This month's story, dear reader, is about sloppy bank servicing of mortgages, starting with the infamous robo-signers and now escalating to every element of the mortgage servicing and foreclosure process. Yesterday, the New York Times wrote that JP Morgan Chase hired clueless "Burger King kids" who apparently had it their way when they didn't know how to do it the right way, and Citigroup and GMAC hired "frazzled workers who sometimes tossed the paperwork into the garbage" when they didn't know what to do with it.
So anyone out there who previously thought that the mortgage selling process itself was a pristine model of legal, fair marketing and that "some consumers" took advantage of the system must be re-thinking that false paradigm. No, the bank kids were not alright. They were having it their way all the way, and still are. Despite not making loans or creating jobs, Wall Street is again declaring record profits.
Now, 50 state attorneys general are involved in a bi-partisan investigation of the foreclosure mess. Florida's attorney general, for example, has subpoenaed lender processor documents. While these investigations are being brought under the states' longstanding police power to protect their citizenry, that power was augmented this summer when passage of the Wall Street Reform and Consumer Protection Act reinstated the states' authority over non-bank subsidiaries of national banks. That power had been wrongly arrogated by the rogue federal regulator known as the Office of the Comptroller of the Currency (OCC).
The states' quick and aggressive response to the foreclosure mess is welcome. Strong state enforcement forms an important part of a multi-layer system designed to protect consumers, depositors and taxpayers from reckless financial actions. What was missing in the run-up to the financial meltdown were strong laws enforced by tough federal agencies. We had neither, but the new law should provide us with both, especially because it also establishes the landmark Consumer Financial Protection Bureau (CFPB). Already, its inventor, the government's top consumer advocate, Professor Elizabeth Warren, is working for President Obama to build it and build it strong. She's on the road today, on a listening tour in Ohio, a state whose consumers were slammed by the effects of Wall Street's reckless lending practices.
What else should the new CFPB look into besides the mortgage mess? We've got no shortage of ideas. Just last month a federal judge fined the behemoth Wells Fargo bank (nominally "regulated" by the OCC) $203 million for using "neat tricks" to clear checks in profit-maximizing order to earn "colossal sums." At the end of the day, as many of the other banks do, it would change the order of debits so the big ones cleared first, making more of the others bounce at $35 or so a pop. While the FDIC has issued a proposed guidance to limit this and other seamy practices that drain the life out of consumer accounts, the OCC, which "regulates" most of the biggest banks and the Fed have not followed its lead (the FDIC only regulates some, mostly smaller, state banks, although it insures all banks).
We'll take the bet that the OCC won't act, and leave this problem up to the CFPB when it turns on the lights next July. Along with other leading groups, we've also urged the current regulators to look at the deceptive marketing of so-called Overdraft Protection. Under new rules, banks can no longer charge overdrafts on debits at the coffee shop or ATM machine unless you've opted in to the "protection." If you do nothing, you're OK because that's a no, but some banks are relentlessly trying, again and again, to trick you into saying yes. Again, we'll take the bet that the CFPB will be left to step in and it should move quickly.
The new CFPB will have authority over not just banks, but non-bank lenders like payday lenders and mortgage companies. According to one report, we have more payday loan stores than we do McDonalds and Burger Kings.
Often communities of color, older Americans and military families are targets of predatory small-dollar, high-cost loans. The CFPB will have special offices to investigate unfair financial practices targeting these groups.
Just this week, Holly Petraeus, head of the BBB Military Line, renewed her call for greater financial protections for military families from predatory lending. Bad loans result in bad credit and bad unit morale. Worse, the bad credit means service members cannot get security clearances and so cannot deploy overseas. If the CFPB comes under political attack by the banks in coming legislative battles, maybe Holly Petraeus will ask her husband, General David Petraeus, to borrow some tanks and planes to back Professor Warren's efforts to protect a strong CFPB.
Whether its the latest mortgage foreclosure mess, or the ongoing battles against overdraft loans, unfair credit card practices and high cost predatory lending, the more you know, the more you know it's in the public interest to build a strong CFPB.