More Evidence Banks Do What They Want

Every day the anger against banks is stronger.  It seems like banks can do what they want, when they want, and how they want, with no consequences.  They make risky bets, they get bailed out by taxpayers.  They get involved in bad loans, and aren’t required to modify loans.  It seems like at every turn they get a pass, mounting more evidence that banks can do what they want.

The latest piece of evidence is deals with the robo-signing phenomenon that came to light at the end of last year.  For those that don’t know, all the big banks put foreclosure proceedings on hold after members of their staff admitted in court that they signed documents without reading them.  These signatures became known as robo-signings as hundreds of these documents would be signed every hour.  A big stink was made of the whole thing and industry was supposed to have this under control.

However, an AP report, shows that the practice is continuing.  County Court Clerks in Michigan and North Carolina reported receiving hundreds of forged or robo-signed documents since this debacle was supposed to be ended.  In fact, the same people who testified in courts signatures are the ones still showing up.  The continued forged signatures no longer simply apply to foreclosures either.  The report mentions that the documents included transfers of loans and documents certifying a loan had been paid off.  So not only was the practice not stopped it has continued in other aspects of loan documents.

Despite settlements that were supposed to curb this practice, it is still in existence.  So much so that Guilford County, NC they have stopped taking questionable documents.  All this is more evidence that banks can and will do what they want.  Hopefully, on July 21, when the CFPB goes live, they can curb this lack of ethics coming from the banks.


Obama Gets “C” on Financial Report Card

This posting while written by me was originally published on

With Congress working to end the administration’s programs to scale back the foreclosure crisis, RealtyTrac and Trulia released the results of a study that show 54% of adults believe the housing crisis is here until at least 2014. When I think about grading President Barack Obama on financial justice issues, I must decide what should be defined as financial justice. Understand the state of the country when he first took office: America faced a housing crisis due to the lack of regulation of banks and the subprime market, and foreclosures were about to rise not just from bad loans, but from homeowners losing their jobs. I would give the president a C on financial justice; Obama has succeeded when it comes to regulating banks to prevent a future crisis, but he has lacked when dealing with current foreclosure issues, leading to an uncertain future for the long-term health of the housing market and prices.

Foreclosure Prevention Programs

The housing market began to deteriorate and foreclosures began to rise in 2007, but the bottom came in the fall of 2008, catapulted by the fall of Lehman Brothers. In March 2009, the administration made a decision to step in and help save some mortgages. It launched a series of programs under the Making Home Affordable Program. The Home Affordable Modification Program (HAMP) was one of these programs to be run out of the Treasury Department. HAMP set guidelines for what was needed to modify a mortgage, and banks and servicers were invited to participate. One key component here was that nothing was mandatory for the banks; their participation was strictly voluntary. The program was supposed to help save millions of homes from foreclosure and hold off the crisis. In reality though, the program has been a failure.

According to the latest scorecard, there are only 609,615 active permanent modifications from 2,684,832 eligible delinquent loans. Early in the process, trial modifications lasted three months, and could last longer than six months without a permanent modification being offered. Housing counselors still have issues with aged trial modifications.

No program under the Making Home Affordable Program has had the level of impact that was hoped for. Though some homes have been saved, the expectations were to save millions of homes. That has not been the case.

Grade: F

Bank Regulation

Once Obama finished dealing with Health Care Reform, he turned his attention to financial reform. The House and the Senate debated numerous proposals before the Dodd/Frank Act took center stage as the bill of choice. This bill was massive in scope and covered almost every facet of the banking industry. The biggest component of this reform in bill was the creation of the Consumer Financial Protection Bureau (CFPB). This all-encompassing regulatory body was to be independent from Congress and would be the one regulatory body that covered banks. Many of the rules relating to the CFPB will go into effect on July 21, 2011 — they recently launched a website, and the implementation team is working to lay the initialgroundwork. The Republican leadership in the House, who have always opposed the creation of CFPB, is trying to weaken the agency before it can even get off the ground. The banking industry has not been very excited about this, and spent millions of dollars trying to defeat it.

There are some components of this reform bill that may not be great for consumers. Banks are going to find a way to pay for increased costs that are a result of more regulation, and pass that cost on to consumers. There are some amendments, like the Durbin Amendment, that may increase the cost of goods for low-income families as a result of capping interchange fees for big banks. But it will not cap these fees for small banks, which include many providers of prepaid cards. These added costs of reform make it difficult to give the highest grade possible, but I believe that the majority of these reforms are a step in the right direction.

Grade: A-

Final Grade

You can see from my perspective, the president has been hit or miss on financial justice. He has been successful on bank regulation, while his performance on the foreclosure crisis has been abysmal at best. I think his overall grade is right in the middle, and there is definitely room for improvement. Even though I have been a supporter of Obama, I am not sure this is one of his strongest successes so far.

Overall Grade: C

Debit card swipe fees cut, are there still problems?

Today the Senate voted down a bill by Sen. Jon Tester (D-MT) that would have delayed the Durbin Amendment from the Dodd/Frank bill.   Sen. Richard Durbin’s (D-Ill) amendment puts a cap on the swipe or interchange fees that banks charge merchants for accepting debit cards.  Banks have been charging on average  44 cents or up to 2% of transaction  for every transaction, bringing in about $16 billion in revenues.  Merchants often will increase their product prices a bit to make up for this lost revenue.  The amendment would cap the fee at about 12 cents a transaction.  This will drastically cut the additional revenue that banks are bringing in.  The merchants believe that these lower costs will allow them to slightly lower prices, since they will not be hit as hard with the fee.

In theory, this seems like a great idea.  Why not cap these fees and limit banks from additional profits, while allowing prices to go down.  However, there are some other factors that make everything not so perfect.  In fact, I was not in support of the amendment as written for several reasons.  First of all, banks don’t like losing revenue.  They are going to find ways to make this money back.  One way is they could go back to pushing credit.  This amendment applies to debit cards and not credit cards.  Therefore, banks can scale back on their advertising of debit cards and move back to pushing using your credit card as a way to get these fees back.  Another option for the banks are to add new fees to accounts.  Banks love adding new fees and have already begun to phase out the free checking.  They are creating new fees for services to make up for places they are losing revenue, and this could lead to more of that.

The more troubling factor here could be the impact on prepaid debit cards. For low wealth families these are a growing alternative to traditional banking options.  In the Durbin Amendment, there is a cap exception to small banks with under $10 billion in assets.  The idea is that these smaller banks and institutions don’t have the same capacity of the big banks to deal with a fee cap and therefore are exempt.  This creates an interesting dilemma in the prepaid card market.  Pretty much every prepaid card provider fits under this exemption.  In fact, Russell Simmons, creator of the Rush Card, fought for this exemption in order to protect his profits.

This may not be a good thing though and could create problems for users of this card.  These prepaid providers can continue to charge much higher fees than the big banks can putting the merchants in a tough place.  Merchants would rather pay the lower fee to everyone because it benefits their bottom line, but this exemption means they will still have to pay the higher amount for a number of transactions.  Merchants may start to not accept prepaid cards so they don’t have to pay the higher fee.  Another option is they could charge a fee to users of these cards to make up for the higher costs.  No matter which option they choose, low-income users of this card will have to pay more for the purchases than those who use traditional bank debit cards.  I don’t like the potential impact this could have on poor people.  Why should they have to pay more so people like Russell Simmons can protect their profits?  I guess in order to avoid higher costs they could always go back to using check cashers and carry more cash.  Oh wait, that also carries a high cost.

Some of you may say, well they can go back to using a traditional bank, and that is a fair statement.  However, most low wealth people do not generate enough income to have low fee accounts now that banks are doing away with free checking.  So as I stated earlier, banks will create new fees for accounts that are used by low wealth individuals.  There is no way around the fact that this amendment raises the costs on low-income individuals.