Lawblog - VerdictOne.com:

Every fall as the Credit Slips bloggers prepare to begin teaching, we are treated to the sight of tables, tents, and marketing literature aimed at marketing credit cards to college students. This year, those familiar signs won't be appearing on the campuses of the University of Tennessee system. On May 21, 2008, Tennessee enacted a law prohibiting credit card issuers from recruiting students on campus or through university facilities or student organizations. (There is an exception for "days when there are athletic events" so presumably home football games retain their usefulness for credit card issuers). The bill also requires the University of Tennessee institutions that receives funds from student credit cards or from the use of the school name or logo on credit cards to disclose the amount of money received and how the money was used.

Calls for restricting credit card marketing to students are nothing new (see here and here and here) but I think this is the first law to be enacted that absolutely bans campus marketing. I'm confident the credit industry will challenge the bill, probably on preemption grounds, arguing that as the state of Tennessee lacks authority to regulate national banks. I think that argument should fail. The state isn't banning credit cards as a matter of general commerce; the legislature is acting in its role as overseer of the state's educational institutions.  If an institution itself (Rochester Institute of Technology, University of New Mexico) can ban or sharply limit the solicitation of students for credit cards, I think a state legislature can enact the same prohibition for the campuses that it controls.

Tags: Credit and Bankruptcy by Katie Porter
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Every fall as the Credit Slips bloggers prepare to begin teaching, we are treated to the sight of tables, tents, and marketing literature aimed at marketing credit cards to college students. This year, those familiar signs won't be appearing on the campuses of the University of Tennessee system. On May 21, 2008, Tennessee enacted a law prohibiting credit card issuers from recruiting students on campus or through university facilities or student organizations. (There is an exception for "days when there are athletic events" so presumably home football games retain their usefulness for credit card issuers). The bill also requires the University of Tennessee institutions that receives funds from student credit cards or from the use of the school name or logo on credit cards to disclose the amount of money received and how the money was used.

Calls for restricting credit card marketing to students are nothing new (see here and here and here) but I think this is the first law to be enacted that absolutely bans campus marketing. I'm confident the credit industry will challenge the bill, probably on preemption grounds, arguing that as the state of Tennessee lacks authority to regulate national banks. I think that argument should fail. The state isn't banning credit cards as a matter of general commerce; the legislature is acting in its role as overseer of the state's educational institutions.  If an institution itself (Rochester Institute of Technology, University of New Mexico) can ban or sharply limit the solicitation of students for credit cards, I think a state legislature can enact the same prohibition for the campuses that it controls.

Tags: Credit and Bankruptcy by Katie Porter
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The ABLJ just published a new paper, Parents in Financial Crisis: Fighting to Save the Family Home.  The paper uses data from the 2001 Consumer Bankruptcy Project to examine the differences in how hard people struggle to save a home based on the presence--or absence--of minor children in the house. The data support the claim that families with children work harder to try to hang on to home both before and during bankruptcy.  The finding is consistent with the thesis that families buy homes as a way to buy opportunities for their children (schools, neighborhoods) and that the potential loss of a home is more painful to parents who fear the lifetime impact of the loss on their children.

The data pre-date the current mortgage crisis, but they are useful on several levels for thinking about what is happening now. At one level, the data reported in Parents in Financial Crisis are a reminder of the impact of a wave of foreclosures.  For adults to pick up stakes and move to a rental in a less desirable part of town can be painful, but they can go to the same work every day and continue the same after-work activities.  For a child, however, foreclosure may mean transferring to a weaker school, losing a chance to play in the band or on a softball team, dropping out of a scout troop, and losing all the friends she has ever known.  Sure, we're a highly mobile society, and children move all the time.  But a move to a nicer house or a move so mom can take a better job is a move that most parents undertake at least in part with an eye toward improving a child's lifetime chances. A move from a foreclosure is not a move up.

The paper is written by Eric Nguyen, a Harvard 3L with a strong quantitative background.  (Note to entry level hiring committees: Remember his name--he's very good.)  Eric had read The Two-Income Trap and pointed out that if we were right about families and homes, there should be a difference among bankrupt families between home-owning parents and home-owning nonparents and the lengths to which they went to save their homes. He dug into the data on his own and found some very interesting correlations, all pointing in the same direction.  The data show that among economically distressed families, and controlling for household income and several other factors, those with children were nearly twice as likely to scramble to hang on to their homes than those without children.

The paper is a powerful reminder of the urgency of dealing with the current housing crisis. Several million kids will be affected by the outcome.

Tags: Credit and Bankruptcy by Elizabeth Warren
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The ABLJ just published a new paper, Parents in Financial Crisis: Fighting to Save the Family Home.  The paper uses data from the 2001 Consumer Bankruptcy Project to examine the differences in how hard people struggle to save a home based on the presence--or absence--of minor children in the house. The data support the claim that families with children work harder to try to hang on to home both before and during bankruptcy.  The finding is consistent with the thesis that families buy homes as a way to buy opportunities for their children (schools, neighborhoods) and that the potential loss of a home is more painful to parents who fear the lifetime impact of the loss on their children.

The data pre-date the current mortgage crisis, but they are useful on several levels for thinking about what is happening now. At one level, the data reported in Parents in Financial Crisis are a reminder of the impact of a wave of foreclosures.  For adults to pick up stakes and move to a rental in a less desirable part of town can be painful, but they can go to the same work every day and continue the same after-work activities.  For a child, however, foreclosure may mean transferring to a weaker school, losing a chance to play in the band or on a softball team, dropping out of a scout troop, and losing all the friends she has ever known.  Sure, we're a highly mobile society, and children move all the time.  But a move to a nicer house or a move so mom can take a better job is a move that most parents undertake at least in part with an eye toward improving a child's lifetime chances. A move from a foreclosure is not a move up.

The paper is written by Eric Nguyen, a Harvard 3L with a strong quantitative background.  (Note to entry level hiring committees: Remember his name--he's very good.)  Eric had read The Two-Income Trap and pointed out that if we were right about families and homes, there should be a difference among bankrupt families between home-owning parents and home-owning nonparents and the lengths to which they went to save their homes. He dug into the data on his own and found some very interesting correlations, all pointing in the same direction.  The data show that among economically distressed families, and controlling for household income and several other factors, those with children were nearly twice as likely to scramble to hang on to their homes than those without children.

The paper is a powerful reminder of the urgency of dealing with the current housing crisis. Several million kids will be affected by the outcome.

Tags: Credit and Bankruptcy by Elizabeth Warren
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Citibank announced yesterday that it might take back its highly-publicized promise to abandon universal default. The promise drew praise when it was announced, and it also helped Citibank and other lenders fight off any new regulations. After all, if the industry would regulate itself, Congress wasn't needed. This was just another example of the genius of the free market--better products will prevail, increasing consumer wealth. But it seems the market didn't work so well.

From the New York Times:

In any case, the “Deal Is a Deal” policy did not give Citigroup the edge it hoped for. Most customers did not recognize the benefit, in part because of the difficulty deciphering the fine print among offers from different banks.

“We hoped and expected that these two points of differentiation would lead customers to vote with their feet,” John P. Carey, the chief administrative officer for Citigroup’s credit card unit, told a Congressional panel in April. “We have been disappointed with the results we have seen so far.”

I have argued here, here, here (and probably other places--I'm really caught up in this point) that the credit markets are broken.  Citibank is now Exhibit A.  Credit products are now so complicated that customers cannot distinguish the details of one card from another.  That means they cannot punish bad cards or reward good ones--"voting with their feet," as Carey said.  That has changed products and pricing throughout the industry.  The smart card issuer 1) competes in areas customers can see (interest rate, rewards, relationships), and 2) load the cards with tricks and traps that will increase revenues but not be visible to the ordinary reader (double cycle billing, universal default, over-limit fees, pay-to-pay, etc.).  Over time, the products simply get worse.  Consumers miscalculate both the price and the risks.  Customers who never step into a trap will be all right, but a larger and larger portion of the population pays for credit in ways that no market competition will ever correct.

As I see it, there are two choices: The markets can stay broken, or serious, comprehensive regulation can deal with tricks-and-traps pricing--and let the market provide competition on interest, rewards and relationships.

Tags: Credit and Bankruptcy by Elizabeth Warren
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Citibank announced yesterday that it might take back its highly-publicized promise to abandon universal default. The promise drew praise when it was announced, and it also helped Citibank and other lenders fight off any new regulations. After all, if the industry would regulate itself, Congress wasn't needed. This was just another example of the genius of the free market--better products will prevail, increasing consumer wealth. But it seems the market didn't work so well.

From the New York Times:

In any case, the “Deal Is a Deal” policy did not give Citigroup the edge it hoped for. Most customers did not recognize the benefit, in part because of the difficulty deciphering the fine print among offers from different banks.

“We hoped and expected that these two points of differentiation would lead customers to vote with their feet,” John P. Carey, the chief administrative officer for Citigroup’s credit card unit, told a Congressional panel in April. “We have been disappointed with the results we have seen so far.”

I have argued here, here, here (and probably other places--I'm really caught up in this point) that the credit markets are broken.  Citibank is now Exhibit A.  Credit products are now so complicated that customers cannot distinguish the details of one card from another.  That means they cannot punish bad cards or reward good ones--"voting with their feet," as Carey said.  That has changed products and pricing throughout the industry.  The smart card issuer 1) competes in areas customers can see (interest rate, rewards, relationships), and 2) load the cards with tricks and traps that will increase revenues but not be visible to the ordinary reader (double cycle billing, universal default, over-limit fees, pay-to-pay, etc.).  Over time, the products simply get worse.  Consumers miscalculate both the price and the risks.  Customers who never step into a trap will be all right, but a larger and larger portion of the population pays for credit in ways that no market competition will ever correct.

As I see it, there are two choices: The markets can stay broken, or serious, comprehensive regulation can deal with tricks-and-traps pricing--and let the market provide competition on interest, rewards and relationships.

Tags: Credit and Bankruptcy by Elizabeth Warren
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The continuing mortgage crisis is now making itself felt in the private mortgage industry. Fannie Mae and Freddie Mac recently announced they would cease purchasing mortgages insured by Triad Guaranty, the smallest of the seven private mortgage insurers that make up most of the market. That was a death sentence for Triad, which was unable to consummate a sale of its business. Triad has now stopped underwriting new business and is now engaged in a "run-off" (insurance-speak for "wind-down"). See here for more details on Triad's demise and notes on another three PMI companies that could face Triad's fate.

I've been puzzled why PMI insurers weren't more vocal advocates of mortgage modification in bankruptcy. Most, (but not all) have exclusions for bankruptcy modification losses. That means PMI insurers would be required to pay out in foreclosure, but not in bankruptcy. Given that, you'd think they (and their state insurance regulators) would be pushing for legislation permitting modification of all mortgages in bankruptcy. If anyone can explain the political economy of the PMI industry's slumber on bankruptcy modification, it'd be great to have in the comments.

Tags: Credit and Bankruptcy by Adam Levitin
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The continuing mortgage crisis is now making itself felt in the private mortgage industry. Fannie Mae and Freddie Mac recently announced they would cease purchasing mortgages insured by Triad Guaranty, the smallest of the seven private mortgage insurers that make up most of the market. That was a death sentence for Triad, which was unable to consummate a sale of its business. Triad has now stopped underwriting new business and is now engaged in a "run-off" (insurance-speak for "wind-down"). See here for more details on Triad's demise and notes on another three PMI companies that could face Triad's fate.

I've been puzzled why PMI insurers weren't more vocal advocates of mortgage modification in bankruptcy. Most, (but not all) have exclusions for bankruptcy modification losses. That means PMI insurers would be required to pay out in foreclosure, but not in bankruptcy. Given that, you'd think they (and their state insurance regulators) would be pushing for legislation permitting modification of all mortgages in bankruptcy. If anyone can explain the political economy of the PMI industry's slumber on bankruptcy modification, it'd be great to have in the comments.

Tags: Credit and Bankruptcy by Adam Levitin
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On behalf of all the Credit Slips bloggers, here is a big thank you to Professor Jonathan Lipson of Temple University for reprising his role as a guest blogger these past two weeks. Lipson is an insightful commentator on the corporate bankruptcy scene, and Credit Slips readers will want to keep an eye out for his study on examiners in large corporate reorganizations. Also, we really appreciate Lipson's summary of the Supreme Court's recent decision in Piccadilly. We were lucky Jonathan was writing for us when the decision came down. Thanks again, Jonathan, and come back soon.

Tags: Credit and Bankruptcy by Bob Lawless
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On behalf of all the Credit Slips bloggers, here is a big thank you to Professor Jonathan Lipson of Temple University for reprising his role as a guest blogger these past two weeks. Lipson is an insightful commentator on the corporate bankruptcy scene, and Credit Slips readers will want to keep an eye out for his study on examiners in large corporate reorganizations. Also, we really appreciate Lipson's summary of the Supreme Court's recent decision in Piccadilly. We were lucky Jonathan was writing for us when the decision came down. Thanks again, Jonathan, and come back soon.

Tags: Credit and Bankruptcy by Bob Lawless
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