Stigma Surrounding Personal Bankruptcy Has Increased, Not Decreased, According to Scholar on Latest ABI Podcast

Stigma Surrounding Personal Bankruptcy Has Increased, Not Decreased, According to Scholar on Latest ABI Podcast

ABI Bankruptcy Brief

September 27, 2018

ABI Bankruptcy Brief

Stigma Surrounding Personal Bankruptcy Has Increased, Not Decreased, According to Scholar on Latest ABI Podcast

ABI Executive Director Sam Gerdano talks with Prof. Michael D. Sousa of the University of Denver's Sturm College of Law about Prof. Sousa's recent analytical look at the stigma of bankruptcy. Prof. Sousa published the lead article in the Summer 2018 edition of the ABI Law Review, “The Persistence of Bankruptcy Stigma,” which presented his findings that the stigma surrounding personal bankruptcy has actually increased, not decreased, over time. Click here to listen.

Battle Lines Form over Low-Income Lending Rules
Treasury Secretary Steve Mnuchin and Comptroller of the Currency Joseph Otting have on their agenda the overhaul of the Community Reinvestment Act (CRA), a law passed in 1977 to combat redlining, a practice where banks wouldn’t lend in lower-income communities, the Wall Street Journal reported. In the years since the law’s passage, such lending grew, but so too did a thicket of rules and regulations related to the law. In the process, the CRA became a weapon for community groups looking to force banks to commit even more funds to poorer areas. Banks grumbled, but they usually paid up, sometimes giving money to the community groups themselves. Community groups agree the regulations need to be updated, but worry changes could mean lower-income borrowers would have less access to loans and banking services. Bankers view the CRA as outdated and overly subjective, and support the proposed revamp, which is expected to include changes to many aspects of the rules. (Subscription required.)

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Analysis: McKinsey Advises Puerto Rico on Debt, May Profit on the Outcome

McKinsey & Co. is advising the Puerto Rican government on a financial overhaul to lighten its crippling debts — a process that will determine how much money the bankrupt territory’s creditors recoup on their investments, according to an analysis in the New York Times. The giant consulting firm has millions of dollars riding on the outcome. The reason: McKinsey owns bonds issued by Puerto Rico. That creates a potential conflict of interest between McKinsey’s client, which wants to save as much money as possible, and McKinsey itself, which wants to make as much money as possible on the bonds, according to the analysis. In a normal American bankruptcy proceeding, such a conflict would need to be disclosed to the court and to the public. But the legal framework established by Congress to deal with Puerto Rico’s financial collapse — the territory has $123 billion in debts — left out the disclosure rules. Affiliates of McKinsey revealed their investments in filings in federal court in Puerto Rico’s capital, San Juan. The filings were not made under McKinsey’s name and were among nearly 165,000 bankruptcy claims. McKinsey so far has received $50 million in fees to advise Puerto Rico’s federal oversight board on drafting a blueprint for the island’s fiscal affairs over the next decade. That plan projected how Puerto Rico’s economy would respond to the changes and how much money the island could afford to pay back to its bondholders. McKinsey, according to regulatory filings and court documents, is one of those bondholders. It owns at least $20 million — and possibly considerably more — of such securities. “It’s a conflict of interest,” said Lynn M. LoPucki, a law professor at the University of California, Los Angeles, and the founder of the school’s Bankruptcy Research Database.

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Fed Raises Interest Rates, Signals One More Increase This Year

The Federal Reserve said it would raise short-term interest rates by another quarter-percentage point, and central-bank officials signaled that they expected to lift them again later this year and through 2019 to keep a strong economy on an even keel, the Wall Street Journal reported. The policymakers voted unanimously yesterday to lift their benchmark federal-funds rate to a range between 2% and 2.25%. Most expected to raise rates one more time this year, according to new projections released after the conclusion of their two-day rate-setting meeting. The increase, which drew a rebuke from President Trump, is the third this year and the eighth since the Fed began to lift rates in late 2015 after keeping them pinned close to zero after the 2008 financial crisis. The Fed’s action marks the first time it has lifted its benchmark rate above 2% since 2008. It also is the first time in a decade the fed-funds rate will rise above inflation. Even if the Fed raises its benchmark rate to 3% next year, “we don’t think that’s a hindrance to the economy,” said John Augustine, chief investment officer at Huntington Private Bank in Columbus, Ohio. “We don’t see that lifting mortgage rates substantially. We don’t see that as a threat to credit line borrowing.” The big question now is how much higher officials think they need to raise rates to keep the economy from overheating.
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CFPB Seeks Feedback on Data Collection, Governance

The Consumer Financial Protection Bureau has issued a request for information seeking feedback on its collection and treatment of consumer data as it assesses whether changes to its current practices are needed, the ABA Banking Journal reported. Comments are due 90 days after publication in the Federal Register. The bureau is asking the public to comment on its data-governance program and any ways that it could be improved; its data-collection practices and potential changes; how the bureau should (or should not) use data for multiple functions; ways to reduce reporting burdens and increase efficiency around data collection; and any areas in which the bureau could expand its data-collection authority to better support its statutory objectives. Along with the RFI, the bureau also released a report highlighting the ways it is currently collecting, using and safeguarding consumer data. The report provides an overview of the CFPB’s current data governance structure, how it currently collects and uses consumer data, and how data is reused within the bureau.
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U.S. Economic Growth Slated to Cool in Third Quarter

The pace of U.S. economic growth cooled a bit in the third quarter after a robust April-through-June period, economists say, but should remain well above the sluggish gains posted throughout the economic expansion, the Wall Street Journal reported. One factor that could mean slower growth in the third quarter is trade. Fresh trade figures released Thursday for the month of August showed that the U.S. trade deficit in goods widened for the third month in a row, climbing to $75.8 billion from $72 billion in July. A widening trade gap, reflecting a decline in exports and a rise in imports, could tug down growth this quarter and mark a reversal from the second quarter, when a narrowing trade gap helped lift the U.S. economy. The Commerce Department released its final estimate for second-quarter gross domestic product on Thursday. The report showed that GDP rose at a 4.2% seasonally and inflation-adjusted annual rate in the second quarter. That matched the agency’s August estimate. The projections for the third-quarter growth rate remain well above the 2% growth seen throughout the expansion.
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Notice to All ABI Members

UNITE HERE Local 11 is a labor union based in southern California. They represent more than 20,000 workers in the hotel and restaurant industry. The union has been attempting to organize employees at the Terranea Resort, site of ABI’s 2019 Winter Leadership Conference (WLC). The union has repeatedly contacted ABI leadership, including members of the board and committee leaders, to urge ABI to cancel or move the WLC. ABI has no plans to move or cancel the event, which would result in substantial legal exposure. If you are contacted by phone or email by representatives of the union, ABI encourages you to ignore rather than engage or respond. ABI regrets this development and will continue to closely follow events at the property. This has no effect on the ABI’s 2018 WLC, set for Scottsdale, Ariz., this December.

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New on ABI's Bankruptcy Blog Exchange: CFPB Report on Data Collection Is Silent on Threat of Breaches

Consumer Financial Protection Bureau Acting Director Mick Mulvaney has repeatedly pointed to data security as a defect at the Bureau, and in December directed the CFPB’s staff to stop collecting any personally identifiable data, 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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