• Viewpoint Discrimination in Banking

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    I have a new draft article circulating, The Market for Ideas: Viewpoint Discrimination in Banking. The paper addresses both the positive claims that banks have engaged in viewpoint discrimination by “debanking” political conservatives and Christians and the normative claims from right and left that banks should be regulated as common carriers or public utilities. Basically, the evidence on debanking is remarkably weak; banks often have good reason to close accounts related to credit risk on charged-back payments and AML compliance burdens.  On top of that, the normative case for common carrier or public utility regulation makes little sense: banks are not natural monopolies, the very nature of their business requires discrimination for credit risk, and if they are acting solely out of animus, the market will price against them for it. 

    At core, however, the real issue is that if the First Amendment means anything, then viewpoints cannot be treated as a protected class. Ideas have to sink or swim in the marketplace on their own without government subsidization. 

    The abstract is below: 

                May banks engage in viewpoint discrimination? That is, may a bank deny service to an anti-vaxxer or an antifa or an election denier? Concerns about viewpoint discrimination in banking have been a conservative cause for a decade, with “viewpoint debanking,” seen as an extension of progressive cancel culture. Yet there is scant evidence that banks, even in the face of regulatory pressure, have engaged in viewpoint discrimination, aside from a few cases related to the January 6 insurrection. To the contrary, bank account closings can often be explained by viewpoint-neutral concerns over credit and anti-money-laundering compliance risk. 

                Despite the dearth of evidence of an actual viewpoint discrimination problem, scholars on the right and left have argued for treating banks as either common carriers or public utilities, both of which are subject to a general duty of non-discrimination, not just in regard to personal status, such as race, sex, or religion, but also regarding customers’ lines of business, and political or religious views. Banks, however, have never historically been regulated as common carriers or public utilities and with good reason: they do not raise the concerns about monopoly power that animate common carrier and public utility regulation, and the very nature of the service they provide requires discrimination based on individualized counterparty credit and compliance risk. Moreover, prohibiting viewpoint discrimination forces a cross-subsidy among bank customers in which low-risk customers are forced to subsidize the high-risk ones, which just transposes the problem: viewpoint subsidization is itself viewpoint discrimination. 

                Allowing viewpoint discrimination means that all viewpoints are subject to market discipline: if a customer’s viewpoint imposes risk on a bank, then the bank should be allowed to price against it, while if a bank discriminates against a viewpoint solely from animus—that is, an expression of the bank’s own viewpoint—then market will price against the bank, which will lose market share to non-discriminating banks. Banks should be free to reject customers for any reason unrelated to personal status, including viewpoint. Doing so is a business decision that is best left to private actors and checked by the marketplace, not government.

     


  • Association of American Law Schools Section Renames Mentoring Award for Juliet Moringiello

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    Read here about the Moringiello award.  And stay tuned for information about a memorial volume of scholarship in Juliet’s honor.


  • Fix Credit Card Competition with Market Improvements, Not Rate Caps

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    There’s a problem with competition in the credit card market. But rate regulation, like a 10% usury cap, is not the way to fix it. The problems in the credit card market are informational: consumers cannot see precise interest rates when they apply for cards, so there isn’t competitive pressure on rates. Instead, card issuers compete based on opaque, but much more salient, rewards programs.

    Since when is rate regulation the way we go about fixing informational problems? It’s the wrong tool for the job. Slapping on a 10% rate cap is a lot sexier and simpler than the sort of under-the-hood regulatory craftsmanship required to fix informational problems, but that doesn’t mean it’s the right solution. There are better ways to fix the consumer credit card market than a blunt tool like a rate cap that is likely to have a lot of unintended consequences.

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  • Why a 10% Credit Card Rate Cap Is a Terrible Idea

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    President Trump’s call for a one year 10% rate cap on credit cards has gotten a lot of attention and a surprisingly favorable reception. It’s a reworking of a bill proposed last year by Bernie Sanders and Josh Hawley in the Senate and Alexandria Ocasio-Cortez and Anna Paulina Luna in the House. The 10% rate cap was a terrible idea in 2025 and it’s a terrible idea now. It really doesn’t matter which end of the horseshoe it comes from. While it might sound great to get cheap credit, there’s no free lunch here.

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  • Telling Anecdotes About Bankruptcy Filers

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    The very recently released Issue 99:3 of the American Bankruptcy Law Journal features the return of its book review series. My co-authors Robert Lawless and Deborah Thorne and I are honored that the journal’s editors picked Debt’s Grip: Risk and Consumer Bankruptcy for the series re-introduction. Professors Alexandra Sickler and Edward Janger kindly wrote book reviews, as well as participated in a recorded roundtable hosted by ABLJ and the National Conference of Bankruptcy Judges focusing on the book.

    In our response to their reviews, Anecdotes on the Data in Debt’s Grip, we highlight some of our go-to stories of bankruptcy filers’ journeys through financial hardship, as written to us, via the survey we send to the people who file bankuptcy. These stories are vivid reminders of people’s struggles. Or, as Ted Janger wrote, “[t]he picture painted by [us in Debt’s Grip] is dark.” Still, we hope that sharing the stories — in our response and in Debt’s Grip itself — will bring some light to the financial precarity faced by households across the United States.

    The full new issue of ABLJ is here.


  • No, Assumable Mortgages Aren’t a Fix for the Housing Market

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    Paul Kupiec and Alex Pollock have an op-ed in the Wall Street Journal arguing for a pair of federal government interventions in the mortgage market to boost the volume of residential real estate transactions that has been depressed because of borrowers being locked into very low rate mortgages and large, taxable appreciation. Alas, these interventions won’t work, as explained below the break. 

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  • Debunking Debanking: The OCC’s Debanking Report Is a Nothing Burger

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    The OCC released the preliminary findings from its “Review of Large Banks’ Debanking Activities” undertaken pursuant to an Executive Order on debanking.

    The findings are a nothing burger. The OCC did not adduce any examples of any individual or business being denied financial services because of viewpoint or line of business. Instead, all it found were that large banks required more complicated internal approval processes for lines of business that present reputation risk. That’s 100% legal. Let me repeat that again: the OCC did not find any evidence of denial of services, just of heightened review for certain lines of business that pose reputational risk. Moreover, the OCC did not adduce any evidence of banks discriminating against individuals on the basis of their politics or religion. Instead, all it found was evidence of prudent banking practices. Yawn.

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  • How Not To Do A Bankruptcy Literature Review

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    I was excited to see a new article purporting to offer a “bibliometric analysis of research on personal insolvency.” My excitement soon turned to disappointment as I realized how fundamentally flawed the “analysis” was. To make lemonade out of lemons, I offer this cautionary tale for future analysts to avoid a research method gone horribly wrong. (more…)


  • Sorry to Break It to You Geniuses: Under the GENIUS Act the Holders of Stablecoins Actually Have FIFTH Priority in an Issuer Bankruptcy

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    In order for stablecoins to operate like money, there cannot be any issuer credit risk. Otherwise coins will be discounted based on the financial strength of the issuer. That will cause transactional friction because buyers and sellers might not agree on the appropriate discount. It also means that different coins cannot possibly be good delivery for each other.

    The GENIUS Act tries to reduce issuer credit risk as much as possible. First, it requires payment stablecoins to be backed by reserves and creates a regulatory oversight system to create some confidence that the claimed reserves are in fact there. That’s basically replicating what the National Bank Act of 1864 did when it created national bank notes and a federal bank regulator to inspect the national banks that issued those notes.

    Second, the GENIUS Act has a provision regarding the insolvency of a payment stablecoin issuer. It aims to reduce credit risk by saying that the holders of payment stablecoins have first priority, coming ahead of all other claimants, for the issuer’s reserves. And second, it directs the bankruptcy court to pay out on the stablecoins as soon as possible, namely within 14 days of “the required hearing.” The idea here is to ensure that there is minimal liquidity disruption.

    Here’s the thing. The GENIUS Act fails miserably at both of these bankruptcy goals. Holders of payment stablecoins actually will rank fifth in a bankruptcy distribution, coming after (1) repo and margin lender claims, (2) the DIP lender, (3) the bankruptcy professionals via the DIP lender’s carve-out, and (4) set-off claims from depositaries and brokers. Those claims will gobble up a huge chunk of any reserves, so recoveries for payment stablecoin holders will be severely diminished.

    Moreover, because of the nature of the DIP lender and professionals’ claims, no distribution to the payment stablecoin holders will be possible until well into the case, if not the very end of it. That might mean waiting months or years for a distribution.

    Let me put it bluntly: a stablecoin issuer bankruptcy won’t be like an insured deposit claim against an FDIC insured bank, where you get 100¢ on the dollar back incredibly fast (perhaps next day). In a payment stablecoin issuer bankruptcy there will be a large haircut on the stablecoins and the payment won’t be any time soon.

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  • Bonfire at the Repo Lot

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    You hear a bump in the night. Is it Edgar Allan Poe’s Telltale Heart? Or someone hauling away your car? If you have missed some car payments, it probably is the latter. And while most of your creditors aren’t allowed to lurk in the dark to snatch your car, your car lender can.

    Recorded with steaks sizzling on a fire pit at a car repossession lot, a recent podcast from the Wall Street Journal discusses the physical risks and tight margins associated with the repo industry. Without mentioning the law that shapes this industry, the podcast shows how Article 9 of the Uniform Commercial Code, a law passed by all state legislatures and yet virtually unknown, is far from a niche subject. That’s also an implication, to say the least, from the downfall of FirstBrands, now in bankruptcy.

    Now is a good time for lawyers to ask their law schools if they regularly offer courses that include a hefty dose of UCC Article 9.

     


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