04 March 2015

Consumer Debtors, Arbitration, and Bankruptcy

As my law-oriented readers probably know, the United States Supreme Court has upheld the validity of mandatory arbitration and class action waivers in consumer contracts. In other words, there is no way within the legal system to redress the violations of law by businesses that provide consumer products and services. The loss to an individual consumer is too small to contest in any forum so vendors, creditors, and lenders will continue to undertake actions like this:
In November 2014, national news media reported allegations that large national lenders, including JPMorgan Chase, Bank of America, and Citigroup, were systematically violating the law to the detriment of their customers. Specifically, these banks allegedly refused to remove debt that had been discharged in bankruptcy from borrowers’ credit reports as a means of pressuring borrowers into repaying the debts.
For more examples of systemic creditor abuse I recommend that you download and read the latest article by bankruptcy scholar Kara Bruce, Vindicating Bankruptcy Rights. Professor Bruce argues that even though consumer-oriented class actions have gone nearly extinct, "the prototypical debtor class action—a class of consumer debtors suing a common lender for widespread violations of bankruptcy law—[nonetheless] remains viable in the modern, anti-class-action framework." In other words, no contract can absolve a creditor of its statutory duties under bankruptcy law, and no contractual agreement not to be party to a class action binds the bankruptcy court.

Kara's article is lengthy and not for the casual reader. It does, however, point a way to open the door to legal redress for some violations of the rights of some consumers.

03 March 2015

The Coming Bankruptcy Boomlet?

Notwithstanding the Great Recession and the painfully slow recovery, the number of bankruptcies--personal and business--are low and falling. Read about the numbers here.

One of the significant reasons personal bankruptcies are as low as they are is that lenders learned an important lesson in 2009: Don't lend to folks who can't pay back their loans. While this point may seem obvious, it is the case that lenders are chasing profits and lending a high rates to the euphemistically termed "sub-prime" borrowers generates more interest income--at least in the short term--than lending to folks who have multiple lending option.

Which is why this piece of news from the New York Times Dealbook is important: "Wells Fargo, one of the largest subprime car lenders, is pulling back from that roaring market, a move that is being felt throughout the broader auto industry."

Increasing consumer debt has been a leading indicator for personal bankruptcy for many decades. If Wells Fargo is pulling back, it suggests that consumer debt may be nearing a peak and thus that an increase in consumer bankruptcy filings is around the corner.

How far away is the corner? Given Wells Fargo’s conservative stance, I’d hazard a guess that we’ll see an uptick in consumer bankruptcies in the first quarter of 2016.

02 March 2015

Student Loan Storm. And, Duberstein 23

It's been some time since I've posted anything about America's student loan debacle. (For a few of my more recent posts go here and here.) News about the self-styled "Corinthian 15" has been making the rounds. You can read their manifesto in a New York Times Op-Ed here.

In summary, a number of students who had borrowed money to attend the now-defunct for-profit Corinthian Colleges are undertaking a loan-repayment strike. Rightly angry that they were duped into borrowing money to attend a school that offered nothing of comparable value in return, these students are demanding that the federal Department of Education waive repayment of their federal student loans. As much as I understand the students' ire, their demands are a non-starter. With bubble-sized $1+ trillion in total student loan debt, the federal government isn't about to start walking back on the funds it has lent. In addition, those many thousands of student who have faithfully paid their debts would be left looking like chumps.

A substantial part of the blame for the student loan bubble can be left at Congress' doorstep. Congress has subsidized both direct federal student lending and, as of 2005, added a subsidy for private student loan lenders by making their loans as difficult to discharge in bankruptcy as are federal loans.

Just how difficult should it be to discharge student loans? And what has the Department of Education already done to ease the burden for impecunious student loan debtors? Those issues are at the center of the 23rd Annual Duberstein Moot Court Competition that begins on Saturday, March 7 in New York. Unlike the intricacies of Chapter 11 reorganization law, this year's competition should be near and dear to the hearts of law students. You can read the complete fact pattern here.

I'm particularly excited about the Duberstein Competition this year because for the first time Regent Law School has entered a team. I've helped coach Kathleen Knudsen, Andrew Butler, and Aaron Lindquist. Their written brief is excellent and I'm confident they will do a fine job in the oral arguments.

Kudos for making the entry of a team from Regent possible must go to the Boleman Law firm and founding partner Rusty Boleman. Without their support the participation of Regent's team would not have been possible.

26 February 2015

"Experience Explained" Explained

Product Details

I have read many good words about David Skeel's book "True Paradox: How Christianity Makes Sense of our Complex World." David is on the faculty of the law school of the University of Pennsylvania and is among America's most highly regarded scholars of corporate and bankruptcy law and the intersections between the two. He is also a significant writer when it comes to an even bigger insection, the one between law and religion. I've previously posted about Skeel's work many times and you can read some representative samples here and here.

I haven't read David's new book so I've been reluctant to post anything about it. Recently, however, there was a fine review in First Things, one which is now available for download by going here. The reviewer, Robert T. Miller of the University of Iowa, clearly describes the contours of Skeel's fundamental thesis:
Skeel argues that Christianity is better able than atheistic materialism to explain certain important aspects of human life, including the phenomenon of human consciousness, our appreciation of beauty and its transience, the meaning of human suffering, and our quest for justice.
In short, Skeel is arguing neither deductively not inductively but abductively. In other words, Christianity provides the "best fit" for the experiences of self-conscious human life. Others have done this but I'm confident that Skeel does it exceptionally well and with reference to the most recent assertions of the atheistic materialists among us, men (and why does it always seem that males are among the most aggressive of atheists?) such as Richard Dawkins and Steven Pinker.

Unsurprisingly, "True Paradox" is framed in terms of the debate within contemporary elite Western culture, the debate between Christian theism and naturalistic materialism. Skeel does not, at least as I can tell from his reviewers, address approaches to the understanding of self-conscious human life such as Islam and Hinduism. I can't fault him for limiting the scope of his book but I might venture to hope that Skeel or someone addresses whether Christianity's "fit" is better than these other alternatives.

23 February 2015


That Birdman won the Academy Award for best picture came as no surprise. I had blogged about it here and here and thought it a better film than the other leading contenders I had seen, Boyhood and The Grand Budapest Hotel.

For some profound insights about Birdman, read a post by Rob De Smith who's on the faculty of Dordt College, my undergraduate alma mater.

22 February 2015

"Thomas Cromwell"

Product Details

Subtitled, "The Untold Story of Henry VIII's Most Faithful Servant", Tracy Borman's biography of an extremely important but lesser-known minister of England's King Henry VIII was a Christmas gift from Jeremy. Cromwell, who ultimately lost his head to Henry VIII's growing paranoia, was the several-generations great uncle of Oliver Cromwell who a little over a century later was to preside over the execution of Charles I, himself a collateral relative of the great King Henry. That, of course, doesn't explain Thomas Cromwell's significance.

Quoting from Borman's epilogue is perhaps the simplest way of summarizing the who and the what of Thomas Cromwell:
One of the most brilliant legal minds of the age, Cromwell turned his hand to a host of businesses--all with dazzling success. ... During his meteoric rise to power, he masterminded some of the most seismic developments of the Tudor age: from the king's "great Matter" [the divorce from Catherine of Aragon] to the royal supremacy [over the Church of England], and from the "revolution" in government [rationalizing central power] to the transformation of religious life [from traditional Catholicism to the cusp of Protestantism]. In so doing, he changed the face of England for ever.
In particular, with regard to religious matters, Cromwell oversaw the destruction of England's monasteries and ensured that every church held a copy of the English Bible. Politically, he turned Parliament from an occasional consultative body into a regularly meeting source of law (albeit for the next 80 years still at the king's direction).

Borman provides a convincing account of how a common-born son of a blacksmith achieved so much. The book reads almost like a novel but Borman has an encyclopedic acquaintance with the events, characters, legal texts, and correspondence so that one is left with the definite sense that she's left nothing to uniformed imagination. And, unlike many American historians, Borman is not tone-deaf when it comes to matters of religion. She conveys an understanding of what the early Protestant faith of England was like and does not reduce it--or Cromwell's inconsistent expressions of it--to a mask for some "deeper" truth grounded only in material forces.

I could have stood more details about Cromwell's legal work and the details of his legislative reforms. Borman was, however, almost certainly correct to leave them out of this popular account. For those interested in some of them, especially as they pertain to the development of the law of contract in early modern England, might wish to download my article, The Puritan Revolution and the Law of Contracts.

In sum, a fine book that filled in many gaps in my knowledge of the life-and-death politics Henrican England. Thanks, Jeremy.

19 February 2015

Virtue in Law: Larry Solum and His Aretaic Theory of Legislation

The virtues, understood as those characteristics of human life and living which are oriented to human flourishing, are rarely discussed when analyzing law. For the most part law, whether private or public, is evaluated in terms of increasing individual welfare or maximizing individual autonomy. Broader notions of normative justice are regularly invoked but just as regularly can be seen to be used for their rhetorical effect, not their substantive content.

I have utilized a virtue-centered approach a number of times on this blog concerning issues as disparate as bankruptcy, contracts, and corporate law. I have not, however, attempted to lay out a virtue-centered approach to the phenomenon of legislation as a whole. Go here to read Georgetown law professor Larry Solum's twelve-page essay attempting just that. As he describes this approach,
An aretaic[virtue-centered] theory of legislation claims that the aim of law should be to promote human flourishing, consisting of lives of social and rational activities that express the human excellences or virtues. A theory of legislation can be virtue-centered in two senses. First, the conceptual framework of the theory focuses our attention on the role of character and virtue in general legal theory. Second, the central claim of the theory is that the promotion of virtue is the most important aim of legislation.
Any virtue-centered approach to law must address two questions: What are human virtues and how the law can (and should) promote them. I won't summarize how Solum's essay answers these two questions; it's short and the reader is encouraged to take the time to read it. In brief, it's a nice start but, as with any "big" theory, the devil will be in the details.

My principal concern is not with evaluating legislation in terms of virtue--we should--or even with identifying the virtues--I'll grant Solum's--but with the lack of normative force that Solum's naturalistic account necessarily entails. As Solum puts it,
I will assume that morality is a natural phenomenon, subject to a kind of investigation that is continuous with the natural sciences. Thus, we can ask the question what sort of life is good for humans in the same way that an ethologist can ask what kind of life is good for eagles or salmon. ... A good human life is much more complicated, because humans are rational and social creatures. The model theory offers an account of the good life for humans and of the characteristics that humans need to lead a flourishing life.
Solum has good company in his naturalistic assumption; Aristotle comes to mind. But I don't believe it is adequate in a modern (and post-modern) world in which the link between the is and the ought has been severed. Modern naturalistic science is decidedly non-teleological and it's hard to believe that a naturalistic theory of law can be otherwise.

Not that Solum's conclusions are incorrect; yet they are not grounded in a thick metaphysical account of what it means to be human. Without such an account, a virtue-centered evaluation of legislation will, as I argued in my article about human rights, wither away in the face of the apparent precision of utilitarianism and the emotional appeal of autonomy, especially of the sexual sort.

For those willing to entertain the possibility of a non-naturalistic account of human nature and human flourishing, I can suggest an additional three of my articles in which I attempt to use a specifically Christian version of both in connection with contract law: Consideration in the Common Law of Contracts, Principled Pluralism and Contract Remedies, and Mission Possible: A Paradigm for Analysis of Contractual Impossibility

The virtues are real and are really important. And I applaud Solum for reviving their use in analyzing the law.

18 February 2015

Where Has All The Money Gone?

I've previously commented here about the collapse of the American housing bubble in 2009. One of my conclusions was that the federal government should reduce its role in propping up home lending. Subsidies of home loans serves to increase their availability, which increases the bubble in the subsidized activity and thus the size and duration of the crash when the bubble is pricked.

On Valentine's Day the New York Times published an insightful piece about why the federal government is still in the home lending business. (Not directly, mind you, but indirectly by owning the federally-chartered entities that guarantee the home loans made by private lenders.) In short, it's making money hand over fist.

How, you ask? Therein lies the story.

Fannie Mae and Freddie Mac, two federally-chartered but privately-owned corporations, guaranteed many home loans before the crash. Both became insolvent with the crash. (There was no way they could pay the defaulted mortgage loans made by the banks whose loans they guaranteed.) With their insolvency, the federal government simply seized their assets (and assumed their liabilities, thus again demonstrating how modern corporate capitalism privatizes gains but socializes risks--at least if you're part of an industry whose members are big donors to both political parties and many individual Congressional and Senate candidates).

With low interest rates thanks to the Federal Reserve Board, the national housing market has rebounded from its deep crash. With the rebound, Fannie Mae and Freddie Mac are extremely profitable. And since the federal government now owns them, it is taking these profits. The federal government, that is, and not the original shareholders of the two loan guarantors, which, as you might imagine, leaves them feeling rather peeved.

The equity interests of the former shareholders likely would have been wiped had Fannie Mae and Freddie Mac passed through bankruptcy like normal insolvent corporations although we'll never know. Bankruptcy, whatever its drawbacks, has the virtue of being a largely public proceeding. In other words, the former shareholders would have had their day in bankruptcy court which means they would have received the due process of law as provided by the Fifth Amendment to the U.S. Constitution.

But Fannie and Freddie never saw the light of bankruptcy or any other court proceeding. The Department of the Treasury simply sized their assets, what in other countries we would call nationalization. No process, due or otherwise.

The former shareholders are suing and having some success although it will take a very brave federal judiciary to provide them with complete vindication.

Interestingly, I'm not hearing a peep about this action from the self-styled non-MSM media types at Fox News. This only shows that both the Left and its media outlets (except for the New York Times, it seemsand the faux-Right are both on the corporate take.

Remember that when you hear the bleating from the self-described purveyors of truth every weekday afternoon.

17 February 2015

No Crying in Iowa

It's been a while since I've posted about welfare for American farmers. You can read some of my earlier comments here and here.

Unlike the continuing public perception of urban, largely African-American welfare recipients, payments to American farmers, who are are among the least needy of citizens, are big and can be expected to grow even larger. Go here to read an excellent article in The Economist that observes
American farm subsidies are egregiously expensive, harvesting $20 billion a year from taxpayers’ pockets. Most of the money goes to big, rich farmers producing staple commodities such as corn and soyabeans in states such as Iowa.
Perception is everything and with a plethora of presidential candidates scurrying about Iowa like rats in a corn crib, we can expect to hear even more sanctimonious support for the whitest and richest of America's welfare recipients.

15 February 2015

Good Sunday Reading

I've previously supported Pamela Foohey's work on church bankruptcies here and here. Pamela has written a new article tilted When Faith Falls Short: Bankruptcy Decisions of Churches that you can download here.

This is another excellent empirical analysis that takes seriously the personal dimension of bankruptcy and I highly recommend it.

12 February 2015

Family Christian Stores Files Bankruptcy

A portion of my readership may be familiar with Family Christian Stores, the largest (by number of stores) participant in the market for Christian books and tchotchkes. If so, you may find this story about its entry into Chapter 11 bankruptcy of interest.

The current ownership of Family Christian Stores seems to have acquired the chain through a leveraged buyout in 2012. In short, this means the current owners borrowed the purchase price. Saddled with this debt--and buffeted with competition from the world of online mass-merchandisers like Amazon--Family Christian Stores has run out of revenue sufficient to service its current and long-term debt.

Like most Chapter 11s of retailers nowadays, Family Christian Stores has no plans to reorganize. (To understand why most retailers don't reorganize, read Michelle Harner's post here.) Instead, it's planning to auction its assets to the highest bidder. The current bidder, by the way, is a another subsidiary of the current owner of Family Christian Stores. Once sold and repurchased, the debt will be reduced and, one hopes, Family Christian Stores will be restored to profitability.

But why, you might ask, would the current lender to Family Christian Stores agree to let the company's assets, in which that lender no doubt has a blanket security interest, go for less than it's owed? Because, as everyone should be aware, it's the lender who wants Family Christian Stores to put itself on the auction block. Nothing is as bad for a lender to an already struggling retail business as to try to liquidate those assets on its own. This lender may hope someone else comes along and bids up the initial price but even if that doesn't happen, this lender will be better off than had it tried to liquidate Family Christian Stores on a piecemeal basis.

One matter still puzzles me: Why is Family Christian Stores not proposing to close some of its locations? After all, there's no way each of its 250 stores is turning a profit. At least some of them are paying too much rent or in a bad location, so why not use Chapter 11 to close them?

Putting on one's cynic's hat, one might think that the assertion that no stores will be closed is a ploy to garner some good press and keep all the employees reasonably happy. After all, there's nothing that tempts retail employees to take some five-finger discounts like the knowledge that they'll soon be out of a job. If the cynic is right, then we can expect some store-closing motions in a few weeks.

Trying on the hat of virtue suggests that the current management of Family Christian Stores is really intent on keeping open all its stores. We all know where good intentions lead and one might be concerned that current management is letting hope get in the way of good judgment. We'll see.

11 February 2015

Conscience and Its Protection

Go here to read a nice (and short!) article by Leah Achor titled A Historical Defense of State and Local Protection of Private Conscience. Achor briefly (perhaps too briefly) surveys the history of the meaning of conscience from the Christian New Testament Scriptures to the medieval Thomas Aquinas to the early-modern Westminster Confession of Faith to classical liberal John Locke to William Blackstone whose Commentaries on the Law of England were very much in the mix of political thought during the Founding era in America's history.

When it comes to the protection of conscience by law, Achor conflates the notions of conscience as a power, innately part of human nature, and conscience as the act by which a power is exercised. How else to explain her inclusion of Aquinas in the history of conscience in Western thought alongside Locke and Blackstone? How else also to explain her quote from section 2 of Chapter 20 of the Westminster Confession of Faith:
God alone is lord of the conscience, and hath left it free from the doctrines and commandments of men which are in any thing contrary to his Word, or beside it, in matters of faith or worship. So that, to believe such doctrines, or to obey such commands, out of conscience, is to betray true liberty of conscience: and the requiring of an implicit faith, and an absolute and blind obedience, is to destroy liberty of conscience, and reason also.
while omitting section 4:
And because the powers which God hath ordained,and the liberty which Christ hath purchased, are not intended by God to Destroy, but mutually to uphold and preseve one another; they who, upon pretence of Christian liberty, shall oppose any lawful power, or the lawful exercise of it, whether it be civil or ecclesiastical, resist the ordinance of God And for their publishing of such opinions, or maintaining of such practices, as are contrary to the light of nature, or to the known principles of Christianity ...; or such erroneous opinions or practices, as either in their own nature, or in the manner of publishing or maintaining them, are destructive to the external peace and order which Christ hath established in the church; they may lawfully be called to account, and proceeded against by the censures of the church, and by the power of the civil magistrate.
In short, Achor is a liberal, albeit in the classical sense. The notion of conscience whose protection she advocates is that of classical liberalism, not the broad sweep of Western Christian political and theological thought before the nineteenth and twentieth centuries..

But to be a classical liberal is not a bad thing. After all, I wrote positively of liberalism in Looking for Bedrock: Accounting for Human Rights in Classical Liberalism, Modern Secularism, and the Christian Tradition. And to draw our attention to the notion of conscience in the Founding era is extremely important in the current context of administratively-enforced political correctness. (See my most recent post about the travails of Trinity Western University for an example.)

Indeed, it is in her application of the classical liberal understanding of conscience, the one embedded in America's constitutional ordering, that Achor's work should prove most useful. Thus, with the qualifications noted above, I commend Achor's Defense to a wider audience.