptions required.)
NOW AVAILABLE FOR PRE-ORDER: BEST OF ABI 2013: THE YEAR IN CONSUMER BANKRUPTCY
Now available for pre-order in the ABI Bookstore is Best of ABI 2013: The Year in Consumer Bankruptcy. This must-have reference contains the best ABI Journal articles and papers from ABI's top-rated educational seminars selected by ABI Board Member Alane Becket of Becket & Lee LLP (Malvern, Pa.) to cover the most important developments in consumer bankruptcy for 2013. The book delves into such timely topics as the foreclosure crisis, tax issues, the latest on chapter 13, student loans and much more, and it also features relevant case summaries drawn from ABI's Volo site (volo.abi.org). Make sure to log into www.abi.org to get your discounted ABI member pricing. The book will ship in mid-December. Click here to order.
RENEW YOUR ABI MEMBERSHIP BY DEC. 31 AND SAVE!
Beginning in January 2014, ABI will institute its first dues increase to the regular dues rate in six years. The $20 increase will ensure that ABI can continue to provide you with the latest and most effective tools available in insolvency information and education. You can lock in 2013 rates, and additional discounts, for up to three years by using a multi-year renewal option (save $75!). You can also save 10 percent on future dues by opting into the automated dues program. To renew your membership and save, please go to renew.abi.org.
ABI LAUNCHES SIXTH ANNUAL WRITING COMPETITION FOR LAW STUDENTS
Law school students are invited to submit a paper between now and March 4, 2014 for ABI's Sixth Annual Bankruptcy Law Student Writing Competition. ABI will extend a complimentary one-year membership to all students who participate in this year's competition. Eligible submissions should focus on current issues regarding bankruptcy jurisdiction, bankruptcy litigation, or evidence issues in bankruptcy cases or proceedings. The first-place winner, sponsored by Invotex Group, Inc., will receive a cash prize of $2,000 and publication of his or her paper in the ABI Journal. The second-place winner, sponsored by Jenner & Block LLP, will receive a cash prize of $1,250 and publication of his or her paper in an ABI committee newsletter. The third-place winner, sponsored by Thompson & Knight LLP, will receive a cash prize of $750 plus publication of his or her paper in an ABI committee newsletter. For competition participation and submission guidelines, please visit http://papers.abi.org.
NEW CASE SUMMARY ON VOLO: CLARK V. PETERS (IN RE BRYAN; 10TH CIR.)
Summarized by Bryan Robinson of the Law Offices of Bryan Robinson
In a decision in which the Tenth Circuit affirmed in part, reversed in part and remanded for the lower court's consideration, the court held that Mr. Clark's judgment lien recorded in 2004 attached to the property upon Mr. Bryan's recording of the property in his name on May 19, 2005.
There are more than 1,000 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.
NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: WHEN DEBT COLLECTORS WON'T STOP DESPITE BANKRUPTCY
The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A recent blog post discusses potential remedies for consumer debtors to take if debt collectors won't stop trying to collect after a bankruptcy has been filed.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
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