Friday, February 20, 2009

Other Consumer Financial Transactions

At the University of Memphis Symposium, a panel on consumer financial transactions addressed a number of issues, including how consumer issues are related to crisis containment and general regulatory reforms. The panel was moderated by Professor Adam Feibelman, University of North Carolina School of Law.

Professor Donna Harkness, who supervises the Elder Law Clinic at University of Memphis, spoke to consumer issues presented by the elderly, who typically have a fixed income. This group, Harkness explained are often targets for fraud and overreaching. Many of the programs pitched to elders are not always those that are appropriate for retirees. Moreover, credit card debt has become a problem for the elderly, including co-signing for credit cards and other loan instruments with younger relatives. According to a Federal Reserve study, the elderly had the greatest increase in consumer debt in recent years. Moreover, much of the disclosure on lending products, even where required, is not always understood by the elderly. Professor Harkness argued that lending practices to the elderly need reform to curb lending to those who cannot possibly repay the amounts. Professor Harkness advocated for a capping of late fees that go on indefinitely, universal default provisions, mandatory arbitration and more stringent consumer protections generally. Of course, the convenience users may end up paying more.

Bankruptcy Judge David S. Kennedy spoke about bankruptcy and the housing crisis. In particularly, the Homeowner Affordability and Stability Plan just announced designed to make mortgages more affordable, reach at-risk homeowners and address declining neighborhood values. As to bankruptcy modifications of home mortgages, the so called "cramdown," Judge Kennedy predicted that the initiative will succeeed, perhaps soon. Several bills are pending already (H.R. 200, H.R. 225 and S. 61). CitiGroup and about twenty state attorneys general are supporting the measures.

Judge Kennedy argued that bankruptcy judges already do write-downs on second homes, vacation homes and other real estate. As such, this is something bankruptcy judges already have experience doing. The bills would allow judges to extend the loan term, change the interest and write down the amount of the secured portion of the loan to the home value. The unsecured portion of the home loan would be folded into a debtor's other unsecured debt and eventually discharged if a Chapter 13 plan is completed. Ultimately, Judge Kennedy observed, the other unsecured creditors may complain the loudest as the total amount of unsecured debt in a Chapter 13 plan will increase.

All of this comes down to what Americans can afford. A serious consideration must be had about how we extend credit and how we fix credit issues for consumers. I agree with Judge Kennedy that the sky will not fall if mortgage cramdowns are allowed and will Professor Harkness that more needs to be done for the elderly. With respect to bankruptcy, lenders might be more likely to come to the table earlier if a bankruptcy judge is waiting in the wings.

I want to thank everyone at University of Memphis School of law for hosting this Symposium. Special thanks to Symposium Editor Jera Bradshaw for her efforts to make this happen today so successfully and Baker Donnelson P.C. and First Tennessee for their support of the program.


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