On October 3, the second morning of its new term, the Supreme Court of the United States (SCOTUS) heard oral arguments in the case of Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited. This case is the latest iteration in the broadside attacks on the Bureau by an industry hoping to neuter its impact, at least during periods of Republican control of Congress.Continue Reading A Lively Supreme Court Argument on the Constitutionality of CFPB Funding: Ruling Not Expected for Several Months
On June 15, 2023, the Supreme Court held that the Bankruptcy Code unambiguously abrogates the sovereign immunity of federally recognized Indian tribes. Therefore, tribes may not raise sovereign immunity as a defense to multiple portions of the Bankruptcy Code. Many tribal enterprises and their business partners, for the first time, will need to consider the legal implications of bankruptcy on their business arrangements. The immediate significance of this case is that tribes may be subject to damage claims for violating the automatic stay. However, there may be broader implications for tribal business dealings from this case.Continue Reading Supreme Court Ruling on Bankruptcy Code May Have Far-Reaching Implications for Tribal Business Arrangements
With two of crypto’s largest trading platforms coming under fire last week, what’s next for the digital currency industry? Ashley Fickel and Brian Newman of Dykema’s Financial Services Industry Group weigh in.Continue Reading What Do the Coinbase and Binance Lawsuits Mean for the Future of Crypto?
Distressed businesses that are facing severe financial difficulties often think that only bankruptcy, whether a Chapter 11 reorganization or Chapter 7 liquidation, can solve their problems. While bankruptcy is certainly an option, it may not be the only—or even the best—path to restructuring, financial stability, or an otherwise orderly closing of business operations. Bankruptcy can be costly and time-consuming and, in some instances, result in more harm to stakeholders on both sides of the creditor-debtor relationship.Continue Reading Distressed Business’ Alternatives to Bankruptcy: An Overview of Out-of-Court Workout Options
Bankruptcy provides an opportunity for a fresh financial start. In that spirit, creditors’ contractual rights are often impaired. But what happens in those rare circumstances when a debtor is deemed solvent? According to a recent decision from the United States Fifth Circuit Court of Appeals in In re: Ultra Petroleum Corp., solvent debtors are fully bound by all financial obligations and nothing less. In those rare cases where a debtor is (or becomes) solvent, this decision creates a big win for creditors. Continue Reading Are Yield Maintenance and Make-whole Provisions in Jeopardy? Recent Fifth Circuit Decision Casts Serious Doubt on Enforceability of Such Loan Provisions in the Context of Bankruptcy.
A three-judge panel of the United States Fifth Circuit Court of Appeals held that the CFPB’s funding structure is unconstitutional. The CFPB must now consider whether to appeal to the Supreme Court, seek en banc review (by all of the Fifth Circuit judges), or let the ruling stand (which does not dissolve the CFPB). If the CFPB chooses to let the ruling stand, then the CFPB’s Payday Lending Rule is invalidated. Continue Reading Fifth Circuit Holds CFPB Funding Structure is Unconstitutional, Invalidates Payday Lending Rule
The Director of the Consumer Financial Protection Bureau (“CFPB”), Rohit Chopra, while attending an event organized by the Public Citizen (a group that opposes mandatory arbitration clauses in consumer agreements), indicated that the CFPB is unlikely to issue a new rule regulating such clauses because the Congressional Review Act prevents it from issuing “a substantially similar rule.”
As readers may recall, in 2017 the CFPB issued a final rule which would have permitted mandatory arbitration agreements in consumer transactions but largely ban class action waivers in such agreements. Congress then used the Congressional Review Act to nullify the CFPB’s final rule. The 2017 class-action waiver prohibition was strenuously opposed by the financial industry, but the invalidating statutory act passed only with a tie-breaking vote from then Vice President Mike Pence.
Director Chopra’s comments were made in response to a question about whether the CFPB would seek to prevent the inclusion of arbitration agreements that require consumers to arbitrate disputes, instead of bringing suits against banks and other financial institutions in court. Before the event, on September 13, 2022, the Public Citizen and more than 100 other organizations purporting to “represent millions of consumers” co-signed a letter to the Director calling on the CFPB “to limit the use of forced arbitration requirements utilized by banks and financial institutions to strip Americans of their right to seek justice after being victimized by banking abuses or fraud.” The letter claimed that the CFPB’s 2015 study of mandatory arbitration clauses revealed “that forced arbitration produced vastly more favorable results for corporations rather than consumers.”
The letter failed to recognize that the same 2015 study also contained data indicating that consumers do better in arbitration than in class actions because, on average, consumers who underwent arbitration recovered more money and within a shorter period of time than consumers in class actions.
Despite recognizing the CFPB’s limitations with respect to the 2017 class-action waiver rule, Director Chopra did not back down from the possibility of regulating contract clauses. He indicated that the CFPB was focusing on larger companies that he characterized as “repeat offenders” and looking at non-monetary “structural remedies.” On other occasions, Chopra has mentioned limitations on growth of companies, disqualification from certain activities, revocation of government-granted privileges, or the limitation or closing of business lines as a means of deterring legal violations where, he argues, companies merely accept civil penalties as the cost of doing business. Those remedies are highly controversial.
Chopra’s comments suggest that one structural remedy the CFPB may pursue would be to require repeat offenders, in future consent orders, that they agree not to include class action waiver provisions in their consumer arbitration agreements. To do so would be a clear shot across the bow at industry and Congressional Republicans, and potentially could cause significant disruption given that entities with multiple consent orders in place already have substantial or even dominant market share. Nonetheless, Chopra ended his comments stating the CFPB had “no specific plans as of now,” suggesting such a proviso has not been proposed in any ongoing settlement negotiations and, at least for now, the idea may be more bark than bite.
On May 4, 2022, California Governor Gavin Newsom signed an executive order aimed at creating a framework for both regulating and developing the quickly growing blockchain and cryptocurrency industry. The Order follows President Biden’s March 9, 2022, Executive Order on Ensuring responsible Development of digital Assets. In a press release announcing the Order, the Governor’s office cited the rapid growth of the crypto asset and blockchain technology business—from $14 billion five years ago to $3 trillion last November—as the impetus for issuing the Order. Continue Reading California Governor Newsom Signs Blockchain and Crypto Assets Executive Order: Familiar Agencies To Lead Efforts To Regulate New Technology
Yesterday, in Sheen v. Wells Fargo (S258019), the California Supreme Court resolved an important issue for the mortgage servicing industry. The court unanimously held that lenders owe no tort duty to process, review, and respond to a borrower’s loan modification application. Continue Reading The California Supreme Court Rules that Lenders Have No General Tort Duty to Process, Review, and Respond to a Borrower’s Application for a Loan Modification
If Mark Zuckerberg is to be believed, the Metaverse is the next step in our digital evolution, a virtual reality space where users can interact with a computer-generated environment and socialize among user-created avatars.
And it’s already here.
The Metaverse is a new virtual frontier that combines many aspects of the virtual world we already know: social media, Zoom, online gaming, augmented reality, virtual reality, blockchain, and cryptocurrencies. The Metaverse allows its users to interact with each other in ways that mimics real-world interaction. Users can virtually surf, race, go to a bar, or engage in combat – the possibilities are endless.
Now, you can even buy land in this virtual frontier.
Just as in the real world, you can finance your virtual property with a virtual mortgage. In this virtual world, can virtual mortgages be foreclosed and how can loans be enforced? This new paradigm implicates both loan enforcement and bankruptcy.
Let us break down a few of the basics.