Inner City Press Community Reinvestment Reporter 2003-2004
Click here for Current CRA Reporter
Welcome to Inner City Press’ CRA Report. Our other Reporters cover the financial services industry, human rights, the Federal Reserve, and other beats. ICP has published a book about the CRA-relevant topic of predatory lending - click here for sample chapters, a map, and ordering information. CBS MarketWatch of April 23, 2004, says the the novel has "some very funny moments," and that the non-fiction mixes "global statistics and first-person accounts." The Washington Post of March 15, 2004, calls Predatory Bender: America in the Aughts "the first novel about predatory lending;" the London Times of April 15, 2004, "A Novel Approach," said it "has a cast of colorful characters." See also, "City Lit: Roman a Klepto [Review of 'Predatory Bender']," by Matt Pacenza, City Limits, Oct. 2004. The Pittsburgh City Paper says the 100-page afterword makes the "indispensable point that predatory lending is now being aggressively exported to the rest of the globe." Click here for that review; click here to Search This Site
December 27, 2004
In
the week leading to Christmas, ICP made supplemental filings on Toronto Dominion -
Banknorth and BBVA-Laredo National Bank, summarized in this week’s Bank Beat Report.
CitiFinancial is now offering high-cost loans through pawn shops in Poland. The Polish News Bulletin of December 20 reported
that “Kantor Polski (KP), a new financial services provider was launched today... The
idea of forming KP was put forward by The Polish Currency Exchange and Pawnshop
Association (SKiLP). Apart from the normal services currency exchanges supply, KP will
offer clients CitiFinancial
(financed by Bank Handlowy) consumption and cash credits.”
HSBC, or at least its
chairman John Bond, is deeply in denial. From
the Financial Times of December 24: “Household has faced accusations of predatory
lending from consumer groups but Sir John attributes Household's problems to ‘one or
two rogue branches.’” One or two
branches? Perhaps the easiest rebuttal is the
fact that dozens of U.S. states sued Household for predatory lending, in 2002, and the
company settled. Old Sir John apparently
hasn’t read those court papers, nor the subsequent voluminous documentation of
ongoing predatory lending at Household. He either doesn’t know or doesn’t care,
or both. For shame...
December 20, 2004
Payday and pawn shops in the news: last week in Pittsburgh, the City
Council passed an ordinance prohibiting payday lenders from being open more than nine
hours per day; from allowing bars, chains or other security devices from to be viewed from
public streets and sidewalks; and from being within 500 feet of a residence or 1,000 feet
of another outlet or pawn shop.
Meanwhile, here’s what the Spanish (and Mexico-based) bank BBVA had to say last week, in response to ICP’s comments on its and its target Laredo National Bank’s support of fringe finance: “such loans are extended in the ordinary course of their lending to small businesses.” And that’s one of the problems, that no additional due diligence is done before supporting a business engaged in high-cost lending, in the banks’ Community Reinvestment Act service area. BBVA claims that as to the practices of Valley Bank, which it acquired earlier this year, “that application was the proper forum in which to raise [those] concerns. In fact, neither ICP nor any other community organization submitted any comments in connection therewith.” So the bank’s argument is that it is not responsible for anything it acquired, unless that acquisition was challenged. By that logic, community and consumer organizations should comment much more than they currently do, in order to avoid what’s called “issue preclusion.” Something to keep in mind, in 2005...
On
December 14, Federal Reserve ruled on Fifth Third - First National Bank of Florida, which
ICP challenged in late October. Footnote
23 says that
“One commenter [that’d be
ICP] criticized Fifth Third’s relationships with unaffiliated payday lenders,
car-title lending companies, and other nontraditional providers of financial services. As
a general matter, these businesses are licensed by the states where they operate and are
subject to applicable state law. Fifth Third also responded that it has entered into
lending relationships with several check-cashing organizations, pawn shops, and
rent-to-own companies, but that it plays no role in the lending practices, credit review,
or other business practices of those borrowers. Fifth Third represented that in all such
cases, it requires borrowers to represent and warrant to Fifth Third that they comply with
applicable laws.”
This (for now) is weaker than the standard
the Fed uses in looking at banks’ business dealings with subprime mortgage lenders:
there, the Fed appears to be looking for the bank to have done some due diligence, and not
simply relying on the subprime lender’s “warranty” it complies with law.
ICP’s campaign on predatory fringe finance continues.
At last week’s House Financial Services hearing in Boston, Bank of America was
evasive, and, as reported by the Toronto
Star of December 17 with regard to
ICP’s challenge to TD-Banknorth, “Inner City made the same charges at a hearing
of the House of Representative's financial services committee held in Boston this week to
look into bank mergers. It was joined in its concerns by John Quinn and Andrea Nuciforo,
members of the Massachusetts legislature who submitted testimony
December 13, 2004
The fall-out from
bank mergers will be considered this week, including at the House Financial Services
Committee’s field hearing in Boston. ICP
/ Fair Finance Watch has submitted testimony, which is summarized below. Because it’s
still pending, ICP focuses on Toronto Dominion’s proposal to acquire 51% of
Banknorth. Another focus is the layoffs (any,
many say, lying) that followed Bank of
America’s takeover of Fleet. On that,
a co-chairman of the Massachusetts Legislature's banking committee has filed a bill that
would require banks to estimate changes in staffing levels as a result of a proposed
merger. The bill would require banks to submit one, three- and five-year estimates of how
staffing levels would be affected by a big bank merger.
Last week, BofA’s Ken Lewis refused to say how Massachusetts jobs
compare with levels before the merger, saying the bank will release that data in early
2005. We’ll see. And here now a summary
of ICP’s testimony:
Testimony to the House of
Representatives Committee on Financial Services
On behalf of the non-profit organization Inner City Press / Community on the Move
and the Fair Finance Watch (ICP), this submission addresses the impact on communities and
consumers of two completed mergers and one merger proposal that has not been approved, and
on which the Committee can and should still have an effect: the proposal by Toronto
Dominion to acquire a controlling 51% stake in Banknorth, for over three billion dollars. On November 15, ICP submitted to the Federal
Reserve a 15-page comment opposing Toronto Dominion's application, based on lending
disparities, on managerial issues at Toronto Dominion including enabling of Enron and lack
of environmental standards, and on Banknorth’s funding of high-cost pawnshops, check
cashers and other predatory fringe finance. See, e.g.,
<www.boston.com/business/articles/2004/11/15/group_challenges_banknorth_td_bank_merger>,
and Toronto Star of Nov. 21, 2004, Pg. C1, “Merger Snags,” by Stuart Laidlaw:
"’The impact on the
consumer is at least as important as the price paid to shareholders,’ [the] executive
director of Inner City Press, said in an interview from his office in the Bronx. In a
filing with the Federal Reserve Bank of New York, which must approve the deal, Lee looks
at the bank's lending rates in several markets. In Hartford, Conn., for instance, only 2
per cent of its loans were to blacks and Hispanics, while the average among all banks was
6.8 per cent. He called the problem ‘systemic.’ Under the U.S. Community
Reinvestment Act, banks are expected to fully serve disadvantaged neighborhoods. Lee's
group uses the act to get banks to make commitments to boost their loans to the poor and
racial minorities whenever those banks are hoping to get a deal approved by the Fed.
‘Pretty well the only way it is enforced is through the denial of deals,’ he
said.”
As relates to this hearing’s
meta-merger policy question, if the only enforcement mechanism of the CRA is regulatory
agencies’ denial or conditioning of banks’ expansion applications, then the CRA
is not being (sufficiently) enforced. For
example, during the JP Morgan Chase - Bank One proceeding, ICP submitted to the Federal
Reserve a series of Uniform Commercial Code filings showing the two banks financing payday
lenders such as First Cash Financial Services, a top-ten pawnshop chain with 130
storefronts in 11 states; Illinois Payday Loans, Inc., Discount Payday Loans of Colorado;
Mister Payday of Kentucky, Inc., and First American Cash Advance, a top-ten payday lender
with 330 storefronts in 11 states -- a company which has been extensively criticized for
its high-cost lending, particularly to members of the military. For that, see the
Washington Post of December 29, 2003, "Military Says Payday Loans Promote Fiscal
Irresponsibility, Hurt Troop Morale."
While the FRB asked JP Morgan Chase and Bank
One questions about their funding of payday lenders, car title lenders and other
questionable bottom-tier financiers, the FRB did not impose any prohibition on such
standardless practices. The Federal Reserve leaves the onus on the community and consumers
groups themselves. This can bear some results
-- simply as to ICP this year, consider that SunTrust Banks, in response to ICP’s
comments, committed to cease funding payday and car title lenders. See, e.g.,
"NCF, SunTrust Ditch Payday Lenders: Answer Activists' Challenge Ahead of Bank
Merger," Memphis Commercial Appeal, July 28, 2004; "Bank Shuns Payday Lenders:
SunTrust Halts Loans to Fast-Cash Industry," Orlando Sentinel, July 28, 2004, Pg. C1,
and "Saying No to Exploitation -- Our Position: SunTrust Was Right to End Business
with Payday and Car-Title Lenders," Orlando Sentinel, July 30, 2004, Pg. A18.
But other large banks, not only JP Morgan Chase but also Bank of America, Wachovia and Wells Fargo (and pertinently also
Banknorth, and certain other banks with pending merger applications, such as Laredo
National Bank and Fifth Third Bank) continue such funding. See, e.g., Bloomberg News of Nov. 23, 2004,
“JPMorgan, Banks Back Lenders Luring Poor With 780 Percent Rates,” at
http://quote.bloomberg.com/apps/news?pid=nifea&&sid=ayYDo5tpjTY8, and see
<www.tennessean.com/business/archives/04/11/62129411.shtml?Element_ID=62129411>.
The FRB has also fallen into a pattern of
granting banks’ requests for confidential treatment under the FOIA for their lists of
payday lenders and others fringe financiers they partner with, even though these
relationships are “already public” in UCC filings. This has required a tangent
from consumer protection into FOIA litigation, such as ICP is conducting in the wake of
the FRB’s Wachovia-SouthTrust approval. See, e.g., "Community Group: Fed Must
Reconsider Wachovia-SouthTrust," Dow Jones, October 25, 2004.
As the Committee can see from the FRB’s
Orders, while the FRB recites and gives weight to banks’ unilateral lending pledges,
the FRB subsequently refuses to enforce or even monitor such pledges. As a meta-merger policy recommendation, ICP
suggests that the BHC Act be amended, at 12 USC 1848, to explicitly provide for judicial
review of FRB approval orders on consumer and community lending issues. In the interim,
most practically, inquiry should be made into the FRB’s anti-consumer processing of
the pending TD-Banknorth application, as well as other pending mergers including
BBVA-Laredo National and applications by Wells Fargo and Citigroup in Texas, and Fifth
Third in Florida.
Regarding the first of these (which was named at the time this hearing was scheduled, see CBS MarketWatch of October 7, 2004, Home Mortgage Disclosure Act (HMDA) data reported for 2003 show that Banknorth disproportionately excludes and denies African Americans and, particularly, Latinos. In the Albany, New York MSA for refinance loans in 2003, Banknorth denied Latinos 4.31 times more frequently than whites, and denied the conventional home purchase loan applications of Latinos 4.83 times more frequently then whites. For refinance loans here in the Boston MSA in 2003, Banknorth denied Latinos 3.17 times more frequently than whites, while using the methodology above, only 1.3% of Banknorth’s refinance loans were to Latinos, lower than the aggregate’s 2.2%. In the Boston MSA, Banknorth denied the conventional home purchase loan applications of African Americans 11.8 times more frequently then whites. In the Lowell, Massachusetts MSA, Banknorth denied the conventional home purchase loan applications of African Americans 8.92 times more frequently then whites, and denied Latinos’ applications 10.8 times more frequently than whites [More analysis available in ICP’s Bank Beat Report].
There are other adverse issues at Toronto Dominion, including managerial issues: there’s Toronto Dominion’s enabling of Enron’s fraud (see, e.g., the Houston Chronicle of December 03, 2003, “THE FALL OF ENRON: Banks added to shareholder suit;” note that evidence submitted to the Senate Permanent Subcommittee on Investigations’ hearings identified Toronto Dominion as actively engaged in illegitimate trades with Enron to disguise loans received by the company, allowing Enron to hide this debt from credit rating agencies and investors, inflating profits substantially.
As to Wells Fargo, ICP's ongoing review of Uniform Commercial Code (UCC) filings
from Texas, Nevada, Illinois, California and elsewhere has found Wells funding and
enabling [see ICP’s Wells Fargo
Watch]. In response, Wells Fargo has told the FRB, in its last expansion commented-on
by ICP, that its subprime subsidiary on Puerto Rico
"Island Finance does not have a
specialized customer service department or a toll-free telephone number for complaints.
Customers who have complaints contact the store handling their account. If the store is
unable to resolve the complaint the complaint if referred to the district manager. If the
district manager is unable to resolve the complaint it is referred [to] the district
manager's supervisor." (Wells Fargo's submission to the FRB dated August 11, 2003, at
11).
That Wells’ Puerto Rico-based Island Finance has even less consumer protection
safeguards that Wells Fargo Financial's overall operations is significant -- and, ICP
contends, is violative of the Fair Housing Act and Equal Credit Opportunity Act, given the
demographics of Island Finance's headquarters and its lending operations. But the FRB has
done nothing, including in connection with Wells’ currently pending application to
acquire yet another bank, in Texas.
To endeavor to address the meta-merger issues, here is a review of service-cuts and branch closures by Bank of America and its predecessor(s) acquisitions of Boatmen's Bancshares, Barnett Banks, and then (then San Francisco-based) Bank of America itself. [See ICP’s BofA Watch Report.] Bank of America’s layoffs, following its acquisition of Fleet, are already of record -- but they are part of the historical pattern sketched above...
And here’s
an update on JPM Chase:
December 6, 2004
In predatory payday lending news, Advance America last week filed with the SEC an
amended offering document, leading up to an IPO the date for which it hasn’t yet set.
That’s not surprising: Advance America is being grilled in North Carolina, has had to
suspend payday lending in Georgia, and discloses in its SEC filing it’s being
contacted by investigative journalists. Then again, the mounting wave of outrage of this
industry didn’t stop QC Holdings -- which runs Quik Cash, Nationwide Budget Finance,
California Budget Finance and First Payday Loans -- from going public last summer for $14
a share, now up to $17... Advance
America’s Billy Webster stands to make at least $8 million; the company’s
chairman George D. Johnson Jr. is in line for $19 million...
In other payday and predatory news, ICP has timely challenged Wells Fargo’s Texas application,
including on grounds of Wells’ support for payday lenders, including Armed Forces
Loans, Inc., which targets active-duty soldiers. Last week, ICP received a partial copy of
Wells Fargo’s November 29, 2004 response, which at page 34 states that
“Confidential Exhibit 9 (Question 6) contains a list of businesses with which Wells
Fargo maintains a business relationship whose business operations may constitute subprime
lending. This exhibit includes the [NAICS] code for these businesses, and the Wells Fargo
lending group providing lending or services to each business.” This is an outrageous withholding, given that ICP
and now Bloomberg News (see below) have identified many of the fringe financiers which
Wells Fargo funds or otherwise enables. Additionally, the above quoted does NOT fully respond to the Federal
Reserve’s Question 6, which asks not only about subprime lenders, but also
“providers of non-traditional financial services (such as check cashers, pawn shops,
or rent-to-own businesses).” An
additional response must be demanded and released, ICP has commented to the Fed...
In the Fifth Third - FNBF proceeding, page 16 of
Fifth Third’s Nov. 23 submission states, in response to an FRB request for (required)
information, that “Fifth Third has entered into lending relationships with the check
cashing organizations, pawn shops, rent-to-own companies and other alternative lenders
(collectively ‘Alternative Lenders’) listed on Confidential Exhibit 3.” ICP
has now contested this withholding, under the Freedom of Information Act...
November 29, 2004
A stealth but interesting CRA question has arisen: what are the duties of a bank
that takes deposits nationwide, in the form of health savings accounts? The process here is driven by Congress. On Jan. 1,
2004, legislation became effective which promotes these health savings accounts. Several banks jumped on the bandwagon. Banknorth, whose proposed half-acquisition by
Toronto Dominion ICP opposed earlier this month, has made health savings announcement. And, on September 8, Webster Bank of Connecticut
announced a proposal to buy Wisconsin’s State Bank of Howards Grove, whose main (but
not only) operating unit is HSA Bank, the self-proclaimed industry leader.
ICP has now filed timely comments on Webster Bank’s application, noting among
other things that Webster funds car title pawns and straight-up pawn shops, that its
lending is disparate -- and on the issue of what ICP argues would be its nationwide CRA
duty, if it were to acquire HSA Bank. A
summary of ICP’s comments is below.
Meanwhile, ICP’s challenge to Toronto Dominion’s proposed acquisition of control
of Banknorth has been reported for example in the Boston
Globe, the Stamford
(CT) Advocate, the Portsmouth (NH)
Herald News, the Portland
(ME) Press Herald, and north of the border, for example on the CBC. See this week’s Fed Watch report, on the Federal
Reserve’s duties with regards to major banks’ funding of payday lenders. Here’s ICP’s just-filed Webster comment:
Board of Governors of the Federal Reserve System
Attn: Chairman Alan Greenspan, Governors, Secretary Johnson
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
Re: Timely comment
opposing and requesting public hearings on the proposal of Webster Financial Corporation
to acquire 100 percent of the voting shares of Eastern Wisconsin Bancshares and State Bank
of Howards Grove
Dear Chairman Greenspan, Governors, Secretary Johnson, FRB:
On behalf of Inner City Press/Community on the Move and its members and affiliates,
including the Fair Finance Watch (collectively, “ICP”), this is a timely comment
opposing, requesting public hearings on the proposal of Webster Financial Corporation and
its subsidiaries (“Webster”) to acquire 100 percent of the voting shares of
Eastern Wisconsin Bancshares and State Bank of Howards Grove (“State Bank”).
ICP is opposed to the Webster - State Bank proposal under the Community
Reinvestment Act, based on Webster’s systemic lending disparities, and its enabling
of high-cost fringe financier, including pawn shops, car title lenders and others. ICP’s research in publicly-available Uniform
Commercial Code (“UCC”) filings has found Webster funding and enabling for
example TC’s Auto Pawn, Inc. -- within Webster’s CRA assessment area (see attached).
Note that in recent FRB proceedings, SunTrust has made commitments to cease funding
car title lenders as well as payday lenders, and Citigroup has made representations
concerning not funding, for example, check cashers. What standards does Webster have? Apparently none. At an absolute minimum, the FRB
must ask Webster the same questions as to standards (and full disclosure of fringe
financial links) that it has asked, inter alia,
Huntington, Wachovia and SouthTrust, BNP, North Fork (including regarding check cashers,
rent-to-own and pawn shops), etc.. ICP is requesting a hearing and that the Webster -
State Bank applications be denied.
Beyond Webster’s troubling enabling of
predatory fringe finance, here is an analysis of the mortgage lending of Webster Bank in
the most recent year for which HMDA data is available: 2003.
In the Hartford Metropolitan Statistical
Area ("MSA") in 2003, for mortgage refinance loans, Webster denied African
Americans’ applications 4.21 times more frequently than whites, and also denied
Latinos’ applications 4.24 times more frequently than whites. Webster's higher-than-aggregate denial rate
disparities are not explained by any greater-than-normal outreach with normal-priced
credit to African Americans or Latinos. In
2003 in the Hartford MSA, Webster made 700
refinance loans to whites, only 83 to African Americans, and only 48 to Latinos. By contrast, the aggregate industry in the Hartford
MSA in 2003 made 2397 such loans to African
Americans, 1484 to Latinos, and 52,652 to whites. For
these three groups, the aggregate made 4.2% of its loans to African Americans, and 2.6% to
Latinos. For Webster, the figures were notably
lower: only 2.4% of Webster’s loans were to African Americans, and only 1.4% to
Latinos (while the aggregate made 4.2% and 2.6% respectively). The same disproportionate exclusion is evident in
Webster’s conventional home purchase lending in this MSA: using the methodology
above, 1.8% of Webster’s conventional home purchase loans were to African Americans
(lower than the aggregates’ 5.5%), and only 2.3% of Webster’s loans were to
Latinos (much lower than the aggregates’ 5.4%). Meanwhile, Webster denied the
conventional home purchase loan applications of African Americans 2.98 times more
frequently than those of whites.
Webster’s denial rate disparity to
African Americans is systematic. In the New
Haven MSA for refinance loans in 2003, Webster denied African Americans 2.95 times more
frequently than whites. Again, Webster's higher-than-aggregate denial rate disparities are
not explained by any greater-than-normal outreach with normal-priced credit to African
Americans or Latinos. In 2003 in the New Haven
MSA, Webster made 1274 refinance loans to
whites, only 25 to African Americans, and only 21 to Latinos. By contrast, the aggregate industry in the Hartford
MSA in 2003 made 1307 such loans to African Americans, 819 to Latinos, and 23,343 to
whites. For these three groups, the aggregate
made 5.1% of its loans to African Americans, and 3.2% to Latinos. For Webster, the figures were notably lower: only
1.9% of Webster’s loans were to African Americans, and only 1.6% to Latinos (while
the aggregate made 5.1% and 3.2% respectively). The
same disproportionate exclusion is evident in Webster’s conventional home purchase
lending in this MSA: using the methodology above, 4.7% of Webster’s conventional home
purchase loans were to African Americans (lower than the aggregates’ 8.4%), and only
1.8% of Webster’s loans were to Latinos (much lower than the aggregates’ 7.6%).
For refinance loans in the Bridgeport MSA in
2003, Webster denied Latinos 4.38 times more frequently than whites. In this Bridgeport
MSA, Webster denied the conventional home purchase loan applications of African Americans
4.71 times more frequently then whites, and denied those of Latinos 4.2 times more
frequently than whites’. Webster’s
disparities are systemic.
Hearings are also needed on the unique issues raised by State Bank’s line of
business that Webster seeks to acquire (the HSA Bank), and the disruptions caused by
Webster’s splitting of State Bank into HSA and retail divisions. As regards the Community Reinvestment Act, it is
imperative to note that Webster seeks to acquire, and grow, deposit-taking in all 50
states -- which should require CRA performance, and a CRA plan, on a nationwide basis. See, e.g.,
the Connecticut Post of September 8, 2004:
“Webster plans to sell the two
retail branches, which operate as State Bank of Howards Grove with the trade name HSA
Bank, and keep $100 million in health savings account deposits, said Nathaniel C. Brinn,
Webster's executive vice president, corporate development.
‘We've been looking at whether to get into the [HSA] market, and how to
do it,’ since the Medicare Prescription Drug, Improvement & Modernization Act of
2003 allowed them beginning Jan. 1, 2004, Brinn said. Through a health savings account,
individuals can set aside up to $2,600 a year - $5,150 for families - of before-tax,
tax-deferred income they can use for medical expenses. But, unlike other accounts, the
depositor doesn't lose the money if it's not used in a certain time. Instead, it earns
interest and can be tied to a brokerage account, said Brinn. ‘That account will be
kind of like a checking account, or money market account,’ he said. This is not Webster's first acquisition out of its
core banking market of Connecticut, New York and Massachusetts. For example, Webster
operates insurance and an equipment financing business.’Our motivation is
deposit-gathering on a national scale,’ said Brinn.”
Webster’s publicly-stated motivation is “deposit-gathering on a national
scale” -- which brings with it a concomitant Community Reinvestment Act duty, on
which ICP is requesting a hearing. Another
subject for the hearing is the effect on the convenience and needs of the communities to
be served of Webster’s planned splitting-off and ditching two service-providing
branches, in Howards Grove and Beaver Dam. See, e.g.,
the Sheboygan Press of September 9, 2004: “Elwood Riese of How-ards Grove, an account
holder at the bank, said he was surprised by the announcement. ‘I just wonder if
it'll still be a bank yet or not,’ said Riese, 73.” To buy a whole bank to
retain only a piece of it, while causes disruption to retail customers, requires the
hearing that ICP timely requests.
Scrutiny is needed of a proposed bank acquisition driven nearly entirely by
recently legislative and regulatory change: in this case, the Jan. 1, 2004, effective date
of the Medicare Prescription Drug, Improvement & Modernization Act of 2003 (see
above). As noted in the American Banker newspaper of September 8, 2004
“One obstacle to large-scale
adoption, however, has been concerns about regulatory compliance. The Treasury Department
has issued some guidance on compliance issues in recent months. Mr. Brinn acknowledged
that ‘there's a tremendous amount of compliance review that banks need to consider
when entering this market.’ [Webster CEO James C.] Smith also noted that the need for
extensive regulatory compliance will probably make most banks reluctant ‘to dabble in
this business,’ leaving a clear advantage to the banks, like his, that make a
commitment early.”
The proposal raised unique issues not only under the CRA (nationwide
deposit-gathering), but also issues of regulatory compliance, that need to be explored at
the hearing ICP is requesting.
There are other adverse issues at Webster,
including managerial issues, which should be explored at the hearing. Given the nexus between health savings accounts,
and medical savings accounts before them, and the employee-employer relationship, see, e.g., “Former Employee Files Suit against
Webster Bank,” Waterbury Republican-American, March 2, 2002:
A former teller with Webster Bank
has filed a lawsuit against the city-based bank alleging she and other employees were not
paid overtime or for hours they worked beyond their 37.5-hour work week. West Hartford
Attorney Gary Phelan, who filed the suit on behalf of Meriden resident Billie Jo Westfort,
said he will also file a motion to certify the suit as a class-action, as the number of
potential parties could include an estimated 500 tellers and customer service
representatives. The suit was filed United States District Court for the District of
Connecticut... Westfort worked from August 2000 to about February 2001 as a teller in
Webster's Meriden bank branch where tellers and customer service representatives were paid
on an hourly basis. As a teller, the suit claims, Westfort was a ‘nonexempt’
employee under federal labor and state laws, meaning she was entitled to overtime pay when
working more than 40 hours per week.
Because of understaffing at the
Meriden branch, the suit charges that Westfort and other tellers were regularly required
to work more than 40 hours a week during 2000 and 2001. Westfort worked 42 to 45 hours
each week, but was only paid for 37.5 hours per week, according to court papers, and
ultimately resigned because Webster refused to pay overtime or wages beyond 37.5 hours.
‘The branch manager of the Meriden branch office in 2000 was repeatedly told by the
defendant that she was not to pay either overtime to any employee or any wages for hours
spent beyond 37.5 hours per week,’ the suit states. ‘The same order was issued
... to other branch managers throughout Connecticut.’
The suit charges similar
understaffing existed in Webster branches throughout the state and other employees there
were also required to work excess hours, but were not paid for those hours. Webster
operates more than 100 branches across Connecticut and has recently embarked on an
aggressive expansion that calls for adding as many as 20 branches during the next three
years.
The “understaffing” issues raised in the above are also relevant to the
convenience-and-needs and CRA factors which the Federal Reserve must consider, including
at the hearing ICP is timely requesting. Webster
Bank has been involved in mortgage lending at rates described as “exorbitant,”
see, e.g., Hartford Courant of September 1,
2001:
Residents of the Spice Glen
development have reached an agreement with Webster Bank that ends more than two years of
uncertainty and allows them to remain in their homes. Under the terms of the deal,
homeowners will be given modified loans that provide relief from their exorbitant monthly
mortgage payments... Spice Glen, a complex of 43 single-family homes off South Quaker Lane
built in the mid-1990s, had been pitched as an opportunity for first-time, moderate-income
buyers to enter the housing market. But it soon became clear that many of the residents
were unable to keep up with spiraling adjustable-rate mortgages.”
This calls into question Webster’s due diligence, its CRA compliance and its safeguards against predatory lending. ICP is requesting a hearing on each of these issues.
More needs to be (and will be) said, but ICP will await copies of the FRB's
correspondence with and about Webster (or State Bank and its affiliates) and the banks'
responses. Specifically, based on prior FRS precedents, at a minimum the following
question(s) should be asked, and publicly answered:
"For any business relationship
(e.g. commercial lender, warehouse lender, purchaser, custodian, etc.) that Webster or
State Bank or any of their affiliates have with any subprime lenders (including providers
of non-traditional banking products, such as check cashers, title lenders, pawn shops, or
rent-to-own businesses): (i) identify the relevant business parties and (ii) describe the
nature of the business relationships... Additionally, to the extent not otherwise covered
in your responses to the comments of the Inner City Press Community on the Move & Fair
Finance Watch, describe any due diligence that Webster typically conducts concerning any
such subprime lender's compliance with applicable fair lending and consumer protection
laws prior to Webster entering into these business relationships, including... (c ) any
monitoring or other ongoing procedures Webster has adopted to access compliance with these
laws. Provide a copy of such procedures that are used to determine whether third party
originators are engaged in, or facilitating, abusive and/or predatory lending
practices."
The answers to these questions should be made public, as argued in the FOIA appeal and complaint filed by ICP in connection with Wachovia - SouthTrust (the FRB was served with the complaint on October 25, 2004; the FRB’s cursory initial answer was filed last week).
Respectfully submitted,
Matthew Lee, Esq., Executive Director
This will be updated; for or with more information, contact us.
November 22, 2004
Never say you
weren’t warned: over the weekend, news
broke of steering to high-cost subprime loans within the mortgage company Countrywide, and
its subprime doppelganger Full Spectrum. The
news centers around an email from late October, in which Full Spectrum regional vice
president Shane Pew urges his staff to push even prime customers into high cost loans, by
for example listing only one income when there are two wage earners, increasing the amount
of the loan and not listing any of a borrower's assets. "We will not make money if we
don't do Subprime PERIOD,” he wrote. "We have to think outside the box to make
this happen."
Outside the box? Or inside the prison
cell? Inner City Press / Fair Finance
Watch asserted just such steering within Countrywide, when the company applied to the
Federal Reserve to become a bank holding company (and to the OCC to acquire a national
bank). Neither agency took effective action.
But it’s not that they weren’t told...
Meanwhile, November 24 is the due-date for
the Federal Reserve’s answer to the Freedom of Information Act complaint Inner City
Press filed contesting the Fed’s withholding of basic information about
Wachovia’s and SouthTrust’s support of payday and car title lenders...
In further subprime news, according to the National Automotive Finance Association, the average lender repossessed 696 new and used vehicles a month in 2003, up from 624 vehicles in 2002... From the November 17 press release announcing that yet another payday lender, Cash Now, has gone public: “Payday loans is one of the fastest growing businesses in, not only the United States, but Canada, Australia, England, New Zealand, South Korea and more.” And that’s what we’ll be covering more and more, going forward...
Toronto Dominion and Banknorth have yet to respond to the comments ICP/Fair Finance Watch filed on November 15 (see last week’s Bank Beat report, and Associated Press and “Merger Snags,” Toronto Star, November 21, 2004). This Toronto Star article opines that ICP’s opposition “cannot be taken lightly,” and quotes TD CEO Ed Clark that "We do not have the management team at the Toronto Dominion Bank in Canada to run a bank in the United States. We were attracted to Banknorth because it had that management." First, Banknorth’s management is reflected in the disparate lending ICP has documented in the Home Mortgage Disclosure Act data analyzed in last week’s Report. And second, what does Clark’s statement say about the “managerial factors” that the Federal Reserve must review, in connection with the proposal?
November 15, 2004
Interesting responses, last week, from Fifth Third and Wells Fargo. Fifth Third, purporting to respond to ICP /
Fair Finance Watch’s comment, has admitted to funding payday lenders, pawnshops and
other fringe financiers -- while seeking to withhold its list. Fifth Third’s response states:
“Fifth Third is aware that some
banking organizations have voluntarily decided to discontinue relationships with check
cashers, payday lenders, pawn shops, title lenders and similar organizations. See, e.g., SunTrust Banks, Inc., 90 Fed. Res.
Bull. __ (Sept. 14, 2004). However, Fifth
Third does not believe that it should be required to take the extraordinary step of
refusing to provide credit to an entire class of borrowers engaged in a perfectly lawful
business that is extensively regulated in many states in order to obtain approval to
complete a bank acquisition transaction. More generally, it should be noted that the bank
regulatory agencies have stated that refusing to provide credit to check cashers, payday
lenders and other businesses that provide alternative forms of credit could be viewed as
harmful to consumers because these types of organizations provide services to numerous LMI
individuals who may lack an established relationship with a bank. See, Remarks of John D.
Hawke, Jr., before the American Bankers Association National Community and Economic
Development Conference, 2002 OCC QJ 37 (June 2002); see also OCC Advisory Letter 2000-10
(Nov. 27, 2000) (noting that payday loans help consumers meet unexpected short term cash
needs).”
So
-- Fifth Third claims that the OCC supports its lending to car title lender and payday
lenders... Fifth Third also seeks to withhold information about payday lenders it does
support; ICP is pursuing this, under the Freedom of Information Act, along the lines of
ICP’s pending Wachovia-related FOIA lawsuit.
Wells Fargo’s general counsel James Strother, with an opportunity to address
Wells Fargo’s documented relationship with payday lenders including Armed Forces
Loans, Inc., which directs its high-cost loans at active duty military personnel, has in a
November 11 letter provided only boiler plate. “Wells Fargo and its affiliates have,
on a transaction-by-transaction basis, acted as a lender or provider of credit facilities
to unaffiliated entities engaged in consumer finance businesses which may including acting
as a payday lender... Loan proceeds may or may not involve funding the actual lending
operations of such entities...”. Targeting
high-cost payday loans at soldiers? ICP has
replied, as well as filing the timely comments on TD-Banknorth summarized in this
week’s Bank Beat Report....
November 8, 2004
Surprise,
surprise: from Citigroup’s November 4 response to Inner City Press/Fair Finance
Watch’s submission to the Federal Reserve and Office of the Comptroller of the
Currency of Uniform Commercial Code filings by Citigroup and its proposed acquisition,
First American Bank:
“ICP attaches certain records of [UCC]
filings related to several Citigroup and FAB clients... As a practice, Citigroup and its
bank subsidiaries do no engage in the business of funding check cashing or payday lending
businesses. Citigroup’s account opening procedures and credit policies generally
prohibit the opening of new accounts for businesses identified as check cashing
operations. Citigroup does have a single active relationship with an armored car company
that also includes a checking account to an affiliate in the check cashing business. This
account predates the Citigroup procedures for check cashers, and Citigroup has been in the
process of winding down the relationship pursuant to a gradual exit strategy.
“In addition, on occasion check
cashing businesses have become customers in connection with Citigroup’s acquisition
of other financial institutions. In such cases, Citigroup undertakes a post-acquisition
review of these relationships and takes action to close or limit them, when appropriate.
Citigroup makes changes to conform with its business practices as expeditiously as
commercially reasonable, yet in a manner that does not unduly disrupt the operations of an
existing client... The UCC filings relating to Citigroup that were attached to ICP’s
comment letter are dated 2001 and 2002. Citigroup has no active accounts with, and no
outstanding loans to, any of the parties named in those UCC filings. Although some of
these inactive accounts may still appear on Citigroup’s account system and Citigroup
may not have revoked the UCC filings, Citigroup has not had a business relationship with
any of these companies for at least two years.
“With respect to the UCC filings
related to FAB that were attached to the comment letter, Citigroup has learned that they
relate to pawnshops, not check cashing or payday lending operations.”
Citigroup’s response is noticeably silent on when this “policy” was
adopted. Citigroup states that it “has
not had a business relationship with any of these companies for at least two years.” But, simply as one example, there is a February 20,
2003 UCC amendment, on “Debtors: MONTGOMERY CHECK CASHING CORP., Secured Parties:
CITIBANK, N. A., AMENDMENT, 2/20/2003, 5:00PM, 1675531, 1675531, NJUCC.” February 2003 is, obviously, within two years of
the date of Citigroup’s response.
Citigroup did not
respond to ICP’s presentation into the record of, for example, the relationships
between Citigroup and Dollar Financial; questions must be answered concerning the
application of these claimed policies to all of Citigroup’s subsidiaries, including
for example its investment bank(s) and CitiCapital,
which it has owned since acquiring Texas-based Associates First Capital Corporation. ICP has submitted to the agencies exhibits to these
effects, and also a second timely comment on Wells Fargo. ICP in its first comment put
into the record the commitment by another of Wells Fargo’s peers, SunTrust, to no
longer fund payday lending or car title lending companies.
Now, as to Wells Fargo and check cashing companies, ICP has submitted some
examples:
Arizona: ANYKIND CHECK CASHING CENTERS, INC.; 1 STOP CHECK CASHING $ PAYDAY & TITLE LOANS, LLC.
Florida: THE CHECK CASHING AND MONEY CENTER, INC.
Iowa: MIDWEST CHECK CASHING OF SIOUX CITY, L.C..
Minnesota: ACTION CHECK CASHING INC.
Nebraska: CASH CONNECTION CHECK CASHING, L.L.C..
New Jersey: DAK'S CHECK CASHING; NATIONAL CHECK CASHING INC..
New York: AVENUE CHECK
CASHING CORP ; A V W CHECK CASHING CORP / BAY STREET CHECKING; FORTUNE CHECK CASHING;
GRANITE CHECK CASHING SERVICE, INC.; HAR JOE CHECK CASHING CORP; HUNTS POINT CHECK
CASHING; JAMAICA LEFFERTS CHECK CASHING; PENN STARRETT CHECK CASHING; PENINSULA CHECK
CASHING; PRIMA CHECK CASHING; QUALITY CHECK CASHING; RIDGE CHECK CASHING CORP; RELIABLE
CHECK CASHING CORP; RELIABLE CHECK CASHING CORP; RICHMOND HILL II CHECK CASHING; SAMARA'S
CHECK CASHING CORP; SUBWAY CHECK CASHING; SUNRISE CHECK CASHING; TRIBORO CHECK CASHING;
WILMAR CHECK CASHING CORPORATION; WINK CHECK CASHING CORP...
We’ll see... Oh and ICP/Fair Finance Watch was just named an "anti-money laundering hero," for casting spotlight on Riggs-PNC, HSBC and Banco Santander...
November 1, 2004
The scourge of
payday and car title lending, and big banks’ funding and enabling of these predators,
continues to be our focus. On November 1, ICP
/ Fair Finance Watch filed opposition to Wells Fargo’s application to expand
in Texas, documenting Wells’ funding of fringe financiers throughout Texas (as
well as its targeting of people of color of higher-cost loans from Wells Fargo Financial). This followed ICP’s timely October 28 filing
on Fifth Third’s application to acquire First National Bankshares of Florida, for
$1.6 billion. See, “Consumer Group Challenges Fifth Third
Deal,” American Banker, October 29, 2004. The
Federal Reserve has finally started asking PNC questions about its proposal to acquire
[toxic] Riggs -- but PNC is trying to keep its answers confidential. ICP is preparing an appeal, under the Freedom of
Information Act. This follows ICP’s FOIA lawsuit against the Fed for withholding
Wachovia’s and SouthTrust’s list of payday and car title lenders funded. Enabling and coddling, these veils must be
pierced...
In other predatory news,
in Tennessee, HSBC’s Household has been charged with being a racketeering enterprise
under RICO. Some of the allegations, in a Federal suit assigned to U.S. District Court
Judge Robert Echols: 1) Household misrepresented interest rates by trying to disguise a
high-rate mortgage as a low-rate loan. The plaintiffs also allege that the company misled
consumers into thinking that they were reducing their principal amounts because of lower
interest rates, when in fact it was because of a requirement that they make extra
payments; 2) Household lent money on terms that would eventually require large balloon
payments, without disclosing the existence or amount of those balloon payments; and 3) the
company applied payments to customers' accounts in such a way that even if a scheduled
payment was not late, it would create a shortfall in interest, which resulted in excess
finance charges. Yep -- that sure sounds
like HSBC’s Household...
And GE’s subprime in Australia -- GE Money president and chief executive Tom
Gentile told The Australian Financial Review last week that GE’s primed to
make more acquisitions Down Under. "We think Australia is a great market and we have
an active business development function," he said.
The interview followed GE's purchase of AFIG, including the Wizard Home Loan
business, which has 230 branches in Australia, and makes GE Australia's sixth-largest
mortgage player. ANZ Banking Group chief executive John McFarlane said GE was already a
strong competitor in the finance area. McFarlane said ANZ would not compete with GE in the
"sub-prime" lending market because it raised too many reputational issues. Not to GE, it doesn’t -- they just batten down
the hatches, keep everything confidential, and keep growing and growing in subprime,
including globally...
October 25, 2004
Earlier this month, Federal Reserve Governor Bies denied Inner City Press' Freedom of Information Act appeal for a list of the payday lenders and pawnshops funded by merger partners Wachovia and SouthTrust. On October 21, Inner City Press filed a FOIA lawsuit in the U.S. District Court for the Southern District of New York, challenging the Fed's systematic withholding of predatory lending-related information. The case has been filed; we will update its progress on this site.
Meanwhile, in its second timely filing opposing Citigroup's proposal to buy First American Bank in Texas, ICP has documented the two's funding of pawnshops and check cashiers, including College Station Pawn & Cash Station Jewelry and Loan, Q-Pawn, Inc., Decker Prairie Pawn, Inc., Zerega Check Cashing Corp., Montgomery Check Cashing Corp. of 403 East Third Street, Mount Vernon, NY; Castle Check Cashing Corp., continued in 2002; City Check Cashing of Jersey City, NJ; and Rite Check Cashing Inc. and G&R Check Cashing Corp. of New York. And what, after delay, will Citigroup say?
In other payday lending news from the field: Dallas-based lender FastBucks announced last week it plans to open its first Nashville office on November 1, at 5760 Old Hickory Blvd. in the Seven Points shopping center. Based on its projections, FastBucks believes 15 stores will be needed to service the Midstate fully, spokesman Mark Mahoney told the Tennessean...
From the anti-payday lending fight in Australia: in Queensland in 2001 the State Government moved to force payday lenders to detail all fees and charges in writing to stop them exploiting a loophole in the Consumer Credit Code which exempted loans of less than 62 days. However, it stopped short of following Victoria, NSW and the ACT which capped interest rates for so-called payday loans at 48 per cent -- despite warnings from one of its own advisory committees of the risk of people being caught in a debt trap. And so, this recent case: a woman borrowed $500 at an annual interest rate of 240 per cent. She agreed to repay $35 a week, of which $25 covered interest charges. However the woman kept incurring a $30 default fee because the payment date fell before the date of her pension payment. She had to borrow more money to stay afloat. The debt increased to $1300, despite the fact she had repaid $1600. (Source: Legal Aid of Queensland). Keep those stories coming...
Fast and loose at the "Paper of Record" -- the New York Times' October 20 article "U.S. Set to Alter Rules for Banks Lending to Poor" reported among its many inaccuracies that the CRA "gained strength in 1995, when the Clinton administration adopted a series of tougher guidelines that banned noncompliant banks from participating in any mergers, acquisitions or expansion projects." That simply false. Since 1977, the regulatory agencies have been required to consider an applicant bank's CRA record when it applies to merge or expand. A negative CRA finding, however, did not preclude approval until the 1999 Gramm-Leach-Bliley Act. The Times' 1995 reference must be to the CRA regulation promulgated that year, which did not change the law's effect on merger or expansion applications. Plus, quoting bankers as the defenders of the CRA was pretty lame. Paper of record? We think not. But as we heard at an October 22 anti-police brutality march, "Don't complain about the media -- become your own media." Including where necessary and possible through Freedom of Information Act litigation!
October 18, 2004
Predatory
lending is going global, and methodically so. Last
week HSBC’s Stephen Green outlined the game plan. HSBC’s (Household’s)
subprime focus will shift to Asia once it expands its business in Mexico and Brazil. The Asian hit-list includes India, Malaysia,
Singapore and Thailand. Green said HSBC is focusing on consumer finance because it is more
profitable than some other areas of retail banking and added that HSBC is targeting Mexico
and Brazil before Asia because it already has substantial operations there. "Some
parts of the prime market are now highly commoditized in the U.S. and other countries, but
once you move out of the highly commoditized products (and into consumer finance), you see
a greater return," Green told DJNS on October 13. He estimated that five percent of
the subprime market is predatory -- something we assume that U.S. legislators, if not
regulators, will want to question him about.
While
most CRA focus is on the FDIC, on October 15 the Federal Reserve approved
Wachovia-SouthTrust, nose-counting the number of pro-bank commenters, and stating:
Several commenters also expressed concern
that Wachovia and SouthTrust finance unaffiliated lenders who provide alternative products
such as payday loans. Wachovia reviews loans to payday lenders, check cashing companies,
and pawnshops; and it imposes increased documentation requirements, monitoring, and annual
reviews of these loans to account for the potential increased risks, including legal and
reputational risks, associated with these loans. Wachovia plays no role in the lending
practices or credit review processes of these lenders. [ICP] disagreed with a statement in
the application that SouthTrust has a policy not to lend to payday lenders, pawnshops, and
other ‘money service businesses’ (‘MSBs’). Wachovia acknowledged that
SouthTrust has made several exceptions to this policy and, as a result, has ten loans
outstanding to pawnshops or related entities worth $755,056, representing a de minimis
portion of SouthTrust’s total loan portfolio.
Question:
so “de minimus” lying is okay with the Fed?
And those who gave in to Wachovia’s request for canned letters of
support: do they also favor payday and predatory lending?
Just asking. On the fringe financial front, Cash America International Inc.,
the Fort Worth-based pawnshop operator and payday lender, announced with fanfare on
October 12 that it will change its NY Stock Exchange ticker
symbol from PWN to CSH on Nov. 1. The company said the new symbol “better identifies
the Cash America name and reflects changes in its business strategy from solely pawnshop
operations to a multifaceted specialty finance business.” More ways
to screw you -- time for a new stock symbol...
It
must also be noted that the FDIC is out of control. Last week’s Connecticut Post
quoted David Barr, a spokesman for the FDIC, that he “could not say when a final
decision will be rendered, but anyone wishing to comment on the proposal must do so by
Wednesday. The FDIC is considering raising the asset test level to $500 million or $1
billion... The act doesn't have much power, he added, because the only action the FDIC can
take against a bank that is not investing in low-income areas is to give it a bad rating
of either ‘out of compliance’ or ‘unsatisfactory.’ According to the
FDIC, no bank in Connecticut has received either of these ratings during the last few
years.”
So
let’s get this straight: the FDIC brags that CRA “doesn’t have much
power” -- because the FDIC and the other three agencies have inflated the grades to
entirely blunt their intended effects, both on mergers and as reiterated in the
Gramm-Leach-Bliley Act.
This
same FDIC-er David Barr was quoted prejudging the comments and the outcome, in the
Pittsburgh Tribune Review of October 14: "’People will say we're going back to
the stone age, and banks will stop making loans in low- to moderate-income neighborhoods.
But that's not true,’ said agency spokesman David Barr on Wednesday. ‘These
changes would enable banks to decide what meets the needs of their communities, instead of
some bureaucrat 2,000 miles away in Washington.’"
Does
Barr mean that only banks in the Mountain and Pacific Times Zones -- two thousand miles
from Washington -- would be subject to the FDIC’s rule? More seriously, when the
supposed bank regulators start portraying the regulatory process of bank examination as
mere bureaucracy, what’s the next step: enabling banks to decide for themselves what
sort of money laundering to stop, rather than submitting to some “bureaucrat 2,000
miles away”?
Speaking
of money laundering
October
11, 2004
The
domination of the Office of the Comptroller of the Currency by large banks and the
assessment fees they pay is made clear by documents Inner City Press obtained last week in
response to a FOIA request made over five months ago.
The documents concern the application by HSBC to convert from a New York State
charter to a national bank, to be regulated by (and to pay assessment fees to) the OCC. HSBC began demanding free copies of certified
approval documents even before the OCC ruled on the applications (or fully considered a
CRA and predatory lending challenge ICP had timely filed).
On
May 14, 2004, HSBC Household’s Martha Pampel wrote imperiously to OCC staff in New
York: “I confirmed with our corporate secretary -- Upon OCC decision, which should be
prior to July 1, we need get certified copies of decision document. I’ll have the
estimated number of copies on Monday.”
On May 18, OCC staff in New York wrote to the
agency’s Communications Division in Washington: “It’s important that we
meet the Bank’s timeframe on this. L[icensing] M[anager] DesSantos concurs with my
recommendation to waive the fees. We anticipate approval of the mergers in the last week
of June with consummation on July 1st.”
To his credit, the head of the OCC’s
Communications Division bristled at this: “I think this could be setting a dangerous
precedent that might make other banks expect similar services or else they could suggest
that we are playing favorites to big banks who are represented by former OCC
employees.”
As
this question of waiving fees for HSBC moved up the chain, OCC New York staff explained on
May 19: “We waived the fee for the field investigation. The costs of conducting the
field investigation are probably higher than the cost of these certificates... I am trying
to accommodate HSBC because timing can be an issue.”
To this, the OCC’s Licensing Manager
replied: “Yes, we did waive the filing fees and when you consider the fact that HSBC
will probably pay around $9 million in assessments on an annual basis, I think waiving of
fees is appropriate.”
So much for the concern about the
OCC being perceived to favor large bank. The
intra-agency comments make clear the lengths to which the OCC will go to
“accommodate” large banks, to convince them to convert from state charters to
the national bank charter. We’ll expect
the Conference of State Bank Supervisors (and its members, including the New York Banking
Department) to chime in, and for those in Congress looking into the OCC’s preemption
orders and charter sales to take a particular interest in this. Developing...
In other OCC revolving door news, Ralph E. Sharpe has jumped ship to head the risk management and compliance team at Venable LLP's financial services group. So presumably he’ll be representing national banks before his old employer...
Fed chairman Greenspan, in
meeting on October 1 with select members of the Financial Roundtable, was face-to-face not
only with bankers, but also predatory lenders. A representative of HSBC’s Household
International, Siddharth “Call Me Bobby” Mehta, as well as longtime CitiFinancial executive Bob Willumstad.
ICP’s timely comments to the Fed on Citigroup’s pending application to
buy First American Bank include Mr. Willumstad’s response to ICP’s questions
about CitiFinancial’s standards overseas. ICP has asked the Fed to nail this question
down. If this wasn’t done, ex parte, on
October 1, it’s time for the Fed to ask the question(s) in writing...
Further note to
the Fed, on HSBC: on
October 8, HSBC claimed that it is beginning an internal investigation after a
CIA report claimed Saddam Hussein had passed money through the bank's branch in Jordan to
avoid United Nations trade sanctions. HSBC said that “the allegations, in this week's
CIA report into the Ba'athist regime, had been a surprise. It said it was undertaking a
hasty review of its Middle Eastern operations. The CIA report claimed that during Saddam's
reign Iraqi agents used an HSBC account in Amman as a home for money which funded their
operations. In a statement, the bank said: ‘Throughout the period of the Iraqi
sanctions we were acutely conscious of allegations that they were being breached and,
consequently, of the need for great vigilance.’” But that just makes the
violation worse, and more telling....
Could it be that the Fed has
(another) conflict of interest, on pending applications by BNP, embroiled in the Iraqi
Oil-for-Food scandal? Last week a House
subcommittee issued subpoenas to the Federal Reserve Bank of New York in the same scandal.
The New York Fed manages the Development Fund for Iraq, an account in which
Iraqi oil money and other funds earmarked for Iraq's reconstruction are held. The New York
Fed held the account into which Iraq's oil revenues were transferred after Saddam's regime
fell. The subcommittee hopes to use the FRBNY's account records as a window into the CPA's
largely opaque management practices. At the underlying House hearing, BNP’s
representative, in a crisp British accent, claimed that BNP “has had no discretion
over how money has been spent or invested under the (oil-for-food) program." It might be time for the Fed to suspend
processing of not only PNC-Riggs, but also BNP Paribas’ applications...
And now it can be told: payday lender County Bank,
whose application to become a bank holding company was protested (much) earlier this year
by ICP, declared in a terse September 30 letter: “CB Financial Corp hereby withdraws
its application for Federal Reserve Board approval to become a bank holding company, filed
on February 25, 2004.” An interesting
light is cast on the Delaware Bank Commissioner’s craven approval
October 4, 2004
It had to be done, and now we’ve done it: on October 4, Inner City
Press / Fair Finance Watch filed two 21-page comments
In analyzing
Citigroup’s 2003 Home Mortgage Disclosure Act data, even ICP was surprised:
Citi’s prime rate lenders have grown notably more disparate, from 2002 to 2003. This despite the various partnerships Citigroup has
announced. The Emperor, it must be said, and
said again, has no clothes. ICP's comments analyze Citigroup's mortgage lending in
2003, including in Texas; this analysis is followed, below as well, by descriptions of
Citigroup's practices, including from testimony provided to ICP by whistleblowers inside
CitiFinancial, evidence and questions about CitiFinancial’s high-rates overseas, and
Citigroup’s investment bank’s support of predatory lenders, including Dollar
Financial Group, a payday lender subject to class action suits. Citigroup’s record in Texas, where it now seeks to expand by
buying 100 branches, is particularly egregious. Its main prime lender there, CitiMortgage,
in 2003 in the Houston MSA denied the
conventional home purchase loan applications of Latinos SIX TIMES more frequently than
applications from whites. Citibank denied
African Americans 3.22 times more frequently than whites.
This is worse than other lenders in this MSA: the denial rate disparities
for the industry as a whole in 2003 were 2.17 for African Americans, 1.70 for Latinos
(CitiMortgage’s disparity is over 3.5 times higher).
Citigroup's higher-than-aggregate denial rate disparities are not explained by any
greater-than-normal outreach with normal-priced credit to African Americans or Latinos. In 2003 in this Houston MSA, CitiMortgage made 360
conventional home purchase loans to whites, only 48 to African Americans, and only 41 to
Latinos. By contrast, the aggregate industry
in the Houston MSA in 2003 made 7441 such loans to African Americans, 15,317 to Latinos,
and 40,885 to whites. For these three groups,
the aggregate made 11.7% of its loans to African Americans, and 24.1% to Latinos. For CitiMortgage, the figures were notably lower,
particularly for Latinos: 10.7% of loans to African Americans, and only 9.1% to Latinos
(versus the aggregate’s 24%).
In the Dallas MSA in 2003, CitiMortgage denied
the conventional home purchase loan applications of Latinos OVER NINE TIMES more
frequently than applications from whites. Citibank
denied African Americans 2.59 times more frequently than whites. This is worse than other lenders in this MSA: the
denial rate disparities for the industry as a whole in 2003 were 2.31 for African
Americans, and 1.95 for Latinos (CitiMortgage’s denial rate disparity is over 4.6
times higher). Again, Citigroup's higher-than-aggregate denial rate disparities are not
explained by any greater-than-normal outreach with normal-priced credit to African
Americans or Latinos. In 2003 in this Dallas
MSA, CitiMortgage made 261 conventional home purchase loans to whites, only 13 to African
Americans, and only 19 to Latinos. By
contrast, the aggregate industry in the Dallas MSA in 2003 made 4532 such loans to African
Americans, 6790 to Latinos, and 44,015 to whites. For
these three groups, the aggregate made 8.2% of its loans to African Americans, and 12.3%
to Latinos. For CitiMortgage, the figures were
notably lower: 4.4% of loans to African Americans, and only 6.5% to Latinos. ICP’s comments note that Citigroup is already
mis-serving Texas consumers, with over 90 high-rate CitiFinancial offices, and the
headquarters of the controversial subprime lending operation that Citigroup bought along
with Associates First Capital Corporation.
ICP’s nationwide analysis of 2003 Home Mortgage Disclosure Act (HDMA)
cumulates CitiMortgage and Citigroup's lead bank in the analyzed market, and calls the two
together "Citibank.” In 2003 in the New York City Metropolitan Statistical Area
(MSA), for conventional home purchase loans, Citibank denied loan applications from
African Americans 5.79 times more frequently than applications from whites. Citibank denied Latinos 4.54 times more frequently
than whites. These disparities are much worse
than other lenders in this MSA in 2003, and even worse than Citigroup was in 2002
(disparity of 4.67 for African Americans, and 3.17 for Latinos). The aggregate in 2003 in this MSA had denial rate
disparities of 1.78 for African Americans, and 1.53 for Latinos. Citigroup is both much worse than other lenders,
and is getting worse, year-to-year.
Citibank's higher-than-aggregate denial rate disparities are not explained by any greater-than-normal outreach with normal-priced credit to African Americans or Latinos. In 2003 in this MSA, Citibank made 3873 conventional home purchase loans to whites (more than in 2002), only 432 to African Americans, and 450 to Latinos (fewer than in 2002). By contrast, the aggregate industry in this MSA in 2003 made 7791 such loans to African Americans, 7516 to Latinos, and 37,998 to whites. For these three groups, the aggregate made 14.6% of its loans to African Americans, and 14.1% to Latinos. For Citibank, the figures were much lower: 9.1% of loans to African Americans, and 9.5% to Latinos (again, even lower than Citibank’s already disparate percentage in 2002).
For refinance loans in the NYC MSA in 2003,
Citibank denied applications from African Americans 4.07 times more frequently than
applications from whites. Citibank denied
Latinos four times more frequently than whites (worse than its 2.73 disparity in 2002). This is much worse than other lenders in this MSA
in 2003: the comparable denial rate disparities for the industry as a whole in 2003 were
1.78 for African Americans, and 1.69 for Latinos.
In 2003 in the Long Island MSA for conventional home
purchase loans, Citibank (Citibank, N.A. and CitiMortgage together) denied loan
applications from African Americans 3.12 times more frequently than applications from
whites. Citibank denied Latinos 3.15 times
more frequently than whites. This is much
worse than other lenders in this MSA: the denial rate disparities for the industry as a
whole in 2003 were 1.89 for African Americans, and 1.47 for Latinos.
In 2003 in the Chicago MSA for conventional home
purchase loans, Citibank (Citibank FSB and CitiMortgage together) denied loan applications
from African Americans 7.5 times more frequently than applications from whites. Citibank denied Latinos 6.04 times more frequently
than whites. These disparities are much worse than other lenders in this MSA in 2003, and
even worse than Citigroup was in 2002 (disparity of 4.23 for African Americans, and 3.74
for Latinos). The industry-as-a-whole in 2003
in this MSA had denial rate disparities of 3.08 for African Americans, and 2.36 for
Latinos. Citigroup is both much worse than
other lenders, and is getting worse, year-to-year.
In 2003 in the Los Angeles MSA for conventional home
purchase loans, Citibank (Citibank FSB and CitiMortgage together) denied loan applications
from African Americans 2.78 times more frequently than applications from whites. Citibank denied Latinos 3.74 times more frequently
than whites. This is much worse than other
lenders in this MSA: the denial rate disparities for the industry as a whole in 2003 were
1.84 for African Americans, and 1.65 for Latinos.
In 2003 in the Washington DC MSA for conventional home
purchase loans, Citibank (Citibank FSB and CitiMortgage together) denied loan applications
from African Americans 5.44 times more frequently than applications from whites. Citibank denied Latinos 5.63 times more frequently
than whites (up from a 3.03 denial rate disparity in 2002).
This is much worse than other lenders in this MSA in 2003: the denial rate
disparities for the industry as a whole were 2.84 for African Americans, and 2.35 for
Latinos. For refinance loans in this MSA in 2002, Citibank denied applications from
African Americans 5.22 times more frequently than applications from whites (up from a 4.38
disparity in 2002).
In 2003 in the Newark MSA for conventional home purchase
loans, Citibank (Citibank FSB and CitiMortgage together) denied loan applications from
African Americans SIX times more frequently than applications from whites. Citibank denied Latinos a whopping ELEVEN times
more frequently than whites. This is much,
much worse than other lenders in this MSA: the denial rate disparities for the industry as
a whole in 2003 were 2.53 for African Americans, and 2.03 for Latinos. Citibank's
higher-than-aggregate denial rate disparities are certainly not explained by any
greater-than-normal outreach with normal-priced credit to African Americans or Latinos. For these three groups, the aggregate made 11.7% of
its loans to African Americans, and 12.8% to Latinos.
For Citibank, the figures were 7.9% of loans to African Americans, and only
5.7% to Latinos. Citibank is a redliner; as
also documented in ICP’s comment, CitiFinancial is a predatory lender.
Meanwhile, continuing to hide even the list of payday lenders and pawnshops
it funds. Wachovia quietly disclosed in
a September 27 SEC filing that it would close 175 to 200 branches within 15 months of
consummating its SouthTrust proposal. Previously it had said -- including to the Federal
Reserve and to the public, during the comment period - that
it would close 130 to 150 branches... ICP has also filed comments on HSBC,
click here to view.
September 27, 2004
ICP/Fair Finance Watch just filed comments based on the Senate Riggs Bank
report’s findings regarding HSBC and Santander, click here for article in the Glasgow
Herald, reporting that “A US-based human rights group has written to Britain's
financial regulator urging it to halt Santander's £8bn acquisition of Abbey National
until it fully investigates its part in the alleged "violation" of US money
laundering laws.Inner City Press and its Fair Finance Watch, based in New York, has drawn
the Financial Services Authority's attention to the US Senate's recent report on Riggs
Bank's alleged money laundering for former Chilean dictator Augusto Pinochet, and the
dictator of Equatorial Guinea;” click here
Sometimes the spin of
the revolving door is revealing. Last week J.P. Morgan Chase, beyond Dina
Dublon’s departure, hired Republican ex-Congressman Rick Lazio as its über-lobbyist,
stating that Lazio’s experience in government would help the company develop
"constructive dialogue with Congress and the executive branch.” Translation? J.P.
Morgan Chase is betting on Bush. Why else does a bank hand its whole lobbying shop over to
a Republican politician, just five weeks before the presidential election?
We’d be
remiss not to note the publication of a much-needed, straight-forward book on predatory
lending, Rich Lord’s “American Nightmare.”
In nine chapters and an appendix of questions that consumers should ask
lenders, Lord surveys the field, from Pittsburgh to Wall Street, from brokers to services
to lobbyists and beyond. Along the way he notes the work of non-profits in the trenches.
From the Pittsburgh Community Reinvestment Group to Self-Help, from ACORN to Sunflower
Community Action of Wichita, Lord profiles organizations and their campaigns. (A cynic
might note that this is not a bad beginning of a marketing strategy, either.) One critique -- because there must be at least one,
right? -- is that punches get pulled. Lord shows, for example, that the two settlements of
HSBC’s Household have not even slowed the company’s foreclosure rate. Still the second settler, which last week praised
“Mike
and Ellen Papuga had tried for years to make a baby, but it just wasn’t happening...
Then, in 1997, the apartment they were living in caught fire, and many of their belongings
went up in smoke... The fire led to some financial and credit problems... So they went to
CitiFinancial... The transaction reflected one of Sandy Weill’s mantras:
cross-selling... In 2003, a miracle occurred: As her 40th birthday approached,
Ellen became pregnant... They wondered why nobody at CitiFinancial had through to remind
them of the [insurance] policy... Even though Triton is a Citigroup subsidiary, the
collection staff claimed they had no information about the insurance policy.”
And so it goes... Two points of full disclosure:
ICP is covered in the book, including the questioning of Citigroup’s Robert Rubin,
pages 106-7, and ongoing campaign against Citi’s and HSBC’s export of predatory
lending, pages 59-62. Also, Lord reviewed
September 20, 2004
At press
time we address in advance Citigroup’s expected announcement on Monday September 20
of unsurprising praise by (or purchasing of, as some wags put it) a nationwide
organization, which has already delivered such praise to HSBC's Household (in a process
that began in conjunction with HSBC's purchase of both Household and its critics -- click here
Meanwhile,
Inner City Press’ continuing review of the long-withheld documents released last week
en masse by the Office of the Washington State Attorney General (after a series of court
orders requiring the release) has revealed a telling timeline as Household moved toward
the settlement that allowed its deal with HSBC. On
June 12, 2002, Kathy Mix of the AG’s Office wrote to staffer Paul Silver that
Household had hired former state governor Booth Gardner “to assist them in the
resolution of their problems... He met with Chris yesterday... Obviously, Chris has close
ties to Governor Gardner, and we should view this as a positive development that will
assist in resolution of the problems.”
That’s one view. Booth Gardner
substantially boosted Christine Gregoire’s career, to the point where now Ms.
Gregoire is the Democratic Party’s nominee for governor. For a company accused of predatory lending to hire
the AG’s mentor and sponsor is a neat trick; if it’s a “positive
development,” that’s mostly for the company itself. Concretely, it bought Household the benefit of the
doubt, less than two weeks later. AG Gregoire
held another meeting with Booth Gardner on June 20, 2002.
The following day, ex-Household employee Robert Segletes complained to the
AG’s Office that
“A
Household Executive and one of their lawyers called me today... [He] called my acts
criminal and said, ‘Household could or could not be held liable and you could or
could not be held liable for those actions.’... I found this very intimidating... I
need an immediate answer as to my right and the intentions of the Attorney General.”
The preamble above this e-mail, as it got circulated thought the AG’s Office,
noted that “I don’t suppose it is a coincidence that this occurred the day
following COG’s meeting with Booth Gardner.”
In fact it was forward directly to AG Christine Gregoire (to COG, that is), via her
assistant Linda Fredericks. Soon, however,
other AGO staffers began to excuse the conduct of Household and its lawyer as a
misunderstanding. One staffer who didn’t,
Paul Silver, would not long thereafter resign in the face of sexual harassment charges.
See, e.g., Seattle Times of April 23, 2003, “Boss under fire quits but is rehired;
Lawyer gets new state job despite report on complaints by women,” which recounts that
“The
man who ran the state attorney general's consumer-protection division resigned from the
department after being shown an investigative report detailing unsolicited hugs and kisses
he gave women employees. But after leaving that position March 21, he was hired for a
nonsupervisory assignment as assistant attorney general for the state investment board,
which he started this week. Attorney General Christine Gregoire had been prepared to
demand Paul Silver's resignation in late February if he had not offered it, said agency
spokesman Fred Olson. ‘In light of the seriousness of the findings, I had no choice
but to accept his resignation,’ Gregoire said last week.”
Being quoted as being harsh on sexual harassment allegations is certainly wise, in
the run-up to gubernatorial elections. But no
action was ever taken by AG Gregoire’s office about Household’s intimidation of
witnesses, ex-employees and otherwise. That
one staffer apparently pressing for action to be taken was discredited by sexual
harassment charges in indicative, at least, of a predatory lender benefiting for the
AGO’s mismanagement. Soon the deal would
be cut. Household would be sold for $14 billion to HSBC, and its practices exported all
over the world. AG Gregoire would claim, on
her Office’ website, that the settlement was limited by how much Household could pay,
based on what an unnamed analyst had told her. But
after refusing to provide documents for twenty months, those provided now reflect no
analyst to this effect, other than a Household official (or perhaps Booth Gardner). Rather than providing answers, the documents raise
more and more questions, that should be resolved soon.
Developing...
Also, while the FDIC has extended to October 20 the comment period on its proposal to follow the Office of Thrift Supervision in exempting institutions with up to $1 billion in assets from normal CRA exams, ICP submitted its comments opposing the FDIC's plan, naming numerous banks which would benefit from the exemption which have weak (and worse) records. The FDIC's proposal is here; its press release solicitating comments is here.
Predator in melt-down: last week we received the September 9 response by payday lender County Bank to the Federal Reserve’s questions of... July 2, 2004. When it takes you more than two months to answer simple questions, maybe you’re not ready to be a bank holding company, on that ground alone...
September 15-16, 2004
Documents ordered to be released by Washington State judges, in response to Inner City Press' freedom of information request, reveal the limitations and flaws of the settlement agreement in principle HSBC's Household reached with the states just before selling itself to HSBC for $14 billion. The documents, still being reviewed, reveal a number of other not-acted-on Household practices: for example, "Household's contacting former employees who we are interviewing as witnesses... The witness reported to us that he was intimidated" (HFC-00758).
Also, an e-mail recounting that "we have conducted a random verification of 300 consumers and 1000 responded saying they never received anything from Household... I'm guessing that this is similar to the situation Herscel ran into in the 11th hour of negotiations when he learned from the banking people that HH had not made good on their restitution promises from months before" (HFC-08608). There's a memorandum, marked (as aspiration, apparently) "Confidential Work Product," in which Phil Lehman of the North Carolina Attorney General's Office states that while "HH represents that the relief would amount to approximately $1600... the state-specific loan numbers provided to NC.. would yield about $300 per NC borrower." HFC-01308.
One of the more comical exchanges follows a meeting in Chicago. Iowa's consumer protection guru (who's since left that Office) opines that "Beneficial was worse than Household with respect to mortgage lending practices... My assumption was that a) it was either Aldinger and the general shareholder capitalism syndrome that got them down this 'anything goes' road and/or b) HH decided to go with the Beneficial worldview when the two companies merged." Huey adds that Household's head of compliance, James Kauffman, "was invisible (except for the shiny cuff links on his French cuffs)." HFC-08748. A consumer advocate might wish that such pointedness was applied to Household's non-mortgage lending practices, the subject of most of the complaints received by the WA AGO...
More substantively, after the agreement in principle, and after HSBC's deal announcement, a November 26, 2002 e-mail recounts that Household "did not agree to the 'present and future' subsidiaries language that the Multistate requested to assure that Household does not set up a new subsidiary to bypass the injunctive provisions." HFC-03018. A week later it's recounted that Tennessee officials "have an issue with the release of borrower claims. Seems they believe they do not have the authority to negotiate a release for a citizen of the state." HFC-03116. Ya don't say. Interesting, at the same time that Huey and others in the multi-state were telling ICP that the Agreement in Principle could not be changed, a November 19, 2002 e-mail from the Iowa AGO's Bill Brauch opined that "An AIP is just that, and it recognizes that details need to be filled in." There's competitive jockeying among the AGOs -- Paul Silver writes that he's "please to report that all parties, except the NY AGO, agree that the answer to the question regarding the number of angels that can dance on the head of a pin is: an infinite number. NY AGO maintains that the number is both finite and calculable. They are insisting that Household's obligation to do these calculations for us is implicit in the Agreement in Principle." HFC-05336. [Note: an informed source told ICP, at the time, that an 11th hour scandal emerged, in the NY AGO, regarding a number of loans that Household had not disclosed, beyond those alluded to above.] In other jockeying, when the MN AGO proposes getting more specific about those eligible for compensation, the response is that the MN AGO only got involved in the process late (August 2002), and therefore shouldn't break ranks.
The TX AGO wrote that "We are still awaiting the results of our Consumer Credit Commissioner's talks with Household about the 'non-covered regulatory issues'" - presumably including Household's high-cost non-mortgage loans. We're still awaiting any results...
Further examples, from among the thousands of pages delivered to ICP on September 15, include an e-mail from Washington's Department of Financial Institutions, recounting that someone
"asked why not all of the Household companies were included in the consent decree. Thinking he was speaking of Decision One, I asked him what company we had missed. He said, Beneficial Mortgage Corporation... I don't remember that name ever coming up in our negotiations. Do you think it's possible that we have a whole segment of loans that Household forgot about that would increase our borrower database? I wonder if we are getting numbers inclusive of those." (Doc. HFC-03173).
Earlier in this process, Inner City Press asked the Washington Attorney General's Office, in writing, other potentially-eligible Household customers which had been discovered." The WA AG's response, also in writing:
"You suggest I ask A[ssistant] A[ttorney] G[eneral David] Huey if he is aware of any responsive documents. He says that he is not aware of any documents responsive to that request."
Well, now that the courts have ordered documents disclosed, there turn out to be documents on this very issue. Other documents show the sloppiness of the "Multi-State Group," including inadvertently cc-ing strategy e-mails to Household's in-house counsel Kay Curtain (HFC-08674 and HFC-08693, in which a New York State official improperly cc's Household. This same New York officials told Inner City Press that the settlement only covered mortgage loans made through HFC and Beneficial Finance branch offices, because that was what the consumer complaints were about. But among the just-released documents is an e-mail from WA AGO's David Huey to Household Kay Curtain, stating that
"A review of our history with HFC indicates that the majority of the complaints we receive deal with products that are not the subject of our discussions, such as credit card issues or unsecured lending." HFC-00746.
If the majority of complaints concerned unsecured (that is, non-mortgage) loans and Household subprime credit cards, why were none of those issues addressed in the settlement? To stay Washington specific, the Q&A that AG Christine O. Gregoire (who's referred to in the intra-agency e-mails as "COG") put online stated
Question: "Why didn't you seek enough money from Household to fully compensate all harmed consumers?"
AG's Answer: "Our main concern was to provide as much compensation to consumers as possible. Analysts told us that the amount of money Household will be forced to pay still leaves the company financially stable so that they could actually comply with the settlement rather than become insolvent. If we had demanded too much, the company's financial stability could have been put at risk, which could have resulted in no consumer restitution whatsoever." (Emphasis added). <www.wa.gov/ago/householdfinance/faq.htm>
Early in the process, ICP specified in writing: "We are requesting all records reflecting the above-quoted, that '[a]nalysts told [your Office] that the amount of money Household will be forced to pay still leaves the company financially stable,' etc.".
From the documents reviewed so far, this statement appears to have been false. Or, the "analyst" on whom AG Gregoire and the Multi-State relied was a Household employee. There was a September 2002 letter to the Multi-State Working Group from Household's general counsel, stating that
"Numbers above the ones we offered could have a significant negative impact on our company. I cannot emphasize enough that our offer is consistent with the company's need to be able to continue to raise funds in the capital markets... We are Household are very concerned about announcements which could precipitate unintended consequences." HFC-02370
In this letter, Household's general counsel also used the FTC's capitulation to Citigroup as precedent:
"Particularly in light of the press reports the day after we recessed that the Federal Trade Commission is apparently going to settle its national dispute with Citigroup's Associates / CitiFinanicial unit for $200 million (with no mention of the near two score of substantive lending practices changes we have proposed), our offer which will cost us at least $370 million is substantial -- and fair. Therefore, despite the much lower Citigroup settlement for a much larger organization, we stand by our offer."
We'd be remiss in this mid-week interim update not to mention the rumblings that Citigroup intends to announce, on Monday September 20, its praise by (or purchasing of, as some wags put it) a nationwide organization, which has already delivered such praise to Household (in a proc