Tuesday, August 26, 2008

New York Times: Obama Aides Defend Bank's Pay to Biden Son

August 25, 2008
Obama Aides Defend Bank’s Pay to Biden Son

During the years that Senator Joseph R. Biden Jr. was helping the credit card industry win passage of a law making it harder for consumers to file for bankruptcy protection, his son had a consulting agreement that lasted five years with one of the largest companies pushing for the changes, aides to Senator Barack Obama’s presidential campaign acknowledged Sunday.

Mr. Biden’s son, Hunter, received consulting fees from the MBNA Corporation from 2001 to 2005 for work on online banking issues. Aides to Mr. Obama, who chose Mr. Biden as his vice-presidential running mate on Saturday, would not say how much the younger Mr. Biden, who works as both a lawyer and lobbyist in Washington, had received, though a company official had once described him as having a $100,000 a year retainer. But Obama aides said he had never lobbied for MBNA and that there was nothing improper about the payments.

Campaign officials acknowledged that the connection between the Bidens and MBNA, the enormous financial services company then based in their home state of Delaware, was one of the most sensitive issues they examined while vetting the senator for a spot on the ticket.

Mr. Biden’s support for the bankruptcy changes, which were signed into law in 2005, puts him at odds with Mr. Obama of Illinois, who opposed the bill and has criticized the presumptive Republican nominee, Senator John McCain of Arizona, for supporting it. Consumer advocates and other Democratic allies remain sharply critical of Mr. Biden’s actions, saying in recent days that they could hamper the campaign’s efforts to attack the Republicans over their handling of the nation’s credit crisis.

The financial services industry began seeking relief from Congress in the mid-1990s from an increase in bankruptcies that was cutting into its profits. Its initial support came from Republican lawmakers, who repeatedly introduced bills to make it more difficult for consumers to erase their debts. During that time, executives at MBNA, which was bought in 2006 by Bank of America, began donating heavily to both major political parties and many national politicians, including Mr. Biden.

In late 1996, the company hired the younger of Mr. Biden’s two sons, Robert Hunter Biden, known as Hunter, who had just graduated from Yale Law School, as a lawyer. The company promoted Mr. Biden to senior vice president by early 1998. And after the younger Mr. Biden worked at the Commerce Department on electronic commerce issues from 1998 to 2001, MBNA hired him back on a monthly consulting contract to advise it on such issues, aides said.

Consumer advocates say that Senator Biden was one of the first Democratic leaders to support the bankruptcy bill, and he voted for it four times — in 1998, 2000, 2001 and in March 2005, when its final version passed the Senate by a vote of 74 to 25.

Travis Plunkett, legislative director of the Consumer Federation of America, a consumer group that opposed the bill, said that Senator Biden had provided a “veneer of bipartisanship” that eventually helped the credit card companies win over other Democrats. “He provided cover to other Democrats to do what the credit industry was urging them to do,” Mr. Plunkett said.

Aides to the Obama campaign said Sunday that Senator Biden’s goal was always to strike a workable compromise between the competing interests on the bankruptcy bill, and that he was not influenced by his son’s work for MBNA or the campaign donations. They said he had sought several changes in the bill to protect consumers that upset MBNA executives, then the largest employer in Delaware, while acknowledging that he also voted against other amendments proposed by other Democrats.

Hunter Biden, through his assistant at his law firm, Oldaker Biden & Belair, referred a request for comment to the Obama campaign. James Mahoney, the head of corporate communications for Bank of America, said the consulting arrangement had ended by the time Bank of America took over MBNA in January 2006.

“Senator Biden has a 35-year record fighting for people against powerful interests, whether it’s drug companies, oil companies or insurance companies,” David Wade, a spokesman for the Obama campaign, said in a statement. “He took plenty of knocks from the largest employer in his state because he demanded changes in the bankruptcy bill. But legislating requires compromise. Senators cast tough votes. Congress worked on the bankruptcy bill for nearly a decade, over five Congresses, to forge a bipartisan compromise.”

Mr. Wade added: “Senator Biden took on entrenched interests and succeeded in improving the bill for low-income workers, women and children. There were times when amendments on both sides would have blown up a bipartisan compromise backed by three-quarters of the Senate. At those moments, Senator Biden had to make the tough calls and voted to pass a bill.”

Mr. Wade said Senator Biden took extra steps to protect consumers in votes to require people in bankruptcy to continue paying child support or alimony. He also took steps to affirm that the bill exempted debtors who have serious medical problems, are veterans or are in the armed service, the aide said.

But a review of the legislative record finds as many instances when Mr. Biden joined Republicans to defeat attempts by his Democratic colleagues, including Mr. Obama, to soften the bill’s impact on those same constituencies. He was one of five Democrats in March 2005 who voted against a proposal to require credit card companies to provide more effective warnings to consumers about the consequences of paying only the minimum amount due each month. Mr. Obama voted for it.

Mr. Biden also went against Mr. Obama to help defeat amendments aimed at strengthening protections for people forced into bankruptcy who have large medical debts or are in the military; Mr. Biden argued that the amendments were unnecessary because the legislation already carved out exemptions for those debtors. And he was one of four Democrats who sided with Republicans to defeat an effort, supported by Mr. Obama, to shift responsibility in certain cases from debtors to the predatory lenders who helped push them into bankruptcy.

In many of these battles, Mr. Biden’s Democratic colleagues often voiced their frustration with the big financial interests arrayed against them. Senator Paul Wellstone specifically cited MBNA during a floor debate in March 2001 over his call for stronger protections for debtors forced into bankruptcy because of medical bills — an amendment that Mr. Biden would later vote against.

“It just so happens that the people who find themselves in terrible economic circumstances through no fault of their own — major medical bills, they have lost their jobs, or there has been a divorce — it is my view as a former political scientist and now a senator for the State of Minnesota that those people do not have the same kind of clout that MBNA Corporation has,” Mr. Wellstone said.

Mr. Biden’s supporters also point out that the Republicans controlled the Senate for much of the time when the bankruptcy bills were under consideration. MBNA employees have given Mr. Biden more than $214,000 in campaign donations over the years, the largest amount in his coffers tied to any single company. But the company’s employees have given even more lavishly to President George W. Bush and top Republican lawmakers.

Michael Luo contributed reporting.

Copyright 2008 The New York Times Company.

Monday, August 25, 2008

Credit con game

Credit con game

Debt settlement outfit falsely promised relief as clients’ woes grew; regulator acts

Aaron Elstein

For thousands of people far behind on their credit card payments and other bills, Robert Lovinger’s “Debt Meltdown Program” sounded awfully alluring.

He offered to help them reduce the amount of their bills by as much as 60% and, in some instances, to free them of debt altogether within 30 months. About 2,000 people joined, and they often ended up paying thousands of dollars for the Long Island-based service—which was marketed under several names, including The Debt Elimination Center and Edge Solutions.

What many customers got, in fact, was little or nothing. In some cases, Mr. Lovinger and his staff failed to contact creditors to settle customers’ delinquent bills; in others, they drove people deeper into debt by refusing to accept settlement offers from lenders, even after clients asked them to do so.

Federal regulators say that Mr. Lovinger and his wife, who was his business partner, even used customers’ money for personal expenses, including credit card bills, car payments and an employee party at a country club.

With complaints pouring in, the Manhattan-based Better Business Bureau of Metropolitan New York referred the matter to the Federal Trade Commission.

“The company took advantage of people who were in desperate situations,” says BBB Senior Vice President Susan McMillan, who led the bureau’s investigation.

Last fall, the FTC sued Mr. Lovinger and his wife for deceptive marketing. The couple settled the charges two weeks ago and agreed to pay the agency $7 million. They also agreed to sell their vacation home in Delray Beach, Fla. It was auctioned off for $307,400, according to Zillow.com.

Feeling his way

Mr. Lovinger denies that he did anything wrong intentionally and instead blames the company's woes on his own ignorance of the relatively new business of debt settlement. In a written response to questions, he said: “There was no prototype to follow. This led to growing pains and, in some cases, steep learning curves.”

Unfortunately, there are lots of people like Mr. Lovinger in the fast-growing and largely unregulated field of debt settlement. In the past few years, the FTC has sued a dozen operators for deceiving customers. The commission will host hearings next month to look into the business more closely.

The Association of Settlement Companies estimates that there are now 1,000 debt settlement outfits, double the number from three years ago. There is no federal oversight of the firms, many of which are legitimate businesses; policing them is the responsibility of overworked state regulators.

In New York state, the situation is clear: Debt settlement firms are barred from practicing. Many do so anyway, because they figure they're unlikely to be caught.

“Enforcement is extremely lax,” says Deanne Loonin, a staff attorney at the National Consumer Law Center in Boston.

New arrivals

Debt settlement firms emerged about a decade ago. They differ dramatically from traditional credit counselors, which typically advise clients on how to rethink and reduce their spending as they pay off their creditors.

Debt settlement companies, however, begin by telling clients to stop even trying to pay their bills. Instead, customers send cash each month to the debt settlement outfits, which pledge to negotiate with creditors once enough money has built up in the kitty. Meanwhile, interest continues to mount on the debts, and customers may face legal action from creditors.

Mr. Lovinger, who was trained as an electrical engineer, got into debt settlement in 1995. He entered the business after a New York state court shut down a company of his which falsely claimed that it could clean up people's tarnished credit reports, the state attorney general said.

He and his wife ran their debt settlement operation out of offices in Medford and Coram, L.I., attracting customers through online ads. At its peak, the company employed 45 people and generated $6 million in annual revenues, according to court documents.

Ven Letter, a worker at a northern California creamery, contributed to that revenue stream. He racked up $35,000 in credit card debt when his wife had medical problems after giving birth to their second child. In desperation, he turned to Edge Solutions for help. It only drove him deeper in the hole.

Blocked exits

He says, for example, that Edge rejected a settlement offer from a credit card company, which he wanted to accept. When Mr. Letter tried to exit the Edge program, the company would not return his $2,000 security deposit, he claims. On top of that, he says he paid $1,500 for credit counseling that he never received.

“They didn't do anything for me but screw up my credit for a long time,” Mr. Letter says.

In response, Mr. Lovinger insists that his company discouraged settlements only if they were not in a client's best interest. He adds, “We never charged money for credit counseling.”

Ms. McMillan of the Better Business Bureau says that her office received 45 complaints about Edge. She notes that after looking into them, the BBB assigned Edge a rating of “unsatisfactory.” Mr. Lovinger says he argued that his company was dealing with the complaints, and he threatened to sue the BBB. Shortly thereafter, the bureau alerted the FTC.

Mr. Lovinger, who is 47 years old, now finds himself in a state that his former clients would recognize: broke, and wondering what to do with the rest of his life. He says he has no money because he spent all of his debt settlement profits, and even borrowed heavily against his house, in order to develop a personal budgeting software program that failed to catch on.

In the meantime, he occasionally posts on his Web site, called The Finance Rebel Blog. The blog's mission: “shouting out against consumer financial injustice.”

Copyright (c) 2008 Crain Communications Inc. All rights reserved.

Tuesday, August 19, 2008

Residential evictions and bankruptcy law

Due to the current economic uncertainty, Shenwick & Associates has been receiving calls from many individuals who are being evicted, and also from landlords who are evicting tenants, with both sides inquiring about the interaction between residential evictions and bankruptcy law. As in many areas of the law, bankruptcy impacts residential evictions. This e-mail concerns the effect of bankruptcy law on residential (not commercial) evictions in New York. If the warrant of eviction has not issued in State Court, as long as the debtor continues to pay rent after filing for bankruptcy, the automatic stay prevents the debtor's landlord from obtaining a warrant of eviction. However, the situation becomes more complex if a tenant files for bankruptcy after the landlord obtains an eviction warrant.

Bankruptcy Code §362(b)(22) provides that the filing of a bankruptcy petition does not stay “…the continuation of any eviction…or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor” subject to §362(l) of the Bankruptcy Code.

Section 362(l)(1) states that,

“Except as otherwise provided in this subsection, subsection (b)(22) shall apply on the date that is 30 days after the date on which the bankruptcy petition is filed, if the debtor files with the petition and serves upon the lessor a certification under penalty of perjury that--
(A) under non-bankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment for possession was entered; and
(B) the debtor (or an adult dependent of the debtor) has deposited with the clerk of the court, any rent that would become due during the 30-day period after the filing of the bankruptcy petition.”

In plain English, this provision provides that if a warrant of eviction has issued in a residential landlord-tenant case, then a bankruptcy filing will stay enforcement of the warrant, provided that there are circumstances where the debtor would be permitted under state law to cure the entire monetary amount and the debtor has deposited with the clerk of the court rent that would become due in the 30 day period following the bankruptcy.

Section 362(l)(2) provides that:

“If, within the 30-day period after the filing of the bankruptcy petition, the debtor…files with the court and serves upon the lessor a further certification under penalty of perjury that the debtor…has cured, under non-bankruptcy law applicable in the jurisdiction, the entire monetary default that gave rise to the judgment under which possession is sought by the lessor, subsection (b)(22) shall not apply, unless ordered to apply by the court under paragraph (3).”

In other words, the automatic stay will be effective if, within 30 days of filing for bankruptcy, the debtor can certify to the court and their landlord that they have cured the arrears due for the rent of their residential property. The stay is subject to the landlord's objection under §362(l)(3), which provides:

“(A) If the lessor files an objection to any certification filed by the debtor under paragraph (1) or (2), and serves such objection upon the debtor, the court shall hold a hearing within 10 days after the filing and service of such objection to determine if the certification filed by the debtor under paragraph (1) or (2) is true.
(B) If the court upholds the objection of the lessor filed under subparagraph (A)
(i) subsection (b)(22) shall apply immediately and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and
(ii) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the court's order upholding the lessor's objection.”

Accordingly, the debtor must truthfully assert that they have cured their rent arrears, as the landlord may object to the debtor's certification. Ten days after the landlord objects, the court will hold a hearing that will determine whether the debtor has cured their rent arrears. If the tenant-debtor has in fact paid all required back rent, the stay will remain in effect. If not, the court will uphold the landlord-lessor's objection and the automatic stay will be immediately lifted, allowing the landlord-lessor to complete eviction proceedings against the tenant-debtor.

The certification is of utmost importance to a bankruptcy client whose landlord has already obtained an eviction warrant. This is because §362(l)(4) allows for the immediate lifting of the automatic stay should the tenant-debtor fail to file the certification if the eviction warrant is listed on the bankruptcy petition. If you are a residential tenant whose landlord has obtained an eviction warrant or a landlord who has obtained an eviction warrant against a now bankrupt tenant, please contact Shenwick & Associates to assess your rights under bankruptcy law.