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Wall Street Is Fighting a CFPB Deal over Billions in Defaulted Student Loans

ABI Bankruptcy Brief
ABI Bankruptcy Brief
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November 9, 2017

ABI Bankruptcy Brief

Wall Street Is Fighting a CFPB Deal over Billions in Defaulted Student Loans

Banks, insurers, debt collectors and hedge funds are pushing back against the U.S. Consumer Financial Protection Bureau as it tries to settle allegations of shoddy collection practices on billions of dollars in student loans, Bloomberg News reported. A settlement proposal between the regulator and a private-equity firm meant to clear up the matter has Wall Street warning of expensive consequences for future student borrowers. Debt collectors working for National Collegiate Student Loan Trusts, a group of 15 investment vehicles and one of the nation’s largest owners of private student debt, were accused of squeezing millions of dollars out of debtors using deceptive legal documents. In September, the regulator and Florida-based Vantage Capital Group LLC, which controls the National Collegiate trusts, hammered out a settlement by agreeing to a third-party audit of the more than 800,000 loans that have been held by the 15 vehicles. The audit would enable Vantage to find out which loans it can really pursue and which loans it can’t. While the audit proceeds, all payments to investors in securities based on those loans would be placed into escrow. The proposed deal also calls for $19 million in fines and restitution for thousands of borrowers sued by debt collectors. The 15 vehicles that make up the National Collegiate trusts, along with the loan servicers, insurers, banks, hedge funds and debt collectors with a stake in its operations, would be required to foot the bill for the audit and settlement — under a deal they didn’t approve. The Structured Finance Industry Group, a Washington, D.C., lobby group, told its members recently that it’s crafting an amicus brief to file on behalf of firms seeking to block the accord.
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Commentary: America’s ‘Retail Apocalypse’ Is Really Just Beginning

While U.S. retailers have announced more than 3,000 store openings in the first three quarters of this year, chains have also said 6,800 would close, according to a Bloomberg commentary. Despite high consumer confidence, historically low unemployment and a growing U.S. economy — normally all ingredients for a retail boom — more chains are filing for bankruptcy and rated distressed than during the financial crisis. That’s caused an increase in the number of delinquent loan payments by malls and shopping centers. The root cause is that many of these longstanding chains are overloaded with debt — often from leveraged buyouts led by private-equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder — even for healthy chains. The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. Low-income workers will be displaced, local tax bases will shrink, and investors will experience losses on stocks, bonds and real estate.
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Join a panel of experts at ABI's Winter Leadership Conference as they review the key issues in recent merchant and mall owner bankruptcies and restructurings, and find out what the future holds for these troubled industries. Register today and don't miss the "Dead Malls Walking" session!

Want to hear more expert analysis about the continuing downturn in retail? Be sure to listen to this recent ABI Podcast.

Puerto Rico Needs Up to $21 Billion of Aid, Oversight Board Says

Puerto Rico will need an unprecedented rescue from the U.S. government to recover from the hurricane that ravaged it in September, deepening a financial crisis that had already pushed it into a record-setting bankruptcy, the executive director of the island’s federal oversight board said, Bloomberg reported. The territory will need from $13 billion to $21 billion over the next two years to keep the government operating and cover the salaries of police officers, teachers and other employees, Natalie Jaresko said in testimony prepared for a hearing before the House Natural Resources Committee on Tuesday. “Before the hurricanes, the board was determined that Puerto Rico and its instrumentalities could achieve balanced budgets, work its way through its debt problems, and develop a sustainable economy without federal aid," Jaresko said. "That is simply no longer possible.” The damage dealt by Hurricane Maria crippled the economy and left investors wagering that it will be able to repay even less of its $74 billion of debt, causing the price of its most frequently traded bonds to tumble to about 28 cents on the dollar, about half what they were worth before the storm. Jaresko said it’s difficult to determine whether the island will need deeper debt forgiveness because of the damage, given that the recovery will depend heavily on the federal government’s response.
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Commentary: Hurricane Harvey May Reshape Houston's Future as City Takes On Pension Reform

The City of Houston has bet its future on a high-profile pension overhaul that now may face unexpected fallout from Hurricane Harvey, according to a Debtwire commentary. When Houston and Texas lawmakers forged the city’s pension legislation last spring, their political calculus didn’t include a once-in-a-century storm. But as Houston gears up for a crucial vote to authorize the issuing of pension and general obligation bonds, Hurricane Harvey might end up having an outsized impact on the city’s future, according to the commentary. As an off-year election and the first election with no elected officials on the ballot, turnout was expected to be anemic anyway, people tracking the referendums told Debtwire. Turnout now may be even weaker in the wake of Harvey, as citizens of the nation’s fourth-largest city slog through storm-related difficulties. Citizens struggling to rebuild their homes may not view a referendum as a top priority. Houston’s pension reform is Mayor Sylvester Turner’s (D) effort to stabilize the city, which carries the fourth-largest pension liability in the nation, according to Moody’s Investors Service. The city’s net pension liability totals $10 billion, according to Moody’s, with fiscal year 2015 contributions totaling 12 percent of the city’s revenues.
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Consumer Commission Wraps Up 2017 Open Meeting Schedule

ABI's Commission on Consumer Bankruptcy will hold two more public meetings in 2017. Commissioners will hear testimony tomorrow during the Hon. Eugene R. Wedoff Seventh Circuit Consumer Bankruptcy Conference, and the final open meeting is scheduled for December 1 at ABI’s Winter Leadership Conference.

The open meeting taking place tomorrow’s Seventh Circuit Bankruptcy Conference will be held from 12:00-1:30 PM at Jenner & Block’s Conference Center in Chicago. If you are attending the conference, be sure to attend the open meeting to participate in the discussion!

The Consumer Commission invites WLC attendees to request time to make an oral statement at this public meeting, and in addition (or alternatively) to submit a written statement to the Commission. To request a time for a public statement or to send a written statement, please use the Commission’s public email address:

To access the list of topics under consideration by the Commission’s committees and previous hearing statements, please click here

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Regulators Moving Quickly on Volcker Revisions, According to OCC Official

Acting Comptroller of the Currency Keith Noreika said that he thinks regulators can make a case for an exemption to carve out all small banks from the ban on proprietary trading, 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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