CFPB STUDY FINDS MEDICAL DEBT OVERLY PENALIZES CONSUMER CREDIT SCORES
The Consumer Financial Protection Bureau (CFPB) released a research report today that found consumers' credit scores may be overly penalized for medical debt that goes into collections and shows up on their credit reports. According to the study, credit-scoring models may underestimate the creditworthiness of consumers who owe medical debt in collections. The scoring models also may not be crediting consumers who repay medical debt that has gone to collections. According to a study by the Federal Reserve Board, over half of all collections on credit reports are associated with medical bills. The vast majority of medical debt reflected on credit records is reported by third-party collection agencies. The consumer may not even be aware of a debt that has been sent to collections or that it is on their credit record, according to the study. A collection account generally can stay on a report for up to seven years. To read the CFPB's new study, please click here.
LATE-PAYMENT RATE ON AUTO LOANS EDGED HIGHER IN 1Q 2014
More Americans fell behind on their car payments in the first three months of the year, reflecting strong growth in auto loans versus a year ago and increased lending to borrowers with less-than-perfect credit, the Associated Press reported yesterday. Even so, the auto loan delinquency rate remains below the average rate for the January-March period going back to 2008, credit reporting agency TransUnion said yesterday. The rate of U.S. auto-loan payments late by 60 days or more rose to 1 percent in the first quarter. That's up from 0.95 percent in the same period last year, but down from 1.14 percent in the last three months of 2013. TransUnion recorded a total of 70 million auto loan accounts as of the first quarter, an increase of 22 percent from a year earlier. Auto loan debt per borrower grew 4.1 percent to $16,862 in the January-March period from a year earlier. Read more.
COMMENTARY: A BEGINNER'S GUIDE TO REPAYING STUDENT LOANS
Too many people, including plenty of brand-new college graduates, fall far behind on their student loan payments, according to a commentary in Saturday's New York Times. Student loan expert Mark Kantrowitz, using data from lenders, estimates that between one-quarter and one-third of borrowers are late paying their first student loan bill. Last year, the Federal Reserve Bank of New York, using 2012 data from the credit bureau Equifax, determined that 35 percent of people under 30 who were supposed to be making student loan payments each month were actually 90 or more days delinquent. A student's road to repayment needs to begin with an accounting of every individual loan, according to the commentary. The first payments on student loans may be due at different times: Some federal loans give students a six-month grace period after graduation, while others give nine months. With private loans, it varies. Read the full commentary.
For more information on the student loan debt crisis, be sure to attend ABI's Student Loan Debt Symposium on May 30 at Georgetown University Law Center, featuring scholars, consumers, practitioners and policymakers examining the student debt crisis and possible solutions.
NEW YORK REGULATOR EXPANDS PROBE OF USE OF ANCILLARY FIRMS BY MORTGAGE SERVICERS
New York's top financial regulator plans to expand a continuing probe of mortgage-servicing firms' relationships with affiliated businesses in the coming weeks, the Wall Street Journal reported today. Benjamin Lawsky, superintendent of the New York Department of Financial Services, said that he continues to have concerns about how such firms are using auctioning, technology and other services from affiliated businesses. In February, Lawsky sent a letter to Ocwen Financial Corp., the largest nonbank mortgage servicer, seeking details about its relationships with companies that provide it with technology services over concerns that ties between the companies present conflicts that may drive up costs for homeowners. He later sent a letter to Nationstar Mortgage Holdings Inc., another large nonbank servicer, citing similar concerns about its use of services provided by a subsidiary. "The potential for conflicts of interest and self-dealing here are perfectly clear," Lawsky said. "Servicers have every incentive to use these affiliated companies exclusively for their ancillary services, and they often do. The affiliated companies have every incentive to provide low-quality services for high fees, and they appear in some cases to be doing so." Read more. (Subscription required.)
REPORT: PRIMARY LESSON FROM LEHMAN IS KEEP CORE OPERATIONS SIMPLE
A new research paper from Prof. Stephen Lubben of Seton Hall University Law School and blogger Sarah Woo found that instead of focusing on the size and complexity of Lehman Brothers' financial business, the lesson for officials dealing with the next big bank blowup is to separate the bank's core operations from its finance subsidiaries, the Wall Street Journal reported on Saturday. The authors argue that if the core businesses -- in Lehman's case, its New York holding company and brokerage and its U.K. branch -- of a too-big-to-fail institution can be propped up until they're quickly sold off or resolved, much of the turmoil surrounding Lehman could be avoided. "Reconceiving Lehman in this way has several important implications," Lubben and Woo write. "First and foremost, it illustrates the problem that we term 'structural dependence,' which is endemic in financial institutions. The vast majority of individual subsidiaries of Lehman and other financial institutions were never designed to operate as standalone entities and instead function as little more than tools to finance the core operating companies." As for the cross-border protocols promoted by most international bankruptcy experts, Lubben and Woo say that they may just be too "nice" to deal with distressed financial companies. Because of their "structurally dependent" subsidiaries, financial institutions are different from what they dub "real economy" firms. Instead, they argue for a "quicker, less deferential approach" to dealing with large, global financial institutions that are on the brink. Click here to read the paper.
NEW BANKRUPTCY FILING FEE INCREASES TO TAKE EFFECT JUNE 1
The Judicial Conference of the United States has approved several bankruptcy-related fee increases to take effect starting June 1. Based on the chapter, the cost to file will be:
- Chapter 7: $335
- Chapter 13: $310
- Chapter 9, 11 and 15: $1,717
- Chapter 12: $275
The fee schedule changes project to raise about $35 million per year for the courts, based on current case loads. For more information, please click here.
NEW CASE SUMMARY ON VOLO: ICE HOUSE AMERICA LLC V. CHARLES CARDIN (6TH CIR.)
Summarized by Jason Forbes of Mason, Schilling & Mason Co. LPA
The U.S. Court of Appeals for the Sixth Circuit held that the "absolute-priority rule" applies to individual chapter 11 debtors; therefore, objecting impaired unsecured creditors must be paid in full before an individual debtor can retain any pre-petition property under a chapter 11 plan.
There are more than 1,300 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: THE RURAL/METRO DECISION AND ITS RELEVANCE TO REORGANIZATION
A recent blog post examines the recent decision by Vice Chancellor Laster of the Delaware Chancery Court in In re Rural/Metro Corp. Stockholders Litigation, and some of the lessons learned from that decision.
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.
ABI Quick Poll
Enforcing pari passu clauses in favor of holdout bondholders by injunction against Argentina will undermine sovereign debt restructurings (NML Capital, Ltd. v. Republic of Argentina).
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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