New England Colleges Team Up to Fight Controversial Tuition Lawsuits

Yale, Brown and several other New England universities are urging a bankruptcy judge to protect colleges that are sued to return tuition paid by a student’s bankrupt parent, arguing that these types of lawsuits go against "societal and congressional expectations," the Wall Street Journal Bankruptcy Beat blog reported yesterday. Lawyers for two trade groups representing universities in Connecticut and Rhode Island are throwing their support behind Sacred Heart University, a private Catholic school in Fairfield, Conn., that has been sued for the return of $66,275.18. The lawsuit came from a bankruptcy trustee trying to collect money to pay off the debt of Steven and Lori Palladino, a Connecticut couple who filed for bankruptcy last year after paying for their daughter, Nicole, to start studying at the school in the Fall of 2012. (Subscription required.)

Editorial: Puerto Rico Can't Heal Itself

Puerto Rico has finally issued a plan to dig itself out from under $72 billion of public debt, but whether the island's legislators can be trusted to stick to it is uncertain, according to a Bloomberg News editorial today. Even after calling for spending cuts and higher revenue, the Working Group for the Fiscal and Economic Recovery of Puerto Rico predicts a $13 billion funding shortfall over the next five years, with a cash crunch of $500 million as soon as next June. And, it says, "available resources may be insufficient to service all principal and interest on debt that has a constitutional priority" -- a dark hint that general-obligation bonds might have to be restructured, too. Puerto Rico's bondholders, including hedge funds lured by high yields, want deeper cuts in spending. However, too much austerity would make it harder for the economy, trapped in a prolonged recession, to recover, according to the editorial.

For more information on Puerto Rico's debt crisis, be sure to visit and bookmark ABI's "Puerto Rico in Distress" webpage.

Commentary: The Return of Subprime Is No Cause for Concern

Most of the ideas now deemed responsible for the financial crisis, including subprime lending, have their redeeming features, according to a commentary in Tuesday’s Financial Times. Combined with an overly elaborate use of securitization, almost $2 trillion of securities backed by subprime loans were originated over 2005-07 and then spread through the banking system, eventually freezing balance sheets in the crash. The current pace of subprime securitization at about $10 billion a year is a small fraction of the $500 billion that was typical before the crisis. News that subprime is showing glimmerings of life should be welcomed, and policymakers should treat subprime mortgages according to their weight on the balance sheet, according to the commentary.

States to Help Workers Save for Retirement

In July, Oregon became the third state to enact legislation creating automatic individual retirement accounts for workers who don’t have retirement plans at work, the Wall Street Journal reported on Tuesday. In the private sector, nearly 44 percent of prime-age workers don’t have access to a retirement plan at work, according to Labor Department figures analyzed by Nari Rhee, a researcher at the University of California, Berkeley. California was the first state to pass legislation in 2012 setting the stage for automatic retirement accounts for workers without coverage. Illinois enacted a similar law in January. (Subscription required.)

Commentary: What Happens When the Government Limits Payday Lending?

Policymakers who want to protect borrowers from abuses of payday lenders not only risk cutting off much-needed credit for people who really need it, according to a Washington Post commentary on Tuesday. Under a Consumer Financial Protection Bureau proposal released earlier this year, borrowers would be allowed to take out no more than two additional loans to pay back an original loan. Before the CFPB acted, several states had already moved to more tightly regulate the industry, providing some idea of what effect the federal rules might have. And new research by a pair of economists in the Pacific Northwest suggests that in Washington, similar restrictions put about two-thirds of the state's payday lending establishments out of business, and that many borrowers may have been better off without them.

ABI Podcast: Scholar Critiques CFPB Proposal to Regulate Mandatory Arbitration Clauses

ABI Executive Director Samuel J. Gerdano speaks with Prof. Jason Johnston of the University of Virginia School of Law about the ramifications of the CFPB aggressively regulating mandatory arbitration clauses in consumer agreements.