Pension advances are having devastating financial consequences for a growing number of older Americans, threatening their retirement savings and plunging them further into debt, according to a New York Times report on Sunday. The advances, federal and state authorities say, are not advances at all, but carefully disguised loans that require borrowers to sign over all or part of their monthly pension checks. They carry interest rates that are often many times higher than those on credit cards. Pension-advance companies are aggressively courting people with public pensions, such as military veterans, teachers, firefighters, police officers and others. The companies operate largely outside of state and federal banking regulations, but are now drawing scrutiny from Congress and the Consumer Financial Protection Bureau. A review by the New York Times of more than two dozen contracts for pension-based loans found that after factoring in various fees, the effective interest rates ranged from 27 percent to 106 percent — information not disclosed in the ads or in the contracts themselves. Furthermore, to qualify for one of the loans, borrowers are sometimes required to take out a life insurance policy that names the lender as the sole beneficiary. Read more.
EDITORIAL: REGULATORS SHOULD CONTINUE CRACKDOWN ON PREDATORY LENDERS
Federal banking regulators are clamping down on the small but growing number of banks that emulate the predatory practices of storefront payday lenders, according to an editorial in yesterday's New York Times. The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency last week proposed new guidelines for the banks they oversee. The Federal Reserve, which oversees other banks that engage in payday lending, should follow suit, according to the editorial. The payday industry business model relies on the fact that most people cannot afford to repay the original loan, which means they end up saddled with long-term debts carrying interest rates of 400 percent or more, according to the editorial. After watching millions of consumers being eaten alive by the transactions, 15 states have banned these predatory loans. The federal agencies are soliciting public comment on the proposals, but on the face of it these loans seem to be grounded in common-sense lending practices. The banks will have to assess the consumer’s ability to repay before making a loan. Banks will be required to wait 30 days before making another loan, and will not be able to extend loans to borrowers who have not paid previous obligations. Finally, banks will be required to disclose the actual cost of the loan. Read more.
CFTC DEMANDS THAT BANKS PROVE DODD-FRANK ACT SWAPS COMPLIANCE
The U.S. Commodity Futures Trading Commission has given the world’s largest banks until May 3 to prove that they are complying with a part of the Dodd-Frank Act, Bloomberg News reported today. The 2010 law requires swaps brokers to accept or reject a trade for clearing in less than 60 seconds. Goldman Sachs Group Inc., Bank of America Corp., Credit Suisse Group AG, UBS AG, Barclays Plc and JPMorgan Chase & Co. were among the banks that received the April 17 letter, a copy of which was given to Bloomberg News. The CFTC in November granted three-month delays to at least eight banks for implementing the time standard. Read more.
COMMENTARY: SHOULD SMALLER BANKS REALLY HAVE LESS CAPITAL PROTECTION?
While Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) last week introduced S. 798, the "Terminating Bailouts for Taxpayer Fairness Act," nowhere in the proposal is there a provision to end “too big to fail,” according to a New York Times DealBook blog on Friday. What the two senators are offering, according to the commentary, is an unprecedented attempt to unfairly advantage smaller “regional banks” and disadvantage bigger “megabanks.” The pretext underlying the Brown-Vitter proposal is that smaller regional banks are less risky than the large institutions. Historically, however, just the opposite has been true, according to the commentary. It was the smaller banks that failed in huge numbers during the Great Depression. And despite the urban legend of ruined Wall Street bankers jumping from windows, the New York banks had much more diversified loan and investment portfolios than the more rural, farm-loan-heavy smaller community banks. In addition, the New York banks were more professionally managed, according to the commentary. Read more.
Across the Standard & Poor’s 500 Index of companies, the average multiple of CEO compensation to that of rank-and-file workers is 204, up 20 percent since 2009, according to data compiled by Bloomberg News. The numbers are based on industry-specific estimates for worker compensation. Almost three years after Congress ordered public companies to reveal CEO-to-worker pay ratios under the Dodd-Frank law, the actual numbers remain unknown. Mandatory disclosure of the ratios remains bottled up at the Securities and Exchange Commission, which has not yet drawn up the rules to implement it, and some of America’s biggest companies are lobbying against the requirement. The average ratio for the S&P 500 companies is up from 170 in 2009, when the financial crisis reduced many compensation packages. Estimates by academics and trade-union groups put the number at 20-to-1 in the 1950s, rising to 42-to-1 in 1980 and 120-to-1 by 2000. Former J.C. Penney Co. Chief Executive Officer Ron Johnson, who was replaced on April 8 after less than 18 months on the job, had the highest pay multiple, based on $53.3 million in compensation reported in the company’s 2012 proxy. Johnson received a compensation package worth 1,795 times the average wage and benefits of a U.S. department store worker when he was hired in November 2011. Read more.
"CROWDFUNDING" TREND POISED TO MAKE MARK ON U.S. INVESTING LANDSCAPE
Gathering small sums of money from a large number of people online — known as “crowdfunding” — is poised to take off in the investing world, with backing from Washington policymakers who see it as a chance to involve the masses in an arena dominated by big Wall Street firms, the Washington Post reported today. A law signed by President Obama a year ago enables small businesses to offer a stake in their firms via the Web, giving the small companies access to a new pool of investors. Companies will be able to raise up to $1 million a year this way once the law is implemented. But given its potential to upend the nation’s investment landscape, critics are worried that crowdfunding will leave unsophisticated investors vulnerable to fraud or big losses, especially since small businesses generally suffer high failure rates and the firms involved in crowdfunding will have to make only limited financial disclosures. Those fears have played a role in delaying new regulations from the Securities and Exchange Commission, which was supposed to adopt rules nearly a year ago to put the crowdfunding law into effect. Agency observers expect them to come out soon, although no timeline has been set for their consideration. Read more. For more on crowdfunding and private investment trends, please see the podcast below.
LATEST ABI PODCAST EXPLORES NEW METHODS FOR COMPANIES TO RAISE CAPITAL
The latest ABI podcast features ABI Resident Scholar Scott Pryor speaking with Daniel Gorfine of the Milken Institute and Ben Miller, co-founder of investment platform Fundrise, about new ways for companies to raise money. Gorfine and Miller explore issues surrounding crowdfunding and potential regulatory responses to shifts in how companies raise money. Click here to listen to the podcast.
NEW ABI LIVE WEBINAR ON MAY 29 WILL FOCUS ON CLASS ACTIONS IN BOTH BUSINESS AND CONSUMER CASES
Class action lawsuits in both chapter 11 and 13 cases are becoming more prevalent. Are you wondering whether your clients’ WARN Act claims would be better pursued against a debtor company in a class action adversary proceeding or in a class proof of claim, or both? If your client has been sued in a debtor’s consumer class action adversary proceeding, do you know the best defenses against class certification? ABI's panel of experts will explore the potential benefits and pitfalls of class actions by creditors against debtor companies in chapter 11 cases and by debtors/trustees against creditors in chapter 13 cases by highlighting recent appellate and bankruptcy court decisions on May 29 from 1-2:15 p.m. ET. Special ABI member rate available! Click here to register.
ABI MEMBERS WELCOME TO ATTEND INSOL'S LATIN AMERICAN REGIONAL SEMINAR ON JUNE 13 IN SAO PAULO
ABI members are encouraged to attend INSOL’s Latin American regional seminar in São Paulo, Brazil, on June 13. The one-day seminar has been organized by INSOL in association with TMA Brasil to cover current cross-border insolvency and restructuring topics. The seminar is designed to be interactive and to allow the attendees to discuss and debate about practical issues with speakers who are leading players in the insolvency and restructuring field and with experience in insolvency proceedings involving different countries. The seminar will benefit from simultaneous translation in English, Portuguese and Spanish. For more information and to register, please click here.
ABI IN-DEPTH
NEW CASE SUMMARY ON VOLO: LONGAKER V. BOSTON SCIENTIFIC CORP. (8TH CIR.)
Summarized by Brendan Gage of the U.S. Bankruptcy Court for the Eastern & Western Districts of Arkansas
The Eighth Circuit Court of Appeals held that the debtor’s breach-of-contract action was properly dismissed for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) because § 541(a)(6)’s exception to property of the estate only applies when there is a post-petition payment attributable to post-petition services.
There are more than 800 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: SAN BERNARDINO SAYS OK TO CALPERS IN NEW BUDGET
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post looks at the decision by the city of San Bernardino to resume payments to the California Public Employees’ Retirement System (CalPERS), a decision not likely to sit well with bondholders and other creditors.
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.
TEE OFF ON THE NEW ABI GOLF TOUR!
ABI now offers conference registrants the option to participate in the ABI Golf Tour. The Tour kicked off at ABI’s Annual Spring Meeting and will take place concurrently with most conference golf tournaments. The next tour stop is at the Central States Bankruptcy Workshop on June 14 in Traverse City, Mich. Designed to enhance the golfing experience for serious golfers while still offering a fun networking opportunity for players of any ability, tour participants will "play their own ball" in stroke play format. They will be grouped on the golf course separately from other conference golf participants and will typically play ahead of the other participants, expediting Tour play. Tour participants will be randomly grouped in foursomes, unless otherwise requested of the Commissioner in advance of each tournament. Prizes will be awarded for each individual Tour event, which are sponsored by Great American Group. The grand prize is the "Great American Cup," also sponsored by Great American Group, which will be awarded to the top player at the end of the Tour season. Registration is free. Click here for more information and a list of 2013 ABI Golf Tour event venues.
ABI Quick Poll
Bankruptcy courts should implement constructive trusts in any case where applicable state law would recognize them.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
INSOL INTERNATIONAL
INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.
