A crop of new lenders is jumping into the subprime personal-loan market, wooing consumers with flawed credit who have been neglected since the financial crisis, the Wall Street Journal reported today. Many lenders backed away from borrowers with poor credit histories after record defaults on subprime home loans helped trigger the recession in 2008. According to credit-data provider Equifax Inc., issuance of consumer loans and credit cards to people with credit scores below 660 -- subprime by the firm's widely used definition -- peaked at $87 billion in 2006 before dropping to a low of $28 billion in 2010. Subprime consumer lending climbed to $36 billion last year through October, according to the most recent data available from Equifax. Among firms that recently began originating loans for people with subprime credit is Lending Club, a peer-to-peer platform in which investors pool money to make consumer loans. In addition, Microsoft co-founder Paul Allen's firm, Vulcan Ventures, invested $125 million in FreedomPlus, a San Mateo, Calif., lender that opened its doors in mid-February. FreedomPlus, an offshoot of Freedom Financial Network, is targeting about 80 million people who have credit scores between 600 and 700. Read more. (Subscription required.)
ANALYSIS: CONSUMER FINANCIAL PROTECTION BUREAU ISN'T OUT OF THE WOODS YET
While the Consumer Financial Protection Bureau may be two-and-a-half years old, Republicans in the House of Representatives are still taking aim at the agency, according to an analysis in the Washington Post last Friday. The House passed (232-182) a package of bills last Thursday that would replace the bureau's single director with a five-person commission, prevent it from collecting consumer credit card information, and make it easier for the Treasury's Financial Stability Oversight Council to overrule CFPB regulations. House Republicans have been trying to pass many of these proposals for years, which hobbled the fledgling agency's effectiveness by putting it on the defensive even though they never became law. Perhaps the most important component has to do with money: The legislation would change the CFPB's funding mechanism so that its budget comes from Congress rather than the Federal Reserve. It authorizes $300 million for each of the next two years, or about two-thirds of what the bureau has been spending annually. Prospects for the bill are not favorable, as the bill would not likely clear the Democratically-controlled Senate, and the White House has already promised not to sign it. Read more.
The Supreme Court yesterday seemed ready to impose new limits on securities fraud suits that would make it harder for investors to band together to pursue claims that they were misled when they bought or sold securities, but the justices did not seem inclined to issue a ruling that would put an end to most such suits, the New York Times DealBook blog reported yesterday. The new limits would be in keeping with earlier decisions from the court led by Chief Justice John G. Roberts Jr., which has made it more difficult for workers and consumers to pursue class actions. The decision in the case argued yesterday, expected by June, seems likely to do something similar in cases brought by investors. Companies facing fraud class actions prefer to address as many issues as they can before judges decide whether to certify a class. Once a class is certified, they say, the damages sought are often so enormous that the only rational calculation is to settle even if the chances of losing at trial are small. "Once you get the class certified, the case is over," Justice Antonin Scalia said yesterday in the oral argument of Halliburton Co. v. Erica P. John Fund, Inc. Several justices suggested that this phenomenon could be partly addressed through a proposal in a supporting brief filed by two law professors, which argued that plaintiffs should be required to show at an early stage "whether the alleged fraud affected market price." Read more.
NEW ABILIVE WEBINAR ON MARCH 20 EXAMINES HOW TO DRAFT LOAN WORKOUT AGREEMENTS
The next abiLIVE webinar will take place on March 20 from 1-2:30 p.m. ET and will examine how to draft loan workout agreements. Learn the purpose and legal underpinnings of the various component parts of frequently used workout documents such as forbearance agreements, intercreditor agreements and restructuring/override agreements. The panel will focus on real-world examples of good and bad provisions of workout documents and will provide drafting tips. Group discounts available! Click here to register.
LEADING SCHOLARS TO PRESENT RESEARCH AND PROPOSALS FOR POTENTIAL CHAPTER 11 REFORMS AT THE ABI ILLINOIS SYMPOSIUM ON CHAPTER 11 REFORM APRIL 3-5
Advancing the dialogue on important reform issues in conjunction with ABI's Commission to Study the Reform of Chapter 11, ABI and the University of Illinois College of Law have assembled leading scholars to present academic papers on issues related to the Commission's work. Scholars will present papers and debate the consequences of the increased importance of secured credit to modern restructuring law to members of the Commission and fellow scholars at the ABI Illinois Symposium on Chapter 11 Reform at the Kirkland & Ellis Conference Center in Chicago on April 3-5. The papers presented at the Symposium will be published in a forthcoming issue of the University of Illinois Law Review.
The purpose of ABI's Commission to Study the Reform of Chapter 11 is to study and propose reforms to chapter 11 and related statutory provisions that will better balance the goals of facilitating the effective reorganization of business debtors -- with the attendant preservation and expansion of jobs -- and maximizing and realizing asset values for all creditors and stakeholders. In addition to the papers presented at the Symposium, the Commission, made up of 22 commissioners and 13 advisory committees, is reviewing testimony provided at hearings over the past two years in preparation for delivery of a Final Report to Congress at the end of 2014.
The ABI-Illinois Symposium on Chapter 11 Reform will include the following papers:
- Creditor Conflict and the Efficiency of the Corporate Reorganization Process
- The Value of Soft Assets in Corporate Reorganizations
- Statutory Erosion of Secured Creditors' Rights: Some Insights from the U.K.
- Judicial Oversight of Financing in Detroit's Restructuring and Beyond
- The Logic and Limits of Liens
- An Empirical Investigation of Leases and Executory Contracts
- Default Penalties in Chapter 11
- When Does Some Federal Interest Require a Different Result? An Essay on the Use and Misuse of Butner v. United States
- What Is a Lien? Lessons from Municipal Bankruptcy
- Derivatives and Collateral: Balancing Remedies and Systemic Risk
- Rules of Thumb for Intercreditor Agreements
- The (Il?) legitimacy of Bankruptcies for the Benefit of Secured Creditors
- DIP Financing: The Good, The Bad and The Ugly
- The Bankruptcy Clause, the Fifth Amendment, and the Limited Rights of Secured Creditors in Bankruptcy
- Priority in Going-Concern Surplus
- The Board's Duty to Keep Its Options Open
- The Role of Secured Credit in Chapter 11 Cases: An Empirical View
For a schedule containing a list of all presenters and commentators at the Symposium, please click here.
ABI IN-DEPTH
NEW CASE SUMMARY ON VOLO: KEETON V. FLANAGAN (IN RE FLANAGAN; 9TH CIR.)
Summarized by Laury Macauley of Macauley Law Group
The Bankruptcy Appellate Panel of the Ninth Circuit affirmed in part the judgment of the bankruptcy court determining the nondischargeability of a claim under Bankruptcy Code § 523(a)(2)(A) (false pretenses), while reversing a determination of nondischargeability under Code § 523(a)(4) (embezzlement) because the money at issue had been loaned, it no longer belonged to the lender, and it could not be the subject of an embezzlement claim.
There are more than 1,200 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: MT. GOX'S BANKRUPTCY CASE WILL BE UNLIKE ANY OTHER
A recent blog post examines the Mt. Gox bankruptcy case, which involves a company that seemed to operate with only a few employees and almost no presence in the countries across the globe where it did business, and takes a look at cross-border bankruptcy law.
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
The U.S. Trustee should generally appoint a single creditors' committee in jointly administered bankruptcy cases.
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 43 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.
