The House Committee on the Judiciary is expected to consider H.R. 2266, the "Bankruptcy Judgeship Act of 2017," at a markup session this morning. The bipartisan bill, introduced recently by Rep. John Conyers (D-Mich.) and Bob Goodlatte (R-Va.), would convert some 14 temporary judgeships (located in Delaware, Southern District of Florida, Maryland, Eastern District of Michigan, Nevada, Eastern District of North Carolina, Puerto Rico and the Eastern District of Virginia) into permanent positions. Under current law, more than two dozen judgeships in the system have a lapse date of May 25, 2017. Without congressional action by that time, the positions could be eliminated should a sitting judge in one of these positions create a vacancy by death, retirement or disability. Temporary positions were created by BAPCPA in 2005 with a goal to tie judicial positions to where the caseload burden was greatest. There is a similar bill pending in the Senate. The House bill would fund the positions through an increase in the chapter 11 quarterly filing fee found in § 1930(a)(6).
The U.S. Supreme Court has agreed to hear a case that could make it easier for creditors to claw back cash that was paid out by a company before it went bankrupt, Bloomberg reported yesterday. Bankruptcy law offers a “safe harbor” to financial institutions that perform securities transactions. The provision was intended to protect trades from creditor claims, to promote stability in financial markets in the face of complicated corporate reorganizations. The justices are being asked to consider whether the shield should apply when a financial institution merely acted as a conduit for a transaction. FTI Consulting Inc., the trustee of Valley View Downs LP, contends that creditors are entitled to recover money paid for shares in rival Bedford Downs in 2007. Merit Management Group received $16.5 million in the transaction, which was carried out through Citizens Bank of Pennsylvania and Credit Suisse. The trustee sued Merit, saying that Valley View should get the money back because the company did not get equivalent value in exchange and was insolvent at the time of the deal. A district judge, invoking safe harbor, ruled that Merit could keep the money, but an appeals court reversed, saying the financial institutions involved in the trade were just conduits for the deal. Two federal appeals courts have reached the same conclusion, while five have gone the other way. The case is Merit Management Group v. FTI Consulting Inc., 16-784.
New consumer protections requiring financial advisers to put their customers’ interests ahead of their own — at least when handling their retirement money — will take effect next month, putting to rest the question of whether they would be delayed further, the New York Times reported today. The fate of the so-called fiduciary rule, created under the Obama administration, was called into doubt when President Trump signed an executive order seeking a review of it, prompting regulators to delay its implementation to June from April. On Tuesday, Alexander Acosta, the Labor Department secretary, said that the basic principles of the rule would indeed take effect on June 9, even as his agency continues to review its finer details. After careful review, the Labor Department has “found no principled legal basis to change the June 9 date while we seek public input,” Acosta wrote in an opinion piece published Monday in The Wall Street Journal. “Respect for the rule of law leads us to the conclusion that this date cannot be postponed.”
The U.S. Supreme Court cleared the way for General Motors Co. to potentially face billions of dollars in legal claims over a deadly ignition-switch defect, turning away the carmaker’s appeal in a clash connected to its 2009 bankruptcy sale, Bloomberg News reported yesterday. The justices, without comment, left intact a federal appeals court ruling that said the bankruptcy accord didn’t block GM from lawsuits over accidents that happened before the sale or claims that the flaw caused vehicles to lose value. Plaintiffs’ lawyers have estimated that claims against the company may total as much as $10 billion. The Supreme Court’s action is a setback for GM Chief Executive Officer Mary Barra, whose first year in the job was consumed by the ignition flaw linked to at least 124 deaths and recalls of 2.59 million vehicles. The Supreme Court’s decision creates a small risk that GM will have to reach a legal settlement that could interfere with paying out its dividend or buying back stock, said David Whiston, a Morningstar Inc. analyst.
President Donald Trump’s recent memorandum ordering the Treasury Department to examine the process for winding down failing banks — embedded in a landmark 2010 law — is reigniting questions on what could replace it, MorningConsult.com reported yesterday. GOP critics of Dodd-Frank’s Title II provision, known as orderly liquidation authority, say that it leaves the door open to taxpayer bailouts of big banks — the very thing the law aims to guard against. The OLA provision is meant to be a last-resort government backstop, allow a more stable wind-down process for failing banks. But Republicans say the provision legitimizes the concept of “too big to fail” institutions and motivates them to take on more risks. If Trump’s executive memo and its subsequent report lead to dismantling the wind-down process, enacted in the wake of the 2008 financial crisis, GOP lawmakers are armed with their own replacement plans. House Financial Services Committee Chairman Jeb Hensarling wants to take taxpayer dollars out of the equation entirely and put failing banks under the purview of the bankruptcy code. The Texas Republican on Friday praised the president’s executive memo, saying it aligns with his Dodd-Frank replacement legislation, the Financial CHOICE Act, which will be heard in the Financial Services Committee on Wednesday.
U.S. President Donald Trump will order the Treasury on Friday to find and reduce tax burdens and review post-financial crisis reforms that banks and insurance companies have said hinder their ability to do business, Reuters reported today. A White House official said yesterday that Trump will issue an executive order directing the Treasury on the tax issues. He will also issue two memoranda asking for reviews of two parts of the 2010 Dodd-Frank Wall Street reform law — the Orderly Liquidation Authority that sets out how big banks can wind down during a crisis, and the Financial Stability Oversight Council (FSOC), which is comprised of the country's top regulators. The orders, which Trump will sign at the Treasury Department, comes as the president works toward making good on a major campaign promise to lower taxes.
New banking regulation discussions in Washington, D.C., are dredging up a Depression-era ghost that analysts say would fit poorly in the modern financial industry, Bloomberg News reported yesterday. Suggestions of reviving and revamping the Glass-Steagall Act, a 1933 law that separated commercial and investment banking, reignited after Bloomberg News reported on April 5 that National Economic Council Director Gary Cohn expressed support for such a separation during a private meeting with senators. The next day, Sen. Elizabeth Warren (D-Mass.) introduced her “21st Century Glass-Steagall Act of 2017,” with Sens. John McCain (R-Ariz.) and Angus King (I-Maine) as co-sponsors. Glass-Steagall has been off the books since 1999, when President Bill Clinton signed its repeal. Banking industry critics have pointed to the law’s demise as a culprit in the 2008 financial crisis. The 2016 GOP and Democratic party platforms espoused some version of a Glass-Steagall revival, a nod to populist sentiments among the electorate. But breaking up big banks would be applying old wisdom to a new financial system, said Aaron Klein, a Brookings Institution fellow in economic studies. The principle may be solid, he said, but the exact rule is not a good fit. Glass-Steagall also wouldn’t have addressed the entities and activities behind the last decade’s financial crisis, he added in an interview on Tuesday.
In Helman v. Bank of America, 15-13672, 2017 WL 1350728 (11th Cir. April 12, 2017) the Eleventh Circuit Court of Appeal clarified important issues regarding the use of periodic mortgage statements after a bankruptcy discharge. In Helman thee debtor sued Bank of America after he received a periodic mortgage statements required by the Truth in Lending Act for his mortgage which he had discharged in bankruptcy. The statements he received were qualified by Bank of America in important ways, including being labeled as “FOR INFORMATIONAL PURPOSES” and containing a disclosure that Bank of America’s records indicated the debt was discharged in bankruptcy and that therefore the debtor had no personal obligation to repay the debt. Despite these disclosures, the debtor argued that periodic statement violated the Fair Debt Collection Practices Act (FDCPA) and the Florida Consumer Collection Practices Act (FCCPA) insofar as it allegedly purported to attempted to collect a debt when no legal right existed to do so, and/or was misleading to the least sophisticated consumer because it suggested personal liability. The district court dismissed these claims and the Eleventh Circuit affirmed. The Eleventh Circuit found that the FDCPA did not apply to Bank of America with respect to the periodic statements because Bank of America was not a debt collector. Specifically the Eleventh Circuit found that the parties did not dispute that Bank of America originated the debt at issue, and therefore Bank of America was not acting as a debt collector but rather as the original creditor seeking to collect its own debt. However, since original creditors are not except from the FCCPA, the Court required other grounds to affirm the district court’s dismissal of that claim. With respect to the FCCPA claim, the Court found that the periodic statement unambiguously disclosed to the debtor that it was not seeking to collect the debt from him personally but rather merely was disclosing information about the mortgage lien no real property which survived his personal bankruptcy discharge. The debtor argued that even though these disclosures were made to him, the least sophisticated consumer might be confused, including by statements qualifying the disclosures as applicable to one “currently a debtor in bankruptcy” since the debtor’s bankruptcy case was now over.
The new text for the bill, the Financial Choice Act of 2017, weighed in at 593 pages, far fewer than the 2010 law it is meant to supplant but longer than last year's version. The main premise of the bill is to cut back the rules imposed by the Dodd-Frank law. And for banks that opt to maintain a high level of capital, which would reduce the odds of bank failures and increase market discipline, the bill would provide for relief from several layers of regulation. Perhaps most notably, the legislation would reform the Consumer Financial Protection Bureau, which oversees financial products such as mortgages and credit cards, by scaling back its authority and ensuring that the president can fire its director at will. Last year's version took a different tack, making the bureau a five-member, bipartisan commission.
The Supreme Court yesterday voiced skepticism toward a plea from Wall Street’s top cop that one of its main enforcement tools shouldn’t be subject to a federal statute of limitations, the Wall Street Journal reported today. Justices from both the conservative and liberal wings of the Court didn’t appear to accept the Securities and Exchange Commission’s view that disgorgement, or clawing back ill-gotten gains from wrongdoers, isn’t subject to a five-year limit on the government’s power that dates to 1839. Chief Justice John Roberts evoked the statement of an early chief justice, John Marshall, who said it would be “utterly repugnant” to have no expiration date on the government’s authority to go after a suspected wrongdoer. “It does seem to me we kind of have a special obligation to be concerned about how far back the government can go,” Justice Roberts said during an hour-long oral argument. The case, Kokesh v. SEC, stems from a civil lawsuit the commission filed in 2009 against Charles Kokesh, a fund manager who mostly invested in startup companies. The SEC accused Kokesh of looting $45 million from the funds to pay his and other corporate officers’ salaries and bonuses and to fund office rent. Kokesh argues that the statute of limitations should have limited the $34.9 million that a lower court decided he should pay in disgorgement.