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Morgan Stanley said that Puerto Rico’s attempt at a sovereign-like debt restructuring without complete lawmaking authority is likely to fall short in the absence of congressional intervention, Bloomberg News reported on Friday. “We doubt Puerto Rico’s ability to execute this style of restructuring without U.S. Congressional action, keeping us from adopting a clearly bullish position,” Michael Zezas, chief municipal strategist at Morgan Stanley in New York, wrote in a report dated Sept. 10. Puerto Rico’s fiscal crisis should spur Congress to help the island negotiate with its creditors, either by implementing a fiscal control board at the federal level or allowing some public corporations to file for chapter 9 bankruptcy projection, Morgan Stanley said. Unlike cities and municipalities of U.S. states, the island’s localities cannot access chapter 9. Governor Alejandro Garcia Padilla’s administration on Wednesday unveiled a proposal that estimates Puerto Rico will have only $5 billion of available funds to repay $18 billion of debt-service costs over the next five years. Read more.

For more news and analysis of Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage. 

Federal Reserve Bank of New York President William C. Dudley urged Congress to pass a bill that would allow some agencies of Puerto Rico to file for chapter 9 protection, Bloomberg News reported yesterday. “I think that would be helpful, because it could help facilitate an orderly restructuring of their debt,” something that is “probably going to turn out to be necessary,” Dudley, whose district includes Puerto Rico, said yesterday. While such restructuring might not be easy, the risk of Puerto Rico’s troubles spreading to the rest of the country is “pretty low,” because the problems are unique to the island and already reflected in the prices of the commonwealth’s securities, Dudley said. Puerto Rico’s non-voting member of Congress Pedro Pierluisi and Democratic Senators Chuck Schumer and Richard Blumenthal introduced bills extending chapter 9 bankruptcy protection to the commonwealth. The Republican leadership in control of both chambers of Congress didn’t advance the measure. Lawmakers won’t be able to act on the legislation until they return from recess on Sept. 8.

A week after congressional Democrats sang the praises of Dodd-Frank on the law’s fifth anniversary, many of those same lawmakers are now aiming to block new auto-lending rules issued by the Consumer Financial Protection Bureau, the MorningConsult.com reported today. Fifty-five House Democrats are cosponsors of H.R. 1737, a bill introduced by Rep. Frank Guinta (R-N.H.) that would prevent the CFPB from implementing rules designed to prevent discrimination by auto lenders. A markup of the bill by the House Financial Services Committee on Wednesday offered a chance for Democratic supporters to publicly air their grievances. Rep. Ed Perlmutter of Colorado said that the purpose of the legislation was to prevent the CFPB from overstepping its charter. The committee approved the measure 47-10. The CFPB rules in question, which were published on June 10, broaden the independent agency’s oversight jurisdiction to include non-bank auto lenders. While the CFPB’s charter specifically states that it cannot regulate auto dealers, that prohibition does not extend to regulating auto lenders, CFPB Director Richard Cordray said at a Senate Banking Committee hearing on July 15.

A group of Democratic lawmakers are proposing a bill that would make it easier for people who got rid of credit card debt using bankruptcy to fix inaccurate credit reports that don't reflect they have earned a clean financial slate, Dow Jones Daily Bankruptcy Review reported today. Sen. Sherrod Brown (D-Ohio) introduced a bill that would force major banks and other creditors to notify credit reporting agencies when a person's debt has been canceled by a bankruptcy judge. It would also punish creditors who ignore a borrower's request to fix an inaccurate record, giving them the power to sue for damages. The bill, called the Consumer Reporting Fairness Act of 2015, comes after several borrowers sued a number of big banks, accusing them of letting poor marks for unpaid debt remain on their credit reports even after the debt was canceled in bankruptcy.

When the House Financial Services Committee examines the sweeping overhaul of financial regulation on its fifth anniversary, legislators will first hear on Tuesday by former senator Phil Gramm, the New York Times reported today. Gramm was one of the chief architects of a comprehensive deregulation of the financial rules in the late 1990s. That led to the creation of mega-banks and looser oversight of financial derivatives, which some critics say laid the groundwork for the financial crisis. Gramm, an economist by training who served in the Senate from 1985 until 2002, has long opposed what he has viewed as overly broad government regulations.

Sen. Ted Cruz (R-Texas) and Rep. John Ratcliffe (R-Texas) have introduced a bill in Congress this week that would abolish the Consumer Financial Protection Bureau (CFPB), Housing Wire reported on Wednesday. Cruz said that this legislation will give Congress the opportunity to “free consumers and small business” from the CFPB and its “regulatory blockades and financial activism,” which impede economic growth. Ratcliffe said that he believes the CFPB’s “regulatory zeal” has negatively impacted American consumers and businesses. “The CFPB's regulatory zeal has stripped American consumers and businesses of their freedom of choice and has limited their access to capital — all in the name of a 'we know best' attitude from Washington,” Ratcliffe said. In a joint release from Cruz and Ratcliffe’s offices, the two Texas Republicans said that the CFPB is “just another example of the cronyism that infects our nation's capital.”

U.S. Senator John Cornyn (R-Texas) on Tuesday re-introduced the Taxpayer Protection and Responsible Resolution Act to replace taxpayer-funded bailouts for large financial institutions, according to a report on CFO.com. The bill provides for a new bankruptcy chapter just for banks, replacing some of the provisions for failed banks in the Dodd-Frank Act. In a press release, Cornyn said, “This legislation abolishes Dodd-Frank’s bailout authority and replaces it with an orderly bankruptcy process that imposes losses on banks — not taxpayers.” The legislation, cosponsored by Sen. Pat Toomey (R-Pa.), creates a new, specialized bankruptcy chapter, to be called Chapter 14, for certain financial corporations and eliminates the “orderly liquidation authority” in Title II of Dodd-Frank — “an ad hoc process ripe for political manipulation that provides for yet another bailout,” according to the press release. Under Chapter 14, a failed bank would go bankrupt, leaving its owners and unsecured creditors on the hook for its bad decisions, not taxpayers, say the bill’s co-sponsors. To avoid systemic risk to the financial system, which is what has led the government to use bailouts in the past, Chapter 14 would enable all the failed bank’s assets and the liabilities that pose systemic risk to be transferred to a new “bridge” company. This new, solvent, company would go on meeting the failed bank’s obligations, while all losses would be incurred by the owners of the failed bank.