The Guaranteed Student Loan Program: Do Lenders\u27 Risks Exceed Their Rewards

With the troubled economic conditions and skyrocketing educational costs of the 1970\u27s and 1980\u27s, an increasing number of students have come to rely on the federally insured Guaranteed Student Loan Program established in 1965. A concommitant effect of this greater student dependence has been the greater dependence of post-secondary schools on the availability of such loan monies to establish and maintain enrollment levels. The key to the GSLP is the willingness of private lenders to participate in the program. Such willingness is dependent on a balancing of the lenders\u27 risk and their expected rate of return from their GSLP investment. A large student default rate and the special allowance payments to lenders have combined to make the program much more costly than the Department of Education expected. This Article examines how the Department reacted to these events by reallocating the risk of the loans from the government to the lenders through changes in regulatory interpretation. The Article focuses on two major areas where the Department has changed its attitude: the payment of illegal inducements to lenders and the imposition of due diligence requirements for loan collection and default claims submission. After discussing the implications of the Department\u27s treatment of lenders, the Article concludes that the new policies are misplaced and threaten the future of the GSLP; a change is necessary for the good of students and the educational community

Death to Credit as Leverage: Using the Bank Anti-Tying Provision to Curb Financial Risk

Today, the need for nimble financial regulation is paramount. The Dodd-Frank financial reform bill has not prevented further scandals and will not stop banks from selling risky products. Yet one understudied law is a surprisingly versatile device that has the potential to temper financial risk: the Bank Holding Company Act’s Anti-Tying Provision. The Anti-Tying Provision prohibits banks from requiring borrowers to purchase additional products in order to obtain a loan. It applies antitrust principles to bank sales and lending practices. Under antitrust law, a seller cannot condition the availability of one item (the desired product) on the consumer’s purchase of another item (the tied product). Similarly, the Anti-Tying Provision limits when banks can condition the availability of credit on a borrower’s purchase of another product. In the last two decades, those limits have been eroded by numerous exceptions. This Article recasts the Anti-Tying Provision as a bulwark against financial risk. Specifically, this Article proposes narrowing the exceptions to the Anti-Tying Provision so as to reduce the types of investment products that can be tied to loans. Further, this Article argues that plaintiffs in bank tying actions need only prove the existence of a tying requirement, rather than actual coercion. Bolstered in these two ways, the Anti-Tying Provision can curtail sales of risky financial products to borrowers. An expanded role for the Anti-Tying Provision draws upon four theoretical underpinnings. First, this approach approximates the separation between commercial and investment banking that was central to the Glass-Steagall Act and is again resurgent with the Volcker Rule. Second, recent developments in antitrust scholarship suggest that credit can be manipulated as leverage and rate evasion. Third, borrower welfare is the proper framework from which to evaluate tying, so the effect of leveraging credit should be analyzed for its harm to borrowers, not its benefit to banks. Fourth, one lesson from the financial crisis is that antitrust law must be concerned with more than efficiency. By extension, the Anti-Tying Provision should be viewed as serving broad goals such as mitigating financial risk

Death to Credit as Leverage: Using the Bank Anti-Tying Provision to Curb Financial Risk

Today, the need for nimble financial regulation is paramount. The Dodd-Frank financial reform bill has not prevented further scandals and will not stop banks from selling risky products. Yet one understudied law is a surprisingly versatile device that has the potential to temper financial risk: the Bank Holding Company Act’s Anti-Tying Provision. The Anti-Tying Provision prohibits banks from requiring borrowers to purchase additional products in order to obtain a loan. It applies antitrust principles to bank sales and lending practices. Under antitrust law, a seller cannot condition the availability of one item (the desired product) on the consumer’s purchase of another item (the tied product). Similarly, the Anti-Tying Provision limits when banks can condition the availability of credit on a borrower’s purchase of another product. In the last two decades, those limits have been eroded by numerous exceptions. This Article recasts the Anti-Tying Provision as a bulwark against financial risk. Specifically, this Article proposes narrowing the exceptions to the Anti-Tying Provision so as to reduce the types of investment products that can be tied to loans. Further, this Article argues that plaintiffs in bank tying actions need only prove the existence of a tying requirement, rather than actual coercion. Bolstered in these two ways, the Anti-Tying Provision can curtail sales of risky financial products to borrowers. An expanded role for the Anti-Tying Provision draws upon four theoretical underpinnings. First, this approach approximates the separation between commercial and investment banking that was central to the Glass-Steagall Act and is again resurgent with the Volcker Rule. Second, recent developments in antitrust scholarship suggest that credit can be manipulated as leverage and rate evasion. Third, borrower welfare is the proper framework from which to evaluate tying, so the effect of leveraging credit should be analyzed for its harm to borrowers, not its benefit to banks. Fourth, one lesson from the financial crisis is that antitrust law must be concerned with more than efficiency. By extension, the Anti-Tying Provision should be viewed as serving broad goals such as mitigating financial risk

The Professional Liability Crisis and the Need for Professional Limited Liability Companies: Washington\u27s Model Approach

This Comment argues that every state should allow professionals to take advantage of LLC statutes, as Washington has done. Such action will provide protection for accountants and lawyers from the wave of litigation that has surfaced in recent times and to restore an element of confidence to these professions. This Comment further asserts that allowing professionals to use LLC statutes is not only consistent with the duties peculiar to the accounting and legal professions, but also a necessary step when viewed in light of the policies of fairness, efficiency, and public protection. Initially, Part II of this Comment describes the litigation crisis in this country and the sources of and reasons for the crisis. Part III discusses the current and potential future effects of the crisis if it is not addressed by lawmakers. Part IV introduces the LLC as a remedy for the effects of excessive litigation, describes the Washington LLC Act as it applies to professionals, shows how various statutes have addressed the issue of LLC use by professionals, and demonstrates how the LLC fits within the ethical codes of the legal and accounting profession. Part V of this Comment then illustrates how the LLC will help to remedy the litigation crisis, while Part VI shows why the LLC is a proper entity for professionals, and asserts that the Washington LLC act provides an ideal compromise between the interests of professionals and consumers. Finally, Part VII concludes that the LLC can provide professionals with much needed relief from the perils of excessive litigation, but that in order to do so, every state must follow Washington\u27s lead and pass or amend legislation to permit professionals to utilize LLCs

The Professional Liability Crisis and the Need for Professional Limited Liability Companies: Washington\u27s Model Approach

This Comment argues that every state should allow professionals to take advantage of LLC statutes, as Washington has done. Such action will provide protection for accountants and lawyers from the wave of litigation that has surfaced in recent times and to restore an element of confidence to these professions. This Comment further asserts that allowing professionals to use LLC statutes is not only consistent with the duties peculiar to the accounting and legal professions, but also a necessary step when viewed in light of the policies of fairness, efficiency, and public protection. Initially, Part II of this Comment describes the litigation crisis in this country and the sources of and reasons for the crisis. Part III discusses the current and potential future effects of the crisis if it is not addressed by lawmakers. Part IV introduces the LLC as a remedy for the effects of excessive litigation, describes the Washington LLC Act as it applies to professionals, shows how various statutes have addressed the issue of LLC use by professionals, and demonstrates how the LLC fits within the ethical codes of the legal and accounting profession. Part V of this Comment then illustrates how the LLC will help to remedy the litigation crisis, while Part VI shows why the LLC is a proper entity for professionals, and asserts that the Washington LLC act provides an ideal compromise between the interests of professionals and consumers. Finally, Part VII concludes that the LLC can provide professionals with much needed relief from the perils of excessive litigation, but that in order to do so, every state must follow Washington\u27s lead and pass or amend legislation to permit professionals to utilize LLCs

Regulating Financial Guarantors

To improve financial regulation, scholars have engaged in extensive research over the past decade to try to understand why systemically important financial firms engage in excessive risk-taking. None of that research fully explains, however, the unusually excessive risk-taking by financial guarantors such as bond insurers, protection sellers under credit-default-swap (CDS) derivatives, credit enhancers in securitization transactions, and even issuers of standby letters of credit. With tens of trillions of dollars of financial guarantees outstanding, the potential for failure is massive. This Article argues that financial guarantor risk-taking is influenced by a previously unrecognized cognitive bias, which it calls “abstraction bias.” Unlike banks and other financial firms that pay out capital—for example, by making a loan—at the outset of a project, financial guarantors do not actually transfer their property at the time they make a guarantee. As a result, they may view their risk-taking more abstractly, causing them to underestimate the risk (even after discounting for the fact that payment on a guarantee is a contingent obligation). The Article provides empirical evidence showing that abstraction bias is real and can influence even sophisticated financial guarantors. The Article also examines how understanding abstraction bias can improve the regulation of financial guarantor risk-taking