Consumer Debt

U.S. House Passes Puerto Rico Debt Bill
The House this evening overwhelmingly passed a rescue package for debt-stricken Puerto Rico, clearing a major hurdle in the ongoing effort to bring relief to the U.S. territory of 3.5 million Americans, ABC News reported today. The strong bipartisan vote was 297-127 for the legislation that would create a financial control board and allow restructuring of some of Puerto Rico's $70 billion debt. The measure heads to the Senate just three weeks before the territory must make a $2 billion payment. In a rare display of bipartisanship, the bill had the strong support of President Barack Obama, House Speaker Paul Ryan (R-Wis.) and Minority Leader Nancy Pelosi (D-Calif.) "The Puerto Rican people are our fellow Americans. They pay our taxes, they fight in our wars. We cannot allow this to happen," Ryan said in imploring lawmakers, especially reluctant conservatives in the GOP caucus, to back the bill during debate. The legislation would allow the seven-member control board to oversee negotiations with creditors and the courts over reducing some debt. It does not provide any taxpayer funds to reduce that debt. It would also require the territory to create a fiscal plan. Among other requirements, the plan would have to provide "adequate" funds for public pensions, which the government has underfunded by more than $40 billion. Hours before the vote, the White House strongly endorsed the bill, saying that failing to act could result in an "economic and humanitarian crisis" in the U.S. territory beyond what the island is already facing.

Click here to read an op-ed on the legislation.

To view the full text of H.R. 5278 (PROMESA), click here.

Jeb Hensarling Plan Rekindles Debate as Republicans Aim to Dismantle Dodd-Frank
A proposal by a senior House Republican to dismantle portions of the 2010 Wall Street reforms known as the Dodd-Frank Act has rekindled a partisan debate over the state of banking regulation eight years after the financial crisis, the New York Times reported yesterday. Representative Jeb Hensarling of Texas, chairman of the House Financial Services Committee, outlined the main parts of his plan Tuesday during a speech in New York and plans to introduce the legislation this month. The debate shows how divided Washington remains over how to supervise the financial industry, from big banks to small community institutions. Hensarling’s plan, called the Financial Choice Act, rolls back significant provisions and limits the role of regulators in overseeing the country’s biggest banks, but it also advocates stronger penalties for financial fraud and puts a focus on capital buffers for large banks. One of the plan’s central provisions would allow the country’s biggest banks to exempt themselves from capital and liquidity requirements and other regulatory standards if they held enough capital to surpass a certain threshold. Hensarling estimates that the biggest banks would be required to collectively raise “several hundred billion dollars in new equity” to benefit from the proposal. That is likely to dissuade many of the top financial institutions from offering broad support for the measure. The bill would also repeal the Volcker Rule, which restricts trading activities at banks, and replace the Dodd-Frank Act’s process for winding down a failing institution with a new chapter of the Bankruptcy Code.

Analysis: CFPB Needs a Rule to Regulate Debt Collection
Debt collectors are facing increasing pressure from the Consumer Financial Protection Bureau through aggressive regulation by enforcement, according to an analysis inAmerican Banker yesterday. In the past few years, the CFPB has entered into consent orders with debt buyers, banks and other lenders. The orders limit debt sales, increase data requirements and forbid various collection practices. But without the agency offering an alternative to these commonly used tools, preferably through rulemaking, debt collectors resort to the next “best” alternative they know of to settle a debt: lawsuits. Clearly, it is those lawsuits that are of particular concern to the CFPB. In the last few years, collection suit numbers have soared, and the CFPB has responded by closing or fining what they call “lawsuit mills.” Still, most collection agencies follow the law and will still find a technological way to file large volumes of lawsuits without violating federal measures. According to the analysis, however, consumers will still end up losing by being subjected to aggressive yet absolutely legal tactics in the collection process.

Regulators Fear $1 Billion Coal Cleanup Bill
Regulators are wrangling with bankrupt coal companies to set aside enough money to clean up Appalachia’s polluted rivers and mountains so that taxpayers are not stuck with the $1 billion bill, the New York Times DealBook reported Tuesday. The regulators worry that coal companies will use the bankruptcy courts to pay off their debts to banks and hedge funds, while leaving behind some of their environmental cleanup obligations. The industry asserts that its cleanup plans — which include turning defunct mines back into countryside — are comprehensive and well funded. But some officials say those plans could prove unrealistic and falter as demand for coal remains weak. Regulators and environmental groups in Appalachia have tangled with coal companies for decades over their mining practices, particularly mountaintop removal mining, which involves removing mountain summits to extract coal. But in the bankruptcy cases, West Virginia has been pressuring the industry’s lenders to share more of the responsibility for mine reclamation and water remediation, arguing that they exert great influence, if not outright control in some cases, over the bankrupt mining companies.

U.S. Credit Card Debt to Hit $1 Trillion in 2016
Since 2010, when Americans actually paid more on their credit card bills than they charged, the amount owed on credit cards has steadily risen from $2.5 billion in 2011 to $71 billion in 2015. However, total credit card debt at the end of last year had reached $919.1 billion, and at current growth rates, should wind up 2016 at roughly $1 trillion, 24/7 Wall St. reported yesterday. In the first quarter of 2016, Americans paid down $33.8 billion in credit card debt, including a $7 billion charge-off. According to research at CardHub, however, that’s the smallest first-quarter pay-down since 2008 and almost 25 percent below the post-recession average. Average U.S. household indebtedness dropped to about $7,600 during the first quarter, which represents an increase of 6 percent in indebtedness compared with the first quarter of 2016. CardHub projects that average indebtedness will rise to more than $8,500 by the end of 2016.

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