%1

Buried in the fine print of Signature Bank’s third-quarter earnings was a hint of the financial storm that could be about to break over the U.S. economy, The Washington Post reported. The Manhattan bank last month set aside nearly $53 million to cover potential loan losses largely due to the coronavirus pandemic’s impact on the U.S. economy. Lending money to shopkeepers, landlords and hoteliers used to be considered almost a sure thing. But that was before the contagion emptied New York City’s skyscrapers, hotels, apartment buildings and stores, leading the president of the U.S. to call it “a ghost town” and forcing some borrowers to stop making loan payments. Now Signature, which has nearly 60 percent of its portfolio tied up in commercial real estate, is bracing for the fallout. The bank’s bad-loan write-offs, though still modest, are creeping higher. Despite years of steady profits, investors have punished the stock, which even after a recent rebound has lost 27 percent of its value this year. If U.S. banks absorb big losses on their $2 trillion in commercial real estate loans, the entire economy will suffer. Just the fear of looming bankruptcies and defaults has prompted banks in recent months to restrict new lending, at a time when the virus-ravaged economy needs all the help it can get.

Bankruptcy gives over 700,000 debtors a fresh start every year, but student loan debts don’t go away as easily, according to a New York Times report. For decades, politicians have slowly made them harder to discharge, while differing standards in courts across the country mean a debtor’s chances can depend on where he or she lives. The few debtors who attempt it are subjected to a morality play unlike anything else in the world of personal finance: so-called adversary proceedings, where they must lay themselves bare in court as opposing lawyers question how much they pay for lunch or give to their church. More than 43 million borrowers hold over $1.6 trillion in student loans, a sum that has more than tripled in 13 years. It exceeds what Americans owe on credit cards or auto loans and trails only mortgages. Sixty-two percent of students who graduated from nonprofit colleges in 2019 had student loan debt, according to an Institute for College Access & Success analysis. Their average balance was $28,950 — not including borrowing by their parents. Many struggle mightily to pay: Before the government’s coronavirus relief efforts paused federal student loan payments, 7.7 million borrowers were in default and nearly two million others were seriously behind.

The Consumer Financial Protection Bureau (CFPB) yesterday filed a complaint against Performance SLC, LLC (PSLC), a California debt-relief business focused on federal student loan debt; Performance Settlement, LLC (PSettlement), a California debt-settlement company; and Daniel Crenshaw, the owner and CEO of the two companies, according to a CFPB press release. The CFPB alleges that PSLC and Crenshaw charged illegal advance fees in violation of the Telemarketing Sales Rule (TSR) to student loan borrowers seeking to obtain loan consolidation, loan forgiveness, or income-driven repayment plans for their federal student loans, and that PSLC failed to make required disclosures to certain consumers in violation of the TSR.  The CFPB also alleges that PSettlement and Crenshaw used deceptive tactics in violation of the Consumer Financial Protection Act (CFPA) in order to induce consumers to sign up for PSettlement’s services. The CFPB’s complaint, which was filed in federal district court for the Central District of California, alleges that from 2015 through the present, PSLC charged consumers illegal upfront fees by using telemarketing campaigns to convince thousands of consumers to sign up for services to assist them in obtaining loan consolidation, loan forgiveness, or income-driven repayment plans from the U.S. Department of Education (ED).  Consumers would pay between $1,000 and $1,450 in fees to PSLC for it to file paperwork with ED, even though student loan borrowers can do this themselves for free.  Under the TSR, it is illegal to request or receive any fees for debt-relief services sold through telemarketing before the terms of the debt are altered or settled, and the consumer has made at least one payment under the newly altered debt. The Bureau alleges that the PSLC and Crenshaw violated the TSR because consumers were charged at or just after enrollment, before the terms of the debts were altered. The CFPB also alleges that PSLC had some consumers pay this prohibited upfront fee through high-interest financing from a third party.

Westminster Management, an apartment company owned in part by White House senior adviser Jared Kushner, has submitted hundreds of eviction filings in court against tenants with past due rent during the pandemic, according to interviews with more than a dozen tenants and a review of hundreds of the company’s filings, the Washington Post reported. A state eviction moratorium currently bars Maryland courts from removing tenants from their homes, and a federal moratorium offers renters additional protection. But like other landlords around the country, Westminster has been sending letters to tenants threatening legal fees and then filing eviction notices in court ― a first legal step toward removing tenants. Those notices are now piling up in local courthouses as part of a national backlog of tens of thousands of cases that experts warn could lead to a surge in displaced renters across the country as eviction bans expire and courts resume processing cases. Many of the Westminster tenants facing eviction live on low or middle incomes in modest apartments in the Baltimore area, according to tenants. Some of them told the Washington Post they fell behind on rent after losing jobs or wages due to the pandemic. For the moment, Maryland courts cannot order people removed from their homes. The state’s moratorium was renewed Oct. 29, preventing cases from proceeding. A Centers for Disease Control and Prevention ban through the end of this year allows tenants in many cases to file paperwork to halt the process. Westminster, a unit of the Kushner Cos., issued a statement from Kushner Cos. general counsel Christopher W. Smith saying the company was fully compliant with state and federal eviction bans, including ones approved by President Trump through the Cares Act and the CDC.

The Consumer Financial Protection Bureau (CFPB) yesterday issued a consent order against SMART Payment Plan, LLC (SMART), finding that the company’s disclosures of its loan payment program contained misleading statements in violation of the Consumer Financial Protection Act of 2010’s prohibition against deceptive acts or practices. SMART is a limited liability company with its principal place of business in Austin, Texas. SMART operates a loan payment program for auto loans called the SMART Plan that deducts payments from consumers’ bank accounts every two weeks and then forwards these payments every month to the consumers’ lenders. The consent order imposes a judgment against SMART requiring it to pay $7,500,000 in consumer redress and requirements to prevent future violations.  

Local and national attorneys fear a wave of personal bankruptcies may emerge in 2021, which would threaten a faster economic recovery as the region recovers from the pandemic's financial fallout, the Orlando Business Journal reported. So far this year, personal bankruptcies have fallen compared to 2019 due, in part, to emergency government assistance programs. However, without additional help, it's predicted a nearly 100 percent increase in personal bankruptcy filings will occur in 2021, said Denise Dell-Powell, chair of Dean Mead’s bankruptcy and creditors’ rights practice group. Other factors that will feed this rise in personal bankruptcies include more layoffs, the pandemic's worsening and a potential loss in protection from eviction. "If the federal government does not provide additional stimulus to individuals, individuals who are still unemployed will be forced to file bankruptcy," Dell-Powell said. Nationally, there were 37,024 consumer filings in September, down 36 percent from September 2019's 57,966 filings, according to Alexandria, Virginia-based American Bankruptcy Institute. That said, commercial chapter 11 bankruptcy filings — where businesses seek to reorganize their debt — jumped 33 percent nationally through the first nine months of 2020 compared with the previous year. That shows the business community has experienced financial pain due to the pandemic faster than individuals. However, renters in particular may start to feel the financial pain from the pandemic soon. The federal eviction ban may expire in January, meaning renters who have fallen behind will have to pay back what they owe or be forced to leave their residences.

As stimulus checks and other forms of temporary relief run out, experts are projecting an increase in personal bankruptcy filings, which have so far been muted during the coronavirus pandemic, the Wall Street Journal reported. Only a new stimulus program targeting individuals or government actions forgiving or deferring student loans can keep individual filings from rising, panelists said Tuesday at an American Bankruptcy Institute conference that took place online. The $2.2 trillion Cares Act that Congress passed in March broadened jobless benefits, extended their duration and boosted the amount by $600 a week — but those extra payments have expired. Congressional Democrats and the White House continue to negotiate another economic-relief package, which could restore some of the jobless benefits that have lapsed, though prospects have dimmed for a deal before the election. “It’s clear that when it comes to bankruptcy filings by individuals, it’s all about access to liquidity,” said ABI's Ed Flynn. “With the end of the Cares Act, there will be an uptick in filings. The only question is whether it will be a sharp uptick or a gradual one.” Personal bankruptcies are projected to fall this year to 560,000, the lowest number since 1985, said Mr. Flynn, citing data collected by the Administrative Office of the U.S. Courts. But next year that total could climb to over one million, he said. President Trump has extended temporary relief for federal student loan borrowers, allowing them to defer payments until the end of the year from the end of September. “I do worry about a flood of filings by working families,” said Deirdre O’Connor, head of sales and corporate restructuring at legal-services firm Epiq Systems Inc., speaking on the conference panel. Moratoriums on evictions have also been a factor in keeping personal bankruptcies in check, said Christopher Kruse, senior vice president at Epiq, as part of the same panel.