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Sen. Coons: Bankruptcy Legislation Could Devastate Delaware

ABI Bankruptcy Brief
ABI Bankruptcy Brief
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January 25, 2018

ABI Bankruptcy Brief

Sen. Coons: Bankruptcy Legislation Could Devastate Delaware

Sens. John Cornyn (R-Texas) and Elizabeth Warren (D-Mass.) recently introduced a bill that would deny most American businesses the ability to work with Wilmington’s nationally known bankruptcy courts and skilled bankruptcy lawyers, according to an op-ed by Sen. Chris Coons (D-Del.) in today’s Wilmington News Journal. That’s unfair to American businesses in all 50 states, and it would deal a significant blow to the local economy because Delaware's courts are a key reason that corporations want to do business in Wilmington, according to Coons. For decades, Coons said that Delaware has been famous for world-class bankruptcy experts, including attorneys and judges who understand complicated business processes inside and out. Delaware’s courts help businesses reorganize with minimal interruption to ongoing business and help ensure that employees and creditors get the money they’re owed, according to Coons.
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*The views expressed in this op-ed are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI. 

Students from Defunct ITT Tech Get a Shot at Claiming School’s Remaining Assets

A federal judge approved a settlement Wednesday allowing former students at ITT Technical Institute to participate in the bankruptcy proceedings of its parent company, giving them a shot at the remaining assets of one of the nation’s largest for-profit college operators, the Washington Post reported. The agreement resolves a lawsuit students filed against ITT Educational Services last year to join the line of creditors, federal regulators, state attorneys general and employees seeking redress from the defunct company. It recognizes a $1.5 billion claim that students, who attended the school between 2006 and 2016, asserted against the company for breach of contract and consumer protection violations. Under the deal, nearly $600 million that students still owe the defunct school will be erased, while $3 million that students paid the company will be refunded. ITT routinely issued students “temporary credits” to cover remaining tuition after federal and private student loans were taken into account. These credits were allegedly marketed as grants, but debt collectors hounded students for the money even after ITT filed for bankruptcy in September 2016. The bankruptcy court halted collection in May, and now the accounts will be closed.
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Loan Program Plans to Offer Students Prepaid Bank Cards

The Department of Education plans to provide students with a prepaid card that would hold surplus loan money that is not needed for tuition, giving the government and financial services providers a first-hand look at how students are spending those dollars, the New York Times reported. Students, meanwhile, may receive text messages about their spending choices after they swipe their cards, a reminder that the government is watching. The Office of Federal Student Aid — the arm of the Education Department that oversees more than $1.3 trillion in student loans — said it expected to introduce the pilot program as early as late spring. As many as 100,000 students across four schools, which have not yet been chosen, could opt to accept the prepaid card, which acts more like a bank account. When students receive loans that exceed their tuition, the extra money would be loaded onto the card, which could then be used to pay for books, food and other expenses like rent. The department views the offering as a cost-efficient way to provide students with access to a bank-like product that rivals anything on the commercial market. But some consumer advocates said they view the effort as overly paternalistic.
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OCC Floats Proposal to Roll Back the Volcker Rule

Wall Street watch dogs appointed by President Trump are evaluating a specific proposal for easing the Volcker Rule, one of the financial industry’s targets because it put restrictions on bank trading after the 2008 financial crisis. A key agency that’s taken a lead in revising Volcker — the Office of the Comptroller of the Currency (OCC) — recently circulated a blueprint to other regulators for making the rule more friendly to banks. The draft relies heavily on June recommendations issued by the Treasury Department, which wants to give firms more leeway to trade and soften constraints on their ability to invest in private-equity and hedge funds. Wall Street critics will likely take exception to the fact that the architect of the OCC proposal was Keith Noreika, a long-time bank lawyer who served as the regulator’s acting head last year. In January, Noreika returned to his law firm, Simpson Thacher. Named for former Fed Chairman Paul Volcker, the controversial regulation was meant to prevent banks from triggering another financial meltdown by prohibiting them from making speculative bets with their own capital. But Wall Street and Republican lawmakers have long argued that it was poorly implemented, prompting lenders to go too far in retreating from markets.
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CFPB Finalizes Changes to Prepaid Accounts Rule

The Consumer Financial Protection Bureau (CFPB) announced today that it has finalized updates to its 2016 prepaid rule, according to a press release. The Bureau’s 2016 prepaid rule put in place requirements for treatment of funds on lost or stolen cards, error resolution and investigation, up-front fee disclosures, access to account information, and overdraft features if offered in conjunction with prepaid accounts. The changes announced today adjust requirements for resolving errors on unregistered accounts, provide greater flexibility for credit cards linked to digital wallets, and extend the effective date of the rule by one year to April 2019.
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Show Your Support for Puerto Rico Relief

Next Thursday, February 1, ABI is hosting a Reception to Benefit Puerto Rico, from 6-8 p.m. at the Ritz-Carlton Coconut Grove in Miami. The event also includes CLE programs on PROMESA developments and related recovery issues from 3-5 p.m. The bankruptcy judges of Puerto Rico will attend. All proceeds benefit the Puerto Rico Recovery Fund. Tickets are $200 and include both the CLE panels and the cocktail reception.

Those who can't attend are invited to make a tax deductible contribution. Please use this form and send back to ABI.

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New on ABI’s Bankruptcy Blog Exchange: Another Twist in the Challenges to Director Compensation

In a series of cases challenging the magnitude of equity award compensation that boards have provided for their non-employee directors, the Delaware Chancery Court suggested that if the awards were made within a “meaningful limit” approved by shareholders, the court would review these challenges under the standard business judgment rule rather than require an entire fairness review, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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