Category: Financial Education & Literacy

  • Encouraging People To File Bankruptcy — A Book To Recommend To Potential Clients

    Posted by

    Pamela Foohey

    A few months ago, Slipster Bob Lawless, former Slipster Deborah Thorne, and I published Debts Grip: Risk and Consumer Bankruptcy. The book draws on eleven years of data from the Consumer Bankruptcy Project to document the financial consequences of decades of risk privatization for individuals and families across the United States. Some people ultimately will file bankruptcy. Over the past few months, during panel discussions, podcasts, and interviews, we have been asked about the value of people filing bankruptcy earlier. We (well, at least I) think that for many people, filing sooner would be advantageous. People deplete their assets in the years they struggle before filing and suffer psychologically and physically from the stress of unmanageable debts. Based on our data, the stigma of bankruptcy and the inability to make good on their contracts remains a barrier to filing. So, how to encourage people to file? And, relatedly, how to make people feel “good” about their bankruptcies such that they have a better chance at succeeding when they are released post-bankruptcy into the same economic and social structure that may be stacked against them?

    I recently spoke about Debt’s Grip as part of the National Association of Bankruptcy Attorneys‘ meeting. There I saw Adrienne Hines, a bankruptcy attorney from Ohio who I knew from her social media presence as The Lady Like Lawyer (Instagram, TikTok). I picked up her new book, Bankruptcy Magic: The Life-Changing Power of Debt Relief With Dignity. The book puts into a written guide format for people the core message of her social media: that filing bankruptcy can be an effective solution to unmanageable debt challenges for which people do not need to feel ashamed. Adrienne’s social media accounts are an excellent resource for struggling debtors. Her book may be even more excellent. It is part of the answer to the question of how to encourage people to file sooner.

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  • Collins v. Yellen

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    Adam Levitin
    The Supreme Court ruled today in Collins v. Yellen, a case brought by Fannie Mae and Freddie Mac preferred shareholders that challenged both the constitutionality of the FHFA Director's appointment and the 2012 amendment to Treasury's stock purchase agreement with Fannie and Freddie that provided for all of Fannie and Freddie's profits to be swept into Treasury. The preferred shareholders are miffed because they believe that those dividends should be paid to them first, never minding the fact that but for the Treasury stock purchase, Fannie and Freddie would have been liquidated in receivership, resulting in the preferreds being wiped out. 
     
    SCOTUS, following its ruling in Seila Law v. CFPB, held that the FHFA Director must be removable at will by the President. In light of this finding of unconstitutionality in the appointment of the FHFA Director, the Court remanded for consideration of damages from past profit sweeps. Future profit sweeps are permitted, however, as the Director is now clearly removable at will by the President.
     
    While some media is pitching the outcome as a mixed ruling, it really isn't for the preferred shareholders. The preferreds took it on the nose here, and the market gets it: Fannie Mae preferred shares tumbled in value by 62% after the decision.
     

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  • Brilliant Contracts Podcast From Hoffman & Wilkinson-Ryan

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    Mitu Gulati

    I suspect that slipsters already know about this podcast.  But, just in case any of you have not, I wanted to flag Promises, Promises by Dave Hoffman and Tess Wilkinson-Ryan.  This is especially wonderful if you are teaching contract law via zoom this term and need additional content to add to what you are doing already. The podcast has been my savior in that it brightens my mood so much to hear these two brilliant scholars have fun talking through the classic cases while I'm on long walks. (Indeed, today I discussed their discussion of Hamer v. Sidway with Anna Gelpern for over an hour while I was walking).

    Listening to the conversations between Tess and Dave makes me remember why I wanted to be an academic in the first place — and it was not to write boring law review articles with ridiculous numbers of footnotes. It was at least in part to have conversations like the ones Tess and Dave have on their podcast (ideally, with some good scotch at hand).  I imagine that it is a special treat to be a student in their classes (or to be their colleague).

    Bravo, my friends. Bravo.

    The podcast is available on iTunes, Spotify and a bunch of other places.  

    p.s. I wonder whether I might be able to persuade them to do an episode on the Gold Clause cases.  Hmmm.

  • The Resurgence of Calls For Financial Literacy

    Posted by

    Pamela Foohey

    Today is the last day of National Financial Literacy Month. At a time when the economy has come to a grinding halt, it seems pertinent to talk about financial literacy, or, more accurately, the fallacy of financial education. Agata Soroko recently published a short essay in Public Seminar — The Financial Literacy Delusion. In it, she details how calls for financial education already are ramping up in light of the coronavirus's highlighting how little savings most Americans have. I suspected that the refrain that it's people's fault that they didn't have sufficient savings to cover a few months, and thus that they exacerbated the economic downturn with their inability to control themselves enough to save, would emerge with a vengeance in the coming months.

    Combating that narrative will become more important than ever, as a matter of economic policy, but also of kindness and understanding to each other. Indeed, it's important right now as Congress considers how to help American families during the crisis. As Slipster Dalie Jimenez, Chris Odinet, and I wrote in our just-uploaded-to-SSRN essay, The Folly of Credit As Pandemic Relief, forthcoming in UCLA Law Review Discourse, in the CARES Act, Congress predominately provided relief to Americans in the form of credit products, not actual cash. This very likely will prove to be problematic because people will be unable to repay in the coming months, just as they are unable to pay for their necessities now. They simply do not have the money, and will not in the future because people still won't have sufficient income to accumulate meaningful savings. As Soroko writes, financial education cannot solve widening income disparities, rising costs, and wealth inequality–the roots of why many Americans have so little savings.

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  • My Favorite Two Sentences From a Recent Case . . .

    Posted by

    Mitu Gulati

    Over the past few days, I've been struggling with trying to understand a new NY case involving secured debt. The fact that I had to struggle to understand the transaction made me feel insecure enough (on occasion,  I purport to teach corporate debt), but then when I tried to delve deeper into the case by looking at the underlying contracts (the "Collateral Pledge" Agreement – yuck), I got even more confused and insecure because I found the darn thing utterly incomprehensible.  Indeed, a whole half of that document seemed like it had been drafted for an entirely different type of transaction and the crucial provision that I was looking for didn't even seem to be there. But since I couldn't understand it, I couldn't be sure.  Maybe that provision was buried in some other provision that I couldn't figure out . . .

    Then, while wallowing in insecurity, I came across this from a recent bankruptcy case out of the Third Circuit (thank you. Third Circuit blog for making me feel better):

    The Third Circuit affirmed a ruling leaving in place a tenant’s favorable lease terms after the landlord declared bankruptcy and was purchased free and clear. Best line: “The Lease is long and neither simple nor direct. Indeed, it is an almost impenetrable web of formulas, defined terms, and cross-references–a ‘bloated morass,’ in the words of the Bankruptcy Court.”

    I'm turning now to reading the briefs for the Aurelius v. Puerto Rican Control Board/Commonwealth of Puerto Rico case (oral argument on Monday).  As compared to that Collateral Pledge Agreement, these briefs read like a beautiful novel.  The briefs on both sides are beautifully written, in clear, short and comprehensible sentences.  Maybe litigators should be the ones drafting contracts?

  • Recommended Reading: Empire of the Fund

    Posted by

    Jason Kilborn

    EmpireofthefundimageIt's that time of year again! Time to revisit and perhaps rebalance the investments in your retirement portfolio. While it is a sad fact that many people lack significant retirement savings, it is nonetheless useful for those interested in consumer finance (and investment companies, pensions, etc.) to think about how retirement savings plans work and to be able to offer some advice, for example, to debtors emerging from bankruptcy with their clean slate. William Birdthistle, of Chicago-Kent law school, has recently released Empire of the Fund, a magnificent new work on the most common vehicle that carries individuals' retirement savings in the US: mutual funds.

    I have heard that Birdthistle, who teaches across town from me, is legendary in the classroom. Having read his new book, I'm not at all surprised. While his fairly esoteric subject matter made me hesitate to nominate his book in response to Katie's post, Birdthistle has really pulled one off here by managing to make a book about the structure and pitfalls of mutual funds and retirement savings … extremely entertaining! It is masterfully written, with both erudite references to relevant comments by literary and historical figures, along with laugh-out-loud allusions to modern culture ("OMG! Friends, right! Mutual funds are lame!"). This book is an absolutely brilliant example of how to make a work on an otherwise dry financial subject not only accessible to the general public, but a real pleasure to read. It is no wonder the New York Times calls this "a lively new book."

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  • Porter’s Modern Consumer Law

    Posted by

    Bob Lawless

    Porter Consumer LawCredit Slips blogger Katie Porter has produced a new textbook in consumer law that anyone teaching the subject should consider adopting. Indeed, law professors not teaching consumer law should to take a look at it and consider whether they should add the class to their teaching portfolio. A 2013 poll on Brian Leiter's Law School Reports named consumer law as the number one "area of law which deserves more attention in the legal academy." Next academic year I will be picking up a new course, and the emergence of Porter's new text made the decision easy for me as to which course it will be.

    In the preface, Porter makes explicit her three-pronged approach to the topic of consumer law:

    1. The book situates consumer law within the business-law curriculum. "Consumer law is big business," she notes. Understanding the legal issues requires understanding the "deal," the information flow, and the market in which the transaction occurs. Porter expressly recognizes, "the world of consumer practice offers opportunities for lawyers to represent consumers (as government lawyers, policy advocates, and plaintiffs’ attorneys) and to represent businesses (as in-house counsel, defense attorneys, and
      lobbyists)."
    2. The book provides a strong theoretical frame by situating consumer law at the intersection of tort and contract. The book does not present consumer law as a hodgepodge of cases and statutes loosely organized around the term "consumer." Rather it recognizes that a lot of what travels under the law of "consumer law" responds to the gaps that traditional contract and torts doctrines have when it comes to the issues that consumer transactions create.
    3. The book explores where the social-science literature has learning for consumer law. Porter looks to see what psychology, sociology, marketing, and economics can add to our understanding of the legal issues. By doing so, the book explores the difference between law on the ground and law in the books. 

    The book uses a problem-based method of instruction that will be familiar to users of Porter's co-authored bankruptcy textbook or my co-authored secured transactions textbook. The problems range from straight-forward statute readers to teach doctrine to tough client counseling problems that focus on real-world lawyering skills.

    More information, including a table of contents and a sample chapter, can be found at Aspen Publishers.

  • Are we poor?

    Posted by

    Katie Porter

    If you have kids who talk as much as mine (gee, wonder where they picked up loquacity as a trait), conversations can go nearly anywhere. My boys, ages 9 and 6, are quite interested in money lately, a phenomenon driven in part by the tooth fairy and their discovery of gift cards at a recent birthday party. Here is a recent excerpt:

    "Mom, is the reason that I can't have the Lego Batman DC set because we are poor? Jpeg-194x300

    "We are not poor."

    "Well, if are rich, then why can't I have it?"

    "I didn't say we were rich. We aren't rich."

    "Mom . . . . [big sigh of frustration] . . . Are we rich or are we poor?"

    I recently read the Opposite of Spoiled by Ron Leiber, a NY Times money reporter. He provides straightforward advice on how to handle these questions and more. Even if one takes a slightly different tact with their kids, I completely agree with his main point:  parents should not avoid these conversations because they are uncomfortable or inconvenient or difficult. Kids talk about this stuff and draw conclusions. Creating a conversation is a way to share your values and learn about your children.

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  • Scarcity of Money? Or Time?

    Posted by

    Katie Porter

    How is it that I never find the time to blog? My answer would be that I simply do not have the time. But of course I have the same hours in a day as my co-bloggers. I could argue that I have more demands on my time, but I know very well that we are all busy. Scarcity, a book by Sendhil Mullainathan and Eldar Shafir, has many lessons for busy people, including those of us who are busy thinking about the difficulties faced by people who have a scarcity of income or disposable income after debt. 

    The book looks at scarcity in varied contexts such as time, money, food, friendship. It argues that there is a common logic to situations of scarcity: a mindset that captures our attention and changes how we think. At an optimal level, scarcity can create positive focus. But the same capture of the mind can preoccupy us and make us vulnerable to poor thinking and impulse control. ScarcityThe authors find, for example, that being poor reduces a person's cognitive capacity more than going one full night without sleep.

    The implications for those in financial scarcity are powerful, particularly in terms of policy intervention. The authors focus on the need for "slack" in program design; for example, job training programs with modular classes that can be taken out of order so if a person misses a class, they can more easily make up the class rather than falling behind on linear content and having to drop out.

    My thinking went to chapter 13 and the debate about a "cushion" in chapter 13 plans. While some judges and trustees permit this (or even insist on it), others see it as an indication of weakness. If you deserve a discharge, you need to learn within limits. The scarcity of a confirmed chapter 13 plan, with its 100% draw on all disposable income, creates a mindset that can itself be harmful. People with some financial slack may, in fact, be better able to build the financial habits and position themselves for the rehabilitation that is bankruptcy's goal. Building financial savings into chapter 13 as a necessary expense would reduce the cognitive burden of bankruptcy and insulate people from the harms of financial scarcity after bankruptcy. The result, according to the research of Mullainathan and Shafir, would be debtors emerging from bankruptcy with better self-control, more focus, and stronger decisionmaking.

  • Just Punch My Bankruptcy Ticket

    Posted by

    Pamela Foohey

    TicketsThat's the title of Denver Law Professor Michael Sousa's new article exploring debtors' evaluations of the pre-filing credit counseling course and the post-filing financial management course mandated by BAPCPA. The data for the article came from in-depth interviews that Sousa conducted with 58 individuals from Colorado who filed under Chapter 7 between 2006 and 2010. Bob Lawless previously posted about another article Sousa wrote based on the interviews that discusses debtors' perceptions of bankruptcy stigma. Like Sousa's previous article, this paper carefully presents the interviews for what they are and what they can reveal about debtors' interactions with these two components of the bankruptcy process.

    Sousa's findings generally confirm the limited prior research about the two courses. In fact, they may paint an even grimmer picture of the courses' usefulness. None of the debtors thought the credit counseling to be of any help, and only 2 couples (4 of the 58 debtors, or 7%) thought they had learned anything useful from the financial management course. Indeed, and one of Sousa's more interesting findings, what some debtors took from the credit counseling course contravenes Congress's aim for the course to inform debtors of all their options and thereby convince some debtors to settle their debts outside of bankruptcy. Debtors instead said the course affirmed their decision to file because it showed them how bad their situation was and provided them some psychological comfort in accepting that bankruptcy was the last remaining option.

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