Sen. Elizabeth Warren (D-Mass.) is teaming up with a slate of fellow congressional Democrats calling for greater federal regulation of private-equity firms, which the presidential candidate likened to vampires, in a policy proposal that would alter the way the funds acquire other companies, the Wall Street Journal reported. Warren unveiled legislation today that would require private-equity funds to assume responsibility for the liabilities of companies under their control — including debt and pension-related obligations. The bill, called the Stop Wall Street Looting Act of 2019, would also make private-equity firms legally liable when a company in their portfolio runs afoul of federal law. Warren contends that private-equity firms are only on the hook for their equity investments, not behavior at the firms, according to a Senate aide. Fund managers would also be required to make public their fees and returns, which are currently shielded from disclosure apart from what public pension funds are required to release. (Subscription required.)
Wall Street’s Answer to Risks in Loan Market: Bundle Lower-Rated Loans
A growing number of money managers are embracing a new strategy designed to benefit from volatility in junk-rated corporate loans, a sign of building worries about riskier borrowers and the market that supports them, the Wall Street Journal reported. Since November of last year, three different money managers have issued $1.6 billion of so-called enhanced collateralized loan obligations (CLOs), which are set up to hold a much larger amount of loans with extremely low credit ratings than typical CLOs. At least two more managers are expected to follow suit in the coming months. The emergence of the enhanced CLOs underscores investors’ growing belief the U.S. economy is due for a recession after more than a decade of expansion. It also reflects particular concerns about corporate loans, starting with a decline in their average credit ratings. Since 2011, the amount of loans rated B or B-minus — just above near-rock-bottom triple-C ratings — have ballooned to 39 percent of the market from 17 percent, according to LCD, a unit of S&P Global Market Intelligence. As a result, some investors worry that even a modest economic slowdown could lead to a rash of loans being downgraded to triple-C. That could force selling from standard CLOs, which are designed to fill only 7.5 percent of their portfolios with triple-C rated loans. But it could also create opportunities for the new CLOs to buy the downgraded loans at steep discounts because they can stock up to half their portfolios with triple-C debt. (Subscription required.)
Report: More than One in Four Consumers Have a Debt in Collection with a Third-Party Collector
The Consumer Financial Protection Bureau (CFPB) released a report today that found that more than one in four consumers with a credit report have at least one debt in collection by third-party debt collectors, according to a press release. Today’s report, which covers 2004 to 2018, is drawn from the Bureau’s Consumer Credit Panel (CCP), a nationally representative sample of approximately 5 million de-identified credit records maintained by one of the three nationwide credit reporting companies. Close to 900 third-party debt collectors furnished collection tradelines in the CCP. A tradeline is information about a consumer account that is sent, generally on a regular basis, to a credit reporting company. Tradelines contain data such as account balance, payment history and status of the account. Today’s findings show that more than one in four consumers (28 percent) with a credit report in the CCP in 2018 had at least one third-party collections tradeline on their file. The study also found that more than three out of four third-party collections tradelines are for nonfinancial debt: More than half (58 percent) of these tradelines are for medical debt, and another 20 percent are for telecommunications or utilities debt. Positive payment information is generally not furnished for medical or telecommunications debt. Banks and other original creditors may collect their own debts or hire third-party debt collectors. In some instances, the original creditors may sell the debts to debt buyers. The buyers may try to collect on these debts, or hire other third-party debt collectors. There are approximately 9,330 debt collectors and debt buyers in the U.S. Read the full report.
Private Tax Debt Collection Is Working, Grassley Says
The main sponsor of the IRS program under which certain tax debt is turned over to private debt collectors to attempt to collect (and keep a portion of anything paid), Sen. Chuck Grassley (R-Iowa), says the most recent assessment shows that the program is working well, Fed Week reported. A report from an IRS component shows that the program brought in $82 million in 2018 and estimates $114 million in 2019. “As a direct result of the success of the program, the IRS will be able to hire 200 additional special compliance personnel by 2020," Grassley said. "This is the most recent in a series of reports that have given me confidence in the program’s ability to make the system fairer for law-abiding citizens while also strengthening the effectiveness of the IRS.” The current program is the latest in a series that have started and stopped over the years involving debt that the IRS has essentially written off as uncollectible because it needs to focus its available resources on higher-priority collections. It became law in 2015 largely at Grassley’s initiative, six years after a prior program was canceled.
Puerto Ricans in Protests Say They’ve Had Enough
For a fifth consecutive day, protestors in Puerto Rico are demanding Gov. Ricardo A. Rosselló’s resignation, the New York Times reported. Ostensibly, the demonstrators were protesting the arrogant and crass exchanges by the governor and his inner circle in a leaked group chat and the corruption of top politicians unveiled by a series of high-profile arrests. But the forceful display on the streets of Old San Juan amounted to a rejection of decades of scandals and mismanagement involving affluent and disconnected leaders who have time and again benefited at the expense of suffering Puerto Ricans. Rosselló’s tenure has been defined by the hurricane that hit less than nine months after his inauguration. Many people did not have electricity for months, and the storm is estimated to have left several thousand people dead — a grim reality that the governor’s administration was slow to acknowledge. Rosselló has also overseen thousands of layoffs, cuts to public services, school closures and tuition hikes as a result of a 12-year economic recession and Puerto Rico’s debt crisis. Not all of those measures were Rosselló’s doing: The island’s finances are managed by an oversight board created by Congress.
Latest ABI Podcast Highlights Consumer Commission Recommendations on BAPCPA's Credit Counseling Requirement, Means Test Provisions
Members of ABI's Commission on Consumer Bankruptcy recently discussed the recommendations in the Final Report focused on the Code's credit counseling and financial management course requirements, and means test provisions. The Commission's recommendations address provisions established by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) that made obtaining the financial fresh start of bankruptcy more challenging for consumer debtors. Retired Bankruptcy Judge Randall Dunn moderates the discussion with John Rao of the National Consumer Law Center, Ariane Holtschlag of the Law Office of William J. Factor, Ltd. and Wendell Sherk of SkerkLaw.
Click here to download your copy of the Final Report of the ABI Commission on Consumer Bankruptcy.
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