Inner City Press' Federal Reserve Reporter Archive 2003-4
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December 27, 2004
From the Federal Reserve’s court
filings last week in ICP v. FRB, Civ. No. 04 CV
8337 (DLC), in the U.S. District Court for the Southern District of New York:
“In
a number of past applications, where public commenters have raised the issue, the Board
has taken into accounting information on the acquiring and target institutions’
relationships with commercial customers who are engaged in subprime lending in assessing
financial and managerial resources. In these applications, such information was necessary
to the Board’s assessment of financial and managerial factors because lending to
commercial customers who engage in subprime lending can present legal, credit and
reputational risks to the lending institutions.”
There’s
also an affidavit from Wachovia’s
Michael Rizer, stating that the still-withheld “Confidential” Exhibit 3 to
Wachovia’s SouthTrust application names nine subprime lenders “which whom
Wachovia does business, either as the provider of credit or funding facilities or other
financial relationships.” Both Wachovia
and Rizer said the names should not be released; the Fed claims that it -- but not the
public -- having the names allows it to assess the adequacy of safeguards and standards.
But as previously raised, what inquiry does the Fed make into the compliance records of
various subprime lenders? Very little. Which is another reason they should release the
names -- if, that is, the Fed wanted to know the truth.
It’s troubling that they don’t...
Similar lists are being withheld by BBVA (ICP’s new BBVA and TD filings are
summarized in this week’s Bank
Beat Report), and by Webster Bank, represented by ex-FRB counsel Andy Weiderhorn. In a
December 22 filing in the Eastern Wisconsin proceeding ICP has commented on, Mr.
Wiederhorn tells his ex-colleagues Shawn McNulty and Anne Zorc that Webster funds seven
subprime mortgage lenders, and five non-mortgage fringe financiers. The names are
submitted to the Fed, but withheld from ICP. It is also unclear how Webster has responded
on the issue of the CRA implications of seeking to collect deposits nationwide.
Developing...
December 20, 2004
On
December 14, Federal Reserve ruled on Fifth Third - FNBF, which ICP challenged in late
October. There are a few portions of the
Federal Reserve’s order (online at in PDF here)
that bear notice. 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 much
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. And it is even more ludicrous for the Fed to
rely on local regulators about fringe finance than subprime mortgage lending. ICP’s
campaign on predatory fringe finance continues. And
for openness at the Fed -- the Board has a filing supposedly slated for this coming week,
in ICP’s FOIA case about the withholding of mostly-public lists of fringe financiers,
by the Fed, Wachovia, and similar others including Fifth Third... And for the Fed to take appropriate action on, for
example, Citigroup, whose fast-and-loose practices, well beyond CitiFinancial’s
insurance-sales and other predatory high jinks, are coming home to roost: an account at
Citigroup’s recently-sold subsidiary in Saudi Arabia will be charged with being used
to collect and pass funds to organizations which then used the money to help suicide
bombers and their families. It’s the Account 98 scandal. According to London’s
Sunday Times, “Leah Johnson of Citigroup, its parent company, said: ‘Any
assertion that Citigroup supports terrorism in any way is an outrage.’” But
having so demonstrably loose a know-your-customer regime, for example in Japan (note to
the Fed: the Japanese regulators’ order against Citigroup is available via this link
December 13, 2004
The Federal
Reserve, on pending mergers, sometimes asks good questions, and sometimes no questions at
all. Citigroup, for now, is getting a free ride: few to no questions on its pending Texas
deal (at least to ICP’s knowledge, and we should know, under the Fed’s rules
against ex parte communications); no action on Citigroup’s Japan fiasco, and most
recent breakdown in Know-Your-Customers. Then again, the Fed has recently asked Synovus some questions,
following ICP’s comments on Synovus being intertwined with the subprime lender
CompuCredit, which now owns the payday lender previously known as First American Cash
Advance. Synovus is trying to withhold most of
its answers; it refers among other things to a “participation of more than ten
million dollars... to a borrower that specializes in short term loans and cash advances to
moderate income individuals.” Hmm... While ICP may file yet another FOIA
request-slash-appeal, it shouldn’t have to: it’s up to the Fed, under its rules,
to reject meritless requests for confidential treatment like this. We’ll see...
December 6, 2004
The Federal Reserve administers the public’s access to Home Mortgage Disclosure Act data, including on the FFIEC web site. Sometimes, it mis-administers or block this access. On Friday, December 3, attempts to access the data resulted in a message that "The server is currently too busy to service your request. Please try again later." The result, and the message, remained the same the following day. So the question arises: does the comment period on merger applications to the Federal Reserve expire, despite the lack of access to public data which is required in a comment? We’ll see. And then we'll have more to say. For now, in further revolving door news, we note that former Federal Reserve Legal Division staffer Andrew Wiederhorn is now at the law firm of Hogan & Hartson -- and representing Webster Financial, in response to comments ICP filed last week. We're not characterizing this, just reporing it.
November 29, 2004
Now what will the Fed do? Last week’s Bloomberg News article about
the funding of payday loans and lenders (“JPMorgan,
Banks Back Lenders Luring Poor With 780 Percent Rates,” Nov. 23), quotes JPM
Chase spokeswoman Calmetta Coleman that “the bank will
continue extending credit to payday lenders. ‘We have heard the concerns of consumer
groups,' Coleman says.” The article
identified Morgan Chase as providing “credit to ACE Cash Express Inc. of Irving,
Texas; Mr. Payday of Kentucky Inc.; and Illinois Payday Loans Inc., among others,
according to Uniform Commercial Code records, which show lending relationships” --
the UCC filings ICP unearthed and raised in early 2004, including at the Federal
Reserve’s Morgan
Chase-Bank One hearings
Regarding Wachovia, the Bloomberg article reported that “in July 2004, Wachovia... co-arranged a $265 million syndicated
credit line for Advance America, according to SEC documents. Two months later, Advance
America announced an IPO to raise $183 million.”
Presumably, beyond the Wachovia/SouthTrust payday connections that ICP has shown
from UCC filings, this connection too is in the “Confidential” exhibits that the
Fed and Wachovia are still fighting to withhold, now in the face of FOIA litigation.
Meanwhile, the layoffs have begun, starting in Alabama.
Wachovia plans to cut 829 jobs in Birmingham -- fully 20
percent of the 4,000 people SouthTrust employs in Birmingham.... Under the WARN Act,
notice was given here --
Something else the Fed might want
to look at and act on: Canadian Imperial Bank
of Commerce claimed on Nov. 27 that it is reviewing its privacy procedures after
confidential information about hundreds of clients was mistakenly sent to a junkyard in
West Virginia for three years. Wade Peer, the scrap yard’s operator, told Toronto's
Globe and Mail that he has been deluged by internal CIBC fund transfer request forms to
his business fax line since 2001. The forms contained information such as social insurance
numbers and bank account data. Earlier this year, CIBC reported a computer glitch that
caused transactions to be recorded twice on about 60,000 accounts at the bank. That
followed a major technical snafu that delayed millions of transactions at Royal Bank of
Canada earlier this year. Hello? Federal
Reserve?
November 22, 2004
What a strange agency. The Federal Reserve Bank of New York, responding on
November 18 to detailed anti-money laundering submission made to the Federal Reserve Board
on September 29, states only that “your letter will be held for a period of 90
days... as a comment on any application filed by HSBC Bank or any of its affiliates that
requires consideration of the matters raised in your letter under the relevant statutory
factors.”
This
is akin to a police department saying, thank you for the information, we’ll keep it
on file for three months in case the subject happens to apply for a gun permit...
Relatedly, the news of BNP’s involving in the Oil-for-food scandal keeps getting
worse: and yet the Fed did nothing about it, allowing BNP to keep buying banks in the U.S....
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 lenders and pawnshops...
The Toronto
Star of November 21 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." But what does Clark’s
statement say about the “managerial factors” that the Federal Reserve must
review, in connection with the proposal?
November 15, 2004
From the
Fed’s Nov. 9 Barclays order:
Using press reports, a commenter expressed
concern that (1) projects that Barclays financed in Asia have negative environmental
consequences, (2) Barclays Bank is a defendant in litigation involving the apartheid
policies of the former government in South Africa, and (3) Barclays Bank is increasing its
interest in banking organizations in Zimbabwe and Zambia. These matters are not within the
Board’s jurisdiction to adjudicate or within the limited statutory factors that the
Board is authorized to consider when reviewing an application under the BHC Act. See
Western Bancshares, Inc. v. Board of Governors, 480 F.2d 749 (10th Cir. 1973)
(“Western Bancshares”).
This Fed boiler plate has congealed too quickly.
It would be outrageous to say that the non-US activities of an FRB-registered
financial holding company are not reviewable by the FRB. It’s a choice that the FRB
makes, without nearly enough scrutiny, alongside its interest rate decisions...
November 8, 2004
Speaking to a nearly empty room at the end of the SIA annual meeting on November 5, Fed governor Bies called for greater clarity to help banks comply with the anti-tying rules. "Ensuring compliance can be an extremely difficult endeavor because there is no prohibition against cross selling products or aggressive marketing," Bies said, adding that "the goal is to ensure that banks don't cross the line between offering choices and illegally tying products and services.” Clarity’s a good thing -- but why then has Gov. Bies (and the rest of the Fed) aggressively withheld basic information about banks’ secured loans to payday and car title lenders? Inner City Press has challenged the Fed’s Wachovia - SouthTrust FOIA denial, and is awaiting the Fed’s response. Also pending is ICP’s administrative appeal of PNC-Riggs withholdings, regarding money laundering...
November 1, 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... The Fed, which incorrectly
told Dow Jones newswires on October 25 that it had yet to receive ICP's timely request for
reconsideration, thereafter didn't even respond to it, showing its true colors...
Meanwhile, the Fed’s revolving door continues spinning. Ex-Fed legal staff Satish
Kini, now at the law firm of Goodwin Procter, opined in last Friday’s American Banker
that “This trend has been borne out in my own practice. I have seen that issues that
a year or two ago would have commanded less regulatory attention or resulted in a minor
comment from an examiner now gets much more scrutiny and, sometimes unfairly, a referral
to the agencies' enforcement lawyers. From the agencies' perspective, this trend is
perhaps understandable. The federal bank regulators were roundly accused on Capitol Hill
of lax reaction to anti-laundering issues at Riggs Bank. As a consequence, those agencies
seem to be taking a much tougher line.” The
upshot of the article? “Gimme a
call... I know these guys, and can delicately call them “somewhat unfair,”
though “understandable”....
October 25, 2004
Fed governor Susan Bies, speaking October 20 at the University of Connecticut Law School, intoned that "Improved disclosure not only can provide more quantitative and qualitative information to the market and other stakeholders, but also help the market assess the quality of risk oversight and make an informed judgment about the appropriateness of the organization's risk appetite and its strategic direction."
She and the other governors do not, however, acknowledge any benefit to improved disclosure at the Federal Reserve Board itself. In boilerplate fashion, 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.
October 18, 2004
The Federal
Reserve’s Oct. 15 BNP Paribas
order reports that ICP
citing press reports, also expressed
concerns about BNP’s role in handling payments for the United Nations’
Oil-for-Food program with Iraq. As part of its review and assessment of the managerial
resources of BNP, the Board reviewed records of BNP’s New York branch concerning this
program in conjunction with state regulators. The Board notes that BNP’s role in this
program was to act as the exclusive bank to facilitate payments under an agreement with
the United Nations, which currently is conducting its own review of this program. The
Board will continue to monitor the progress and results of investigations of the
Oil-for-Food program by the Congress and by the United Nations.
The commenter also expressed concern about
lending by Bank of the West and CFB Bank to unaffiliated retail check cashers and pawn
shops. Applicants responded that Bank of the West and CFB Bank provide credit to pawn
shops and retail check cashers but that neither bank plays any role in the lending
practices or the credit review processes of those borrowers. These businesses are licensed
by the states where they operate and are subject to applicable state law.
In addition, the commenter expressed concern about instances in which BNP may have
underwritten the securitizations of subprime loans. BNP acknowledged that its U.S.
broker-dealer subsidiary may from time to time underwrite securitization of assets that
include subprime loans but stated that the subsidiary plays no role in the lending
practices or credit review processes of any lender involved in the transaction. BNP has
indicated that the due diligence implemented by its broker-dealer subsidiary would include
consideration of whether the lender is known to have experienced legal or regulatory
compliance problems.
We’ll
see... Click here for the Fed’s position
that a “de minimus” level of lying is okay, at least for Wachovia...
October
11, 2004
Could it be that the Federal
Reserve 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...
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....
October 4, 2004
What, you might ask yourself, does the Federal Reserve Board do? Beyond interest rates, it stands by while money
laundering charges grow, against HSBC, Banco Santander and Citigroup in Japan; while the
Oil-for-Food scandal embroils BNP Paribas
Last
week, ICP filed related comments on HSBC (click here to view), and on Riggs’ (and
Banco Santanter’s) money
laundering... Meanwhile - you and us? Turns out that Osama bin Laden
had use of an account at UBS even after he was designated a financier of international
terrorism. The revelation was made in a French courtroom last week during an investigation
into one of the al-Qaeda chief's half-brothers. Yeslam Binladin, a Swiss citizen who since
2001 has been under investigation by Renaud Van Ruymbeke, a French judge, for suspected
links to money-laundering, told the court that bin Laden had access to a UBS account
between 1990 and 1997. He said that two of his brothers had created an account at UBS to
redistribute family funds, which are thought to have come from the bin Laden family's
construction empire in Saudi Arabia. He said that Osama bin Laden was one of the main
beneficiaries. A spokesman for UBS in New York confirmed last week that Osama bin Laden
was a beneficiary of the account but was never a customer of the bank. It is understood
that the account was opened in 1990 with several million dollars....
Meanwhile, 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...
September 27, 2004
While the clock ticks on Wachovia
/ SouthTrust (in the most recent S-4, the records date for SouthTrust holders has
moved, but not for Wachovia, viewed as springing from differences in NC and Delaware law
but who knows), Wachovia last week settled discrimination charges. So it was gender, and
employment - discrimination in one field is often mirrored in another (lending). And still they withhold the list of payday and car
title lenders, and pawnshops, that they fund...
While
Riggs and PNC tried to pep-talk Riggs’ employees on September 24, PNC’s Jim Rohr
has been quoted backing away from the deal. And
AIG now facing an SEC enforcement
action for having helped PNC’s accounting games can’t be helpful. Ex-Fed man Jack Wixted continued to stand on his
previous statements for PNC. Managerial resources, anyone?
September 20, 2004
As the Riggs Bank scandal continues to unfold, last week the Federal Reserve
belatedly (and apparently begrudgingly) gave Inner City Press documents ICP requested back
on August 11. These documents, even as
partially whited-out by the Fed, show the inordinate and inappropriate access that PNC had
-- and has -- to the Fed, including via ex-Chicago Fed official Jack Wixted, now at PNC. At 4:07 p.m. on July 15, 2004, Stephen H. Jenkins
of the Fed staff e-mailed other staffers: “Jack Wixted just called Bud to inform us
that they were the successful bidder for Riggs.”
Less than two hours later, Mr. Jenkins e-mailed Jon Greenlee, assistant director of
regional banking organization supervision at the Fed in Washington: “Jack Wixted told
Mike Carroll that they might make a press release as early as tomorrow.”
Two months later, PNC wrote to the Fed, cc-ing the above-referenced Mike Carroll at
the Cleveland Fed and purporting to respond to ICP’s comments by stating that
“J. Wixted, Jr.... previously responded to those issues. Accordingly, PNC believes that no response to the
September 9 letter is warranted.” But all
that Wixted said on money laundering was that he was sure that the Federal Reserve would
look into it. Now PNC’s chairman is
claiming that the Fed will help PNC get the deal done.
The whole thing’s improper, and particularly inappropriate given the
terrorist-financing issues swirling around Riggs. Now,
Riggs Bank is being sued on behalf of the victims of the Sept. 11 attacks and their
families for assertedly allowing Saudi officials to use accounts at the bank to funnel (or
launder) money to at least two
of the terrorists involved. Perils of revolving doors...
The Fed also
appears to tell banks when approvals will come. The Durham Herald-Sun of September
15 quoted SunTrust CEO Phil
Humann saying that “approval from the Federal Reserve could come ‘any day now.
‘The banks have set Oct. 1 as a closing date.”
Humann said it on September 13; to consummate on October 1, the Fed approval
would HAVE to come on September 15. So the Fed
told SunTrust, it appears...
ICP has now
filed a formal FOIA appeal for the information Wachovia and the Fed are withholding about Wachovia’s and SouthTrust’s
support of payday and car title lenders, pawnshops and other fringe financiers.
September 13, 2004
The Federal
Reserve has yet to respond to the issue of its chairman’s conflict on the PNC - Riggs
application, which raises serious money
laundering issues (see below); the Fed allowed the comment period to formally expire
on September 9... That same day, Atlanta Fed President Jack Guynn granted an
interview, blurting his view that the Fed has scope to raise U.S. interest rates at least
another half-percentage point in coming months without threatening the economic expansion.
“There's a lot of breadth to the strength in the economy'' and it's important for the
Fed to return interest rates to a ``more neutral setting,'' Guynn said. “Even a
couple more adjustments in our fed funds target of the size we did in June and August, by
historical standards, would still leave policy in at least a modestly accommodative
stance.” Accommodative to say the
least...
September 6, 2004
While the Fed continues withholding Wachovia's list of the payday lenders and other fringe financiers that it funds (see this week's ICP CRA Report for more), it relies on banks' (bogus) representations about how well they check out their (unnamed) counter-parties. In last week's National City - Wayne order, the Fed recited that "National City has represented that its credit evaluations of these types of lenders include, as applicable, the customer's reputation and adherence to applicable law, including the Fair Debt Collection Practices Act. Moreover, National City has represented that it monitors those borrowers' compliance with industry best practices through due diligence, including 'blind shopping' programs and interviews with management." The Fed relies on this, without either checking out the banks' fringe partners, or letting the public do so - rather, the Fed withholds the lists, thus coddling the banks...
Ah, the revolving door: Robert Parry, who just left the Federal Reserve Bank of San Francisco, has joined the board of directors of Countrywide, which is not only a (subprime) mortgage lender, but also a bank holding company...
August 30, 2004
DOJ's sell-out, a mere 18 branches to be divested in Wachovia - SouthTrust: nine in Jacksonville, one in DeLand, five in Lakeland and three in Augusta, GA. They're seeking agreements the branches would be kept open. But what about the 130 to 150 that Wachovia would close? That, along with the two banks' lies about their support for payday lenders and pawnshops, is what the Federal Reserve is supposed to be looking at...
The Federal Reserve's conflicts on PNC are now two. Beyond last week's petition, receipt of which has been acknowledged but as yet no substantive response, consider this question: if the Senate permanent subcommittee on investigations, and many others, question the OCC's examiner having gone over to Riggs, what exactly is the different with the Federal Reserve's Jack Wixted having gone to PNC, and now writing the bank's responses to the Fed? This will be answered in coming weeks -- that is, on a timely basis. Last week the Fed responded, four years late, to a Freedom of Information Act request ICP submitted in 1999. The Fed's August 20, 2004, partial denial states "by letter dated November 1, 1999, your request for expedited treatment was denied." That's an understatement. Provided are Fed communications with and about then-chairman of the Senate Banking Committee Phil Gramm. There's letter from Alan Greenspan to Gramm, agreeing with Gramm's "staff's key point that estimate of CRA paperwork burden do not capture all CRA compliance costs and address only a subset of the CRA compliance burden." There's an email from staffer Beverly Smith referring to a "Gramm box" that the Fed set up, to quickly forward all information about CRA protests, virtually in real time. There are lists of banks with less than satisfactory CRA ratings, virtually all of them small. Plus ca change...
August 23, 2004
It seems like common sense: if a regulator’s or judge’s spouse accepts a $50,000 award from a bank, recusal from decision-making on matters directly involving the bank less than four months later should be required. While this is seems like a hypothetical from Good Government 101, to the Fed it’s apparently not that simple. Here’s a letter ICP Fair Finance Watch has just filed with the Fed:
August 23, 2004
Board of Governors of the Federal Reserve System
Attn: Secretary Johnson, Inspector General, Governors [and Chairman]
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
Re: The Applications of PNC Financial Services Group, Inc. & PNC Bancorp, Inc., to acquire Riggs National Corporation & Riggs Bank NA National Association
Dear Secretary Johnson, and Governors of the FRB:
On behalf of Inner City Press/Community on the Move and its members and affiliates, and the Fair Finance Watch (collectively, "ICP"), and in connection with the applications of PNC Financial Services Group, Inc., PNC Bancorp, Inc. and their affiliates to acquire Riggs National Corporation and Riggs Bank National Association, this is a second timely comment, including a formal request that Chairman Greenspan recuse himself from the PNC - Riggs proceeding. It should first be noted that since ICP's first comment, the Washington Post of August 21, 2004, has reported on the widening criminal investigation of Riggs. "The Post's Saturday story, citing a letter to federal bank regulators from the District of Columbia's U.S. attorney's office, said the investigation includes Joe Albritton, Riggs' largest shareholder, his wife, Barbara, and son, Robert, who is chairman of Riggs... A lengthy probe could affect the company's pending acquisition by PNC Financial Services (PNC) for $779 million. The deal was announced in mid-July. Riggs has already paid a $25 million civil penalty to the U.S. Comptroller of the Currency over allegations that its Riggs Bank laundered money for Saudi Arabian diplomats." CBS MarketWatch, August 21, 2004.
This development further calls into question the wisdom of considering allowing the sale of Riggs at this time, until the investigations, including into terrorism-related money laundering, are completed. A sale to a bank with a troubled compliance record like PNC's, which also funds high-cost payday lenders including in the target bank's market, would be particularly unwise and harmful.
Unless PNC's Riggs application is withdrawn or dismissed forthwith, ICP contends that chairman Greenspan should be recused from involvement in this proceeding. Those involved in decision-making on Bank Holding Company Act applications, particularly one of this import, need to be impartial, and to be seen to be impartial. In April 2004, PNC awarded chairman Greenspan's wife $50,000. At the time, industry publications questioned the propriety of the award, to the spouse of PNC's chief regulator. See, e.g., American Banker newspaper of March 24, 2004, Pg. 3, "Earth to PNC" -
"Corporate America's ethics have come under considerable scrutiny in recent years for obvious reasons, so it's no surprise PNC Financial Services Group Inc.'s decision to present a $50,000 prize to the spouse of its top regulator would raise eyebrows. PNC is promoting a black-tie awards ceremony, scheduled for April 24 in Wilmington, Del., at which it will present five high achievers with the 2004 Common Wealth Awards. The winners are the actor Christopher Reeve, the Chilean author Isabel Allende, actress Meryl Streep, scientist Stanley Prusiner and Andrea Mitchell -- the chief foreign affairs correspondent for NBC News and the wife of Federal Reserve Board Chairman Alan Greenspan. The awards are given by the trust of Ralph Hayes, who sat on the board of PNC predecessors from 1943 until 1965. PNC is the administrator of the Hayes trust....
Wendell Cochran, who teaches journalism ethics at American University, said that regardless of the merits, the appearance of impropriety in this case was too strong. Having a bank holding company give the wife of the Fed chairman a $50,000 prize does look to me to be wrong,' Prof. Cochran said. Ms. Mitchell said in an interview last week that she was accepting the award because it came from a philanthropic entity and that NBC News has a policy not to accept awards from private corporations. She also noted that she is donating her prize money to a charity at the University of Pennsylvania, where she is a trustee. 'It is my understanding that this award comes from a foundation and has nothing to do with the financial activities of PNC,' she said...Under most circumstances, spouses are not barred from accepting awards like this, according to Office of Government Ethics rules. A Fed spokesman would not discuss the matter."
Whether or not PNC's granting a $50,000 prize to the spouse of its chief regulator, soon after being sanctioned for using special-purpose entities to move assets off its books, was or was not technically legal, a different, more stringent analysis is applicable to whether the spouse of the grantee should recuse himself from PNC's application to acquire the scandal-plagued Riggs National Corporation. The above-quoted ethics professor opined that "the appearance of impropriety in this case was too strong." AT this stage, ICP's reference is to the appearance of impartiality. At the April 24 event itself, Ms. Mitchell was responding to questions about the possible conflicts of interest raised by the $50,000 award. See, e.g., "Common Wealth Awards," Wilmington News-Journal of April 25, 2004, Pg. 12B,
"Mitchell, who is married to Federal Reserve Chairman Alan Greenspan, said she will give away the $50,000, as she does with any money she receives for speaking. Pointing out that the money comes from the Hayes trust, not the bank, Mitchell said it will go to programs in writing, English literature and music that she helps support at her alma mater, the University of Pennsylvania, where she was an English literature major. Mitchell is lead foreign-affairs correspondent for NBC News. Her employer also vetted the award and was satisfied it did not represent a conflict of interest, she said."
www.delawareonline.com/newsjournal/local/2004/04/25commonwealthawa.html
Whether NBC found a conflict, as to its news coverage of PNC, is a different question than whether a $50,000 award from a regulated entity like PNC to the spouse of its chief regulator should lead to that regulator's recusal from decision-making on the entity's application, less than four months later, for approval to acquire a bank sanctioned for money laundering. The answer to that question, ICP contends, is yes: recusal is appropriate, even, required. While the FRB declined to comment to journalists regarding its conflict of interest standards back in March 2004 (see above), it is important that the response to this timely request from ICP be in writing, and explain the reasoning and authority for any decision not to recuse, as early as possible in this proceeding.
It should be noted that the FRB has had and still has primary jurisdiction over at least one of the troubled Riggs subsidiaries: PNC's application at footnote 11 refers to "Riggs International Banking Corporation, which is regulated by the Board of Governors of the Federal Reserve System." The language is from Riggs May 13, 2004, consent order with the OCC, providing for a
"review, in a time period not to exceed one year from the effective date of this Order, of all Bank accounts in the Embassy and International Private Banking areas that are identified as high risk, and other high risk accounts identified by the Bank as appropriate for review, to ensure that Suspicious Activity Reports have been filed as appropriate between January 1, 2001, and April 30, 2004. This review shall include accounts at Bank subsidiaries (excluding Riggs International Banking Corporation, which is regulated by the Board of Governors of the Federal Reserve System), accounts covered by paragraph (c) of this Article, and an analysis of Currency Transaction Reports filed for each account."
It is surprising, and contrary to the public interest ICP contends, that PNC has even submitted this application and started the running of the comment period before the above-referenced review has been completed, and appropriate action taken. This is even more true now, given the just-reported widening criminal investigation of Riggs. The PNC-Riggs application should be immediately (this week) withdrawn or dismissed; or chairman Greenspan should confirm recusal, hearings should be scheduled [FN: ICP again emphasizes for purpose of its hearing request that PNC funds and enables major nationwide payday lenders such as Check n’ Go a/k/a CNG Financial Corporation, including Check n’ Go of Washington D.C., Inc., see the UCC filings, including from the District of Columbia Department of Finance and Revenue, which ICP submitted into the record along with its August 16, 2004, initial Comment], the comment period should be extended and the application should be denied.
Respectfully submitted,
Matthew Lee, Esq., Executive Director
To be continued; developing... The American Banker of August 16 reported, "Huntington said it is ‘maintaining an active dialogue’ bank regulators about the Unizan deal, which was announced in January and had been scheduled to close last month." It’s an interesting quote including because, under the Fed’s rules against ex parte communications, notice and copies are supposed to be given to ICP...
August 16, 2004
In the Wachovia - SouthTrust proceeding, the Federal Reserve has created a Catch-22. As soon as ICP saw notice of the application, it submitted a FOIA request for the entire application. Upon receipt, ICP noted this statement in Exhibit 6:
"Wachovia has commercial lending relationships with select check cashing companies, pawnshops and payday lenders. In recognition of the higher risk these businesses present, the Credit Risk policy on lending to them is very restrictive. Any new credit, or the renewal or modification of such a credit, requires the approval of one of the top found Chief Risk Offices of Wachovia... Please see Confidential Exhibit 3 for information concerning these customers."
This exhibit was not provided to ICP, despite the fact that Wachovia’s secured lending relationships with various "check cashing companies, pawnshops and payday lenders" are of public record, and therefore cannot legitimately be withheld under FOIA. ICP submitted a FOIA request / appeal, annexing print-outs of sample UCC filings, in an attempt to ensure that it would receive this wrongfully withheld exhibit during the comment period, to comment thereon. But ICP received a response from deputy secretary Frierson, dated August 5, 2004, that this FOIA request / appeal would not be acted on, because it was the Board’s position that (despite the commitment to provide copies of applications in three days) the FRB has a full twenty working days to respond to ICP’s FOIA request for the application.
The result is a Catch-22 in which comment periods can expire without any ruling on the applicants request to withhold even the names of payday lenders and other fringe financiers it funds, even when these names are otherwise publicly available. In answering a call from FRB staff, ICP reiterated and explained its position that these named cannot legitimately be withheld, even if a bank intentionally mixes this with other information: the solution is redaction and provision of all segregable information, and/or instructing the applicant to submit information that is NOT otherwise publicly available separately. A bank shouldn’t benefit from mixing the information, and not following the instructions on the FRB application forms. This is an abuse, and ICP reiterates its request for the information, and for an extension of the comment period. This is particularly important in this case, in which the two banks have made counter-factual statements on this issue in their applications, not explained or remedied by their August 6 "response."
ICP has also noted, for timely inclusion in the Fed's record, that on August 11, the SEC announced that Wachovia Securities is being censured and fined $250,000 for registration, reporting and sales practice deficiencies and supervisory violations. Also, Dow Jones of August 13 reported
"Wachovia Corp.'s Evergreen Investments identified its two funds caught up in the mutual-fund trading scandal as the Evergreen Mid Cap Growth and Evergreen Precious Metals funds. Evergreen also said a former fund manager at the center of the Securities and Exchange Commission investigation managed the Precious Metals fund, raising the likelihood the agency was looking into transactions by well-known former Evergreen manager Prescott Crocker.... Evergreen named the funds in a filing this week with the SEC, following its recent disclosure that the agency might bring an enforcement action against it for improper fund trading. The company also gave more details about the matter in statements posted on its Web site from Dennis H. Ferro, chief executive of Evergreen Investments, and Michael S. Scofield, chairman of the board of trustees of Evergreen Funds. According to the filing and statements, the short-term trading by the Evergreen Precious Metals Fund portfolio manager took place between September 2001 and January 2003. At the time, the fund was co-managed by Mr. Crocker, who also managed Evergreen's High-Yield Bond fund. Evergreen didn't name him in the filing, but a spokeswoman confirmed that he managed the precious- metals fund at the time. Mr. Crocker is no longer at Evergreen. The firm said the SEC also is investigating an alleged arrangement between a former Evergreen Investment Management Co. officer and a broker at an affiliated broker-dealer. The broker allegedly engaged in short-term trading in the Evergreen Mid Cap Growth Fund on behalf of a client, the filing said.
Wachovia is a company around which these scandals swirl, a company which has, in connection with this application, made counter-factual statements to the FRB. The comment period must be extended; the merger should be denied. For or with more information, contact us.
August 9, 2004
Will the Federal Reserve accept being lied to? In the July 12 Wachovia - SouthTrust application, it was stated that "It is SouthTrust’s policy not to lend to pawn shops, pay day lenders, check cashing companies or other MSBs." ICP’s July 26 Comment annexed a number of UCC filings showing SouthTrust making just such loans. On August 6, Wachovia submitted a five-page letter to the Fed, purporting to respond to ICP's comments, which on this issue stated:
"Of the 15 SouthTrust relationships cited by ICP, four loans have been paid out and a loan relationship no longer exists. Two other UCC filings reflect loans to parties for which the businesses in question served solely as collateral. Four other entities cited are not pawnshops or money service businesses or provide MSB services only as an incidental service. Five such relationships do exist with pawnshops and were made as exceptions to SouthTrust's policy. In addition to those five relationships, we have identified five other credit relationships with pawnshops or related entities, some of which were acquired through mergers with other institutions... Moreover, it is standard industry practice to allow exceptions to credit policies based on legitimate reason."
But what are those reasons? Given the specious reasoning Wachovia’s response attempts to use to explain the counter-factual statement in Exhibit 6 of the Application, the Fed should wonder what other "policies" Wachovia makes exceptions to for unstated reasons: anti-money laundering policies? Policies Wachovia has promised to adopt against mis-using tax shelters like the lease-in, lease-out sleight of hand for which it was exposed? See for example, "Wachovia Says It Stopped Questionable Transactions," Winston-Salem Journal, February 21, 2004; "Wachovia Backs Off Aggressive Use of Tax Shelters: Deals Cut Taxes – And Drew Criticism," News & Observer, March 5, 2004. ICP has specifically requested that, in light of Wachovia's above-quoted statement about exceptions to policy, its earlier statement in Exhibit 6 of the Application that "It is Wachovia's policy not to originate sub-prime loans" be more closely scrutinized, by the FRB including at the requested hearings.
On August 4, the Federal Reserve's managing senior counsel Elaine Boutilier wrote to ICP, stating that that in response to ICP's FOIA request "for portions of the July 1, 2004, submission by Huntington Bancshares, Incorporation that were withheld from you by counsel for the applicant," the Fed has given Huntington until August 18 "to provide written objections to disclosure of the information." Since normally the Fed compromises behind the scenes with banks regarding what can be released, without starting up the 12 CFR §261.16(d) "reverse FOIA" process, this appears to mean that Huntington is playing hard ball. Well, good for them. Clearly, the Fed shouldn't consider ruling on Huntington's Unizan application, other than to deny it, while Huntington is gaming the FOIA system...
August 2, 2004
While for now what the Federal Reserve is doing is at least asking questions about banks’ support for fringe banking services, see the below, from the editorial board of the Orlando Sentinel from their July 30 edition, "SunTrust was Right to End Business with Payday and Car Title Lenders" -- "SunTrust made its decision to cut ties with such lenders after a consumer group filed a complaint with the Federal Reserve opposing the bank's pending merger with National Financial Corp. of Memphis, Tenn. Among other complaints, Inner City Press/Fair Finance Watch said records showed SunTrust had at least 60 customers making payday or car-title loans. Announcing its decision, SunTrust cited the ‘potential reputational risks and consumer harm’ that could come from lending to such companies. How candid, and how refreshing. ICP believes SunTrust's decision could persuade other banks -- especially those seeking government approval for mergers -- to follow suit. Let's hope so." Thanks, Orlando Sentinel. The last reference in the editorial is plainly to the proposed takeover of SouthTrust by Wachovia, which funds a range of fringe financiers (as does SouthTrust, despite its denials). And what will the Fed do, about SouthTrust’s (and Wachovia’s) lies in their application on this issue? We’ll see.
Here also is an editorial in the Memphis Commercial Appeal of July 31:
National Commerce Financial Corp. and SunTrust Banks recently decided to stop doing business with companies that provide payday or car title loans. The move, while commendable, appears to have been done to win favor with federal regulators who will decide whether to approve a merger between NCF and SunTrust. Whatever the motives, the decision shows why high interest loans that are frequently made to lower income borrowers deserve careful scrutiny....A protest by the Inner City Press/Community on the Move and Fair Finance Watch apparently helped NCF and SunTrust see the light... Those words should be a wake-up call to local companies that want to deal in those types of loans. Unless they're willing to accept more regulation and greater accountability, maybe more major financial institutions will follow the lead of NCF and SunTrust.
And then car title lenders will know what it feels like to struggle to get a loan.
That last sentiment, we like how the Commercial Appeal's editorial board put it. (Click here for the full text of these editorial, and more). Still, what's up with Wachovia -- and with the Fed? Developing...
From the slap-on-the-wrist department: on July 26, Federal and state bank regulators gently cited weaknesses in ABN Amro's compliance with anti-money laundering rules at its New York branch, which provides "significant" services to its correspondent banks, including non-U.S. banks, and also conducts a high volume of U.S. dollar clearing business, according to the agreement. "Examiners have identified compliance and risk management deficiencies at the New York branch in these operational areas," the agreement said -- all too vaguely. Within 20 days, ABN Amro and its New York branch must hire an independent firm to conduct a review of account and transaction activity from July 23, 2002, through April 30, 2004. This review will be done "to determine whether suspicious activity involving accounts or transactions at, by, or through the New York branch was properly identified and reported in accordance with then applicable suspicious activity reporting regulations," the agreement said. Let's see: an accused criminal is allowed to check his own behavior, and report to authorities whether it broke the law? ABN Amro confirmed -- happily, one imagines -- that it entered into the agreement with regulators to address what it characterized as "insufficient internal controls" in the anti-money-laundering program of its New York branch's U.S. dollar clearing business. "The bank regrets that its AML controls in its U.S. dollar clearing business fell short of these standards," the ABN Amro said-in-a-statement. And so it goes...
July 26, 2004
Well, now there's (another) test base before the Federal Reserve Board. What will the Board do, when a major bank submits a knowingly false statement to it? The July 12 application of Wachovia and SouthTrust states "It is SouthTrust’s policy not to lend to pawn shops, pay day lender, check cashing companies or other MSBs." That statement is patently false; click here to see why. But what will the Fed do? For now, the Fed is allowing Wachovia to withhold its list of funded fringe financiers; the same with Banque National Paribas. BNP is no longer ahead of the pack, even in terms of disclosure. In the same week that its peer SunTrust Banks, Inc. announced it would no longer fund payday or car title lenders, BNP asked for confidential treatment for even the names of the check cashers and pawnshops funded by its Bank of the West unit (and its proposed merger partner, Community First National Bank). Earlier in the proceeding, BNP had released the names of subprime mortgage lenders with which it does business. There appears to be no substantive distinction between the two, except perhaps that the list of BNP-funded pawnshops and check cashers is more embarrassing. It’s good, we think, that the Fed asked BNP about its links with pawnshops and check cashers. But BNP cannot be allowed to withhold even the names of these companies. And, as noted earlier in the proceeding, how this secretiveness on an issue touching on the two-tier financial system is consistent with BNP’s supposed allegiance to the UN’s "Global Compact" remains to be seen.
July 19, 2004
These days when you visit the Federal Reserve Board, the entrance is no longer the glassed-in door on C street. A side entrance for visitors has been established: a window at which you show your identification, a metal detector, and finally a staffer comes to get you. Though corridors, then into the Board room, with its wall art of currency, its map of the Federal Reserve districts painted on the wall.
They tell you that you must be seated before The Chairman will come in. You sit, the polished table, the Fed staffers in seats a row behind. The Chairman enters through a side door, sits in the middle of the table, his back to Constitution Avenue and the Mall. Pleasantries are exchanged. Once predatory lending is broached, the Chairman has a question: why is it, he asks, that people actually sign these contracts? Don’t they read them? Well.
When asked about the Fed’s duty to consider applicant banks’ connections with high-cost lenders, the Chairman assures that this topic is covered in every approval order. "I don’t keep track of it all myself," he says. "I don’t have time. But I vote on the orders." Well. He does say that if the Fed has its druthers, it would stamp out predatory lending... So as a test case, the Chairman is told of Wells Fargo’s funding of Armed Forces Loans, which targets active-duty service-members for high-cost loans. The Chairman nods; his staffer take a print-out of the evidence. Now what?
Meanwhile, it is entirely unclear why the Fed has allowed the SunTrust - NCF comment period to expire without having asked SunTrust questions about fringe finance evidence submitted two months ago...
July 12, 2004
The Fed’s secretary on July 2 (the letter was mailed July 6) decided to continue withholding the list of pawnshops and check cashiers funded by North Fork Bank, despite the fact that many of these connections are already public, in UCC filings and elsewhere. ICP has appealed, attaching the relevant UCC filings (as well as RBS’ most recent submission)....
Better late than never, we suppose: after Inner City Press requested under FOIA the withheld portions of Royal Bank of Scotland’s list of funded subprime lenders, the Fed asked RBS to "reconsider" its withholding. Lo and behold on July 9, a longer version arrived, this time listing the following subprime lenders with which RBS does business:
Saxon Mortgage, Inc.; Aames Capital Corp.; Ameriquest Mortgage Company; Argent Mortgage Company; Asset-Backed Funding Corp; BofA, CDC Mortgage Capital; Centex Home Equity Company; CitiFinancial Mortgage Company; Clearwing Capital LLC; Credit Based Asset Servicing and Securitization, LLC; Delta Financial Corporation; Equifirst; Equity One, Inc.; Finance America, LLC; First Franklin; GMAC; Green Tree Investment Holdings II, LLC; Long Beach Acceptance Corporation; Long Beach Mortgage Company; NovaStar Financial, Inc., Option One Mortgage Corporation; Countrywide Correspondent Lending, Fremont Investment & Loan; Washington Mutual Bank; Residential Funding Corporation, Truman Capital Investment Fund LP, etc...
We will have more on the Fed, up close and personal, shortly... For now, let's get to work, including asking the right questions and making public the answers, on SunTrust, RBS - Charter One, Wachovia...
July 5, 2004
This week, we give the Federal Reserve credit for (finally) asking the right questions, of Huntington Bancshares -- but also, for now, allowing Huntington to withhold its answers. On July 1, Inner City Press received from Huntington's lawyers a copy of the bank's response to Fed questions of June 1. The Fed's question #1:
1. Discuss whether Huntington, Unizan, or any of their affiliates have business
relationships, including as commercial or warehouse lender, purchaser, custodian, servicer, or in any other financial capacity, with any providers of non-traditional banking products, such as pawn shops, gun shops, or check cashing stores (individually and collectively, "providers"). If so, identify the relevant business parties and describe the nature of the business relationships, including the respective roles and responsibilities of the providers and the Huntington or Unizan entities involved in each type of relationship.
The entirety of Huntington's public answer to this is: "Please refer to Confidential Exhibit A for a summary of these business relationships." This does not comply with FOIA, both in that Huntington has not shown likelihood of competitive harm (esp. given that many of its peers, named in ICP's exhibits, release such information, and in that ICP has already submitted to the Fed (and Huntington and its counsel) publicly available information such as
--an Ohio UCC filing showing Huntington National Bank's relationship with Uncle Sam's Pawn Shop, Inc. of Columbus, Ohio -- note that the relationship runs at least through October 8, 2007;
--an Ohio UCC filing showing Huntington National Bank's relationship with AA Pawn Shop, LCC of Lancaster, Ohio -- note that the relationship runs at least through June 5, 2005;
--a West Virginia UCC filing dated October 7, 2002 showing Huntington National Bank's relationship with Carl's Pawn Shop, Inc. of Parkersburg, West Virginia;
--a Florida UCC filing showing Huntington National Bank's relationship with Paradise Pawn, Inc. of Melbourne, Florida;
--a Florida UCC filing showing Huntington National Bank's relationship withQuick - Cash Pawn Shop East, Inc. of Tampa, Florida;
--a New Jersey UCC filing dated October 7, 2002 showing Huntington National Bank's relationship with Express Check Cashing, Inc.; etc.
It is frivolous to request confidential treatment for information that is otherwise publicly available, particularly where the public availability of such information has been shown in the same underlying proceeding.
Huntington's July 1 submission also recites Fed question #2
2. Discuss whether the Huntington or Unizan subsidiaries have any role, formal or otherwise, in the lending practices and credit review processes of the providers. Additionally, describe any due diligence conducted by Huntington or Unizan when either enters into these business relationships concerning a provider's compliance with applicable fair lending and consumer protection laws, including:
(a) the substance of any representations and warranties that Huntington or
Unizan requires of such entities;
(b) any agreements Huntington or Unizan requires such entities to enter into;
and
(c) any monitoring or other ongoing procedures Huntington or Unizan has
adopted to assess compliance with these laws.
As to due diligence, and sub-questions a, b and c, Hungtington refers to "Confidential Exhibit B." But Huntington's outside counsel's previous client, Firstar / U.S. Bancorp, has released such information during a proceeding before the FRB, undercutting the instant formulaic claim that Huntington would suffer significant competitive harm if this information were released. Huntington's exhibits should be release forthwith, ICP has argued in a FOIA request / appeal...
Also concerning Huntington, in Detroit on June 29 U.S. District Judge Paul Borman upheld a decision to detain a former assistant bank vice president of the bank, for the unauthorized wiring of $438,000 to banks in Lebanon and Jordan. Issam Abdul Hakim-Berjaoui has been charged with bank fraud, money laundering and embezzlement. So far, Huntington has escape (or evaded) scrutiny. Prosecutors are seeking, under treaty, bank records from Jordan; no such arrangement, however, exists between Lebanon and the United States...
With the Fed's general counsel position opening up on July 1, the Fed finally announced J. Virgil Mattingly's successor. It's long-time deputy Scott Alvarez, who's nothing if not knowledgeable about the bank supervision and merger-review processing, having attended numerous Federal Reserve public meetings on mergers, and played a large role in reviewing transactions. Back in 1998, Mr. Alvarez stated that notes he took when discussion the law-bending Citicorp / Travelers merger were not "records of the Board," but rather his personal property. We're still troubled by that, but genuinely congratulate Mr. Alvarez. Now, let's get to work, including asking the right questions and making public the answers, on SunTrust, RBS - Charter One, Wachovia... For or with more information, contact us.
June 28, 2004
First, let's get this out of the way: we see no reason to disbelieve the many predictions that the Fed will raise interest rates on Wednesday. The FOMC tries more and more to telegraph its moves, calling this transparency. It's quite the opposite in the Fed's bank regulatory role: there, it's the Federal Reserve itself which for example strives to keep issues of subprime lending undeveloped in merger proceedings until the comment period closes. In Royal Bank of Scotland - Charter One, ICP submitted initial comments on May 10, before RBS even submitted its application, detailing RBS's Greenwich Capital Markets' enabling of numerous subprime lenders, including Aames (which is being investigated by the FTC for predatory lending), analyzing HMDA data, and noting Citizens Mortgage Corporation's agreements with the subprime lenders Option One, Key / Champion and Freemont Investment & Loan.
RBS did not respond on these issues prior June 17: the expiration of the comment period. On June 23 -- after the expiration of the initial comment period -- RBS responded to FRB questions of June 14, including about subprime lending issues. The FRB's Question #2 asked RBS to
"Discuss whether RBS, Citizens Financial, Charter One, or any of their direct or indirect subsidiaries have business relationships, including referral relationships, with any subprime lenders (for example, as warehouse lender, trustee, custodian, securities underwriter, or in any other financial capacity)... If so, identify the relevant parties and describe the nature of the relationships... Describe the due diligence concerning each lender's compliance with applicable fair lending laws that RBS, Citizens Financial, or Charter One typically conduct before and after extended a loan of providing a credit facility to such a lender."
RBS has asked for confidential treatment for virtually all substantive portions of its response -- entirely inappropriately. ICP has identified from public sources many of RBS' subprime relationships; there is no basis for withholding information that is otherwise publicly available. ICP has submitted into the record Citizens Mortgage Corporation's referral agreements with at least three subprime lenders (Option One, Key/Champion, and Fremont). Does RBS' cynical request for confidential treatment for even the identities of its subprime "partners" mean that there are more such referral relationships?
Beyond withholding the names of its subprime "partners," RBS' explanation of the relationships is unclear. It claims that CMC "delivers the application to either an unaffiliated investor or unaffiliated lender;" then RBS states that "CMC processes mortgage applications and funds and closes mortgage loans in CMC's name.. then sells the closed mortgage loans to the unaffiliated investors." Which is it? In this latter scenario, do these subprime loans get reported in CMC's HMDA data? What is CMC's compensation in these subprime arrangements? All of these questions need to be explored, including at the hearings ICP has timely requested. Clearly, these questions are not being resolved in writing -- by RBS' choice and strategy. And, so far, with the Fed's complicity. ICP has asked for the withheld subprime information, and that the comment period be reopened. We'll see.
June 21, 2004
The Fed's shredding of antitrust law, and failure to act on payday and predatory lending, is addressed in ICP's JPM Chase Watch. But at least public notice was given that JPM Chase - Bank One would be voted on by the governors. Not so with Regions - Union Planters: no notice was given, perhaps it was done without a meeting, by so-called "notational" voting, an even more rubbery rubber stamp. Some analysis (there's more in ICP's Bank Beat Report) -- after 5 p.m. on June 16, the Federal Reserve announced it had approved the application by Regions Financial to acquire Union Planters. There had not been notice of any governors' board meeting that day. The predatory car title lending connections, including the organized crime connections that the Fed sidestepped by claiming the connections date -- like the CRA -- from the 1970s. On payday and car title lending, which ICP raised in detail, the Fed in footnote 24 says:
"This commenter also expressed concern about Regions Bank and a UPB-NA subsidiary allegedly financing payday and car-title lending companies. Regions responded that Regions Bank and Union Planters have depository relationships with, and provide warehouse credit facilities to, entities engaged in payday and car-title lending. These payday and car-title lenders are licensed by the states where they operate and are subject to applicable state law. Regions stated that neither it nor Union Planters plays any role in the lending practices or credit review processes of their payday and car-title lender customers. The record in this case does not indicate that Regions, Union Planters, or any direct or indirect subsidiary of either organization engages in payday or car-title lending activities directly or through agency arrangements."
It's immaterial whether Regions or Union Planters is MAKING the car title loans, or lending to the car title lender: either way, the bank bears responsibility. Particularly laughable (and troubling) is the Fed's footnote 20, reciting that ICP
"asserted that a UPB-NA subsidiary has originated loans to a company that is controlled by an individual with alleged connections to organized crime. This assertion was based on allegations in press reports from 1999 and 2000 that cite determinations in 1980 and 1992 by the New Jersey Casino Control Commission. The allegations appear to involve the individual ’s business transactions and activities during the 1960s and 1970s. The Board has carefully reviewed these allegations in light of all facts of record, including relevant reports of examination by federal regulators, and has consulted the OCC concerning the relationship between the UPB-NA subsidiary and the company involved."
So as long as Mob connections were (or began) in the 1970s, it's okay? Regarding Regions' subprime lender EquiFirst, the Fed says, in footnote 35 that Regions
"represented that the brokers in the EquiFirst network offer their clients a variety of prime and subprime mortgage loan products from EquiFirst and other mortgage lenders. In addition, Regions noted that the independent mortgage brokers generally provide their customers with options on available mortgage loan products, including the type of products (prime or subprime)and the provider (EquiFirst or another lender).In particular, Regions represented that EquiFirst does not require its brokers to offer EquiFirst products exclusively."
There's a problem with this analysis: just because the brokers EquiFirst does business with are not exclusive to EquiFirst does NOT mean that EquiFirst is not involved in violations of the Fair Housing Act and Equal Credit Opportunity Act. The Department of Justice's fair lending enforcement action against Long Beach is directly on point. Apparently, the Fed lags years behind other law enforcers in its acceptance of disparate treatment and disparate impact fair lending legal theory...
ICP has commented again on BNP Paribas, and has explicitly asked the Fed to examine Household as it did CitiFinancial -- all actions and inactions will be reported on this site.
June 14, 2004
It is time, surprise surprise, to denounce the Fed for not doing its job. We're referring, last week, to the Fed's approval of National City - Provident, with the payday lending issue confined to a footnote, despite UCC evidence presented and NatCity's admission that it funds four of the top ten payday lenders, with APRs over 500 percent. The Fed coddles predatory lending -- and won't even explain why. Here's hoping the Fed does at least a more credible job on JPM Chase- Bank One (more on that next week), on Regions - Union Planters, on Huntington and then SunTrust.
Talk about weak: the Fed finally asked Royal Bank of Scotland some questions; ICP on June 10 received by fax a copy of RBS' June 7 response. The questions were soft-balls: "describe due diligence performed," proposed "systems integration," and two purportedly confidential questions. Then again, these are (only) the questions of the Boston Reserve Bank. The Board, if they are even moderately consistent with other recent proceedings, will ask more and better questions. The June 17 closing of the comment period should be extended...
June 7, 2004
In Congress last week, Rep. Kelly said that the $100 million fine the Federal Reserve Board recently imposed on UBS AG for conducting illegal currency transactions with four countries subject to U.S. sanctions was "a mere slap on the wrist." What then of the mere $70 million fine of Citigroup for predatory lending, including misleading examiners and shredding documentary evidence? Click here for more detailed communications ICP's received from whistleblowers, and see ICP's CRA Report for the Fed's new question (to North Fork) about banks funding pawnshops, check cashers and rent-to-own businesses. ICP has re- submitted this question with regard to at least two other applications pending before the Fed: Huntington - Unizan, and BNP - Community First. The Fed should be consistent between regions, it would seem...
On another front, ICP has timely raised to the Fed the New York Times of June 6, 2004, " Lockboxes, Iraqi Loot And a Trail To the Fed," by Timothy O'Brien:
WHEN a United States Army sergeant broke through a false wall in a small building in Baghdad on a Friday afternoon a little over a year ago, he discovered more than three dozen sealed boxes containing about $160 million in neatly bundled $100 bills. Later that day, soldiers found more cash in other hideaways near the Tigris River, in an exclusive neighborhood that elite members of Saddam Hussein's government once called home. By the end of the evening, they had amassed 164 metal boxes, all riveted shut, that held about $650 million in shrink-wrapped greenbacks.... The investigation led quickly to the vaults of four Western banks that were among a select group handling the sensitive task of distributing freshly printed dollars overseas: the Bank of America, the HSBC Group, the Royal Bank of Scotland and UBS. ... After American forces in Iraq discovered an additional $112 million in hidden cash, on top of the $650 million they had already found, the Fed's cashiers tracked it to the same vaults and to a Fed vault at HSBC in Frankfurt, a Royal Bank of Scotland vault in London and to other locations the Fed has not disclosed. (Emphasis added).
ICP has raised this in a timely comment on RBS - Charter One...
June 1, 2004
Pennies on the dollar, swept under the rug: just before the holiday, on May 27, the Federal Reserve announced a cease-and-desist enforcement action against Citigroup's subprime CitiFinancial unit, calling for $20 million in restitution, a $50 million fine, and some "remedial" actions -- including revising its compensation structure and its practice of misleading examiners and destroying or hiding documents. The practices the Fed describes in the order -- illegal requiring of co-applicants in order to sell more joint credit insurance, and shifting personal unsecured loan customers into high-cost mortgage loans -- are only a few of CitiFinancial's problematic and predatory practices, the tip of the proverbial iceberg. CitiFinancial's business model is based on the sale of credit insurance that is neither asked for by, nor in most cases beneficial to, the customer, and on "upselling" customers from unsecured to home-secured loans. For example, ICP has evidence that CitiFinancial pays its branch managers based on how many sales finance loans (for furniture, for example) are converted to more lucrative real estate-secured loans. It's called "Sales Finance Conversion," or SFC, in CitiFinancial's compensation scheme, called ROCO-poly [and see new whistleblower letter ICP's received, below.]
But downplayed in the order, in Paragraph 14, is the Fed's requirement that CitiFinancial henceforth ensure "full and honest cooperation with regulatory authorities" and improve "document retention policies." The background to this is instructive, and is fully recounted in our CitiWatch Report.
During the Citi-Golden State challenge, ICP was contacted by CitiFinancial whistleblowers in Tennessee and elsewhere. ICP submitted these complaints, and evidence, to the Fed, and soon the Federal Reserve Bank of New York sent two attorneys to Knoxville, Tennessee, to depose the CitiFinancial ex-employees who had contacted ICP, and others. The American Banker of October 11, 2002, reported
"Shari Leventhal is the Fed attorney who was dispatched this week to Tennessee to conduct the inquiry, according to Inner City Press. A spokesman for the New York Fed confirmed that Ms. Leventhal was a counsel at the bank, but would not comment on her activities."
ICP was informed, by those deposed, that accompanying Ms. Leventhal were Yoon Hi Greene, Counsel, and Ms. Gretchen Downing, Bank Examiner, both of the FRBNY. ICP also reported to the Fed, and the above-named Fed employees were informed, that CitiFinancial offices removed and shredded documents. ICP named names, and locations: for example specifically at the Morristown and Jefferson City, Tennessee offices. ICP directed the Fed to specific documents that remained unshredded (because whistleblowers had hidden them), in the Jefferson City office.. ICP reported this to the Fed, and asked for copies of the deposition transcripts. The Fed has refused to provide the transcripts. And the biggest bank in the world is still run by predatory lenders, document shredders, silencers of whistleblowers....
Meanwhile, JPM Chase's attempts to downplay anticompetitive effects continue, most recently in a May 21 letter to the Federal Reserve, provided to ICP is heavy redacted form. Much of it revolves around the deposits book at JPMC's 712 Main Street, Houston office, including a large "corporate mortgage finance" account "derived in their entirety from its servicing operations, which are located in Orange, California." Why are the dollar amounts being redacted? How can the Federal Reserve countenance this? We'll see... Until next time, for or with more information, contact us.
May 24, 2004
Let's review: back in 2001, Inner City Press challenged Old Kent being acquired by Fifth Third Bank, on redlining grounds, including in Detroit. Fifth Third spokeswoman Stacie Yee said that the banks "stand behind our lending record in all of the communities we serve." (The American Banker, January 24, 2001, " Group Protests Fifth Third-Old Kent Deal"). The Federal Reserve approved the merger. Now, in 2004, the Department of Justice finally files a redlining lawsuit, for lending in 2000 and 2001. We hate to say "we told you so" -- but, we told you so...
Similarly, here's from ICP's analysis of Regions' lending in Atlanta submitted to FRB on March 26, 2004: "In the Atlanta MSA in 2002, for conventional home purchase loans, Regions (Regions Mortgage plus Regions Financial Corp.) made 445 loans to whites, and only 18 to African Americans -- 24.7 loans to whites for each loan to an African American, for Region's prime-rate lender."
Regions' May 14 response to Federal Reserve questions quotes the Fed's question number two, about Regions' glaring exclusion of African Americans from its mortgage lending--
"In light of the combined record of Regions Bank and Regions Mortgage, as compared to that of the aggregate and to the demographics in several major markets (particularly in the Atlanta, Georgia, Metropolitan Statistical Area), for receiving HMDA-reportable applications from and originating HMDA-reportable loans to African Americans and in predominantly minority census tracts... please describe... all internal reviews by Regions Bank, including its mortgage company division... (b) all efforts by Regions Bank, including its mortgage company division, to use targeted media to reach African American individuals or residents of minority tracts, (c) all efforts by the bank to develop any significant involvement with community based organizations serving minority individuals and/or residents of minority tracts."
Regions' answer says that if they application is approved, Regions would start using Union Planters' "mechanism" to analyzed HMDA data. But that hasn't been working too well, either. And Union Planters makes HOEPA loans, and funds car title lenders, including one 50% owned by a reputed Mafia figure...
May 17, 2004
...So the Fed now asks some applicants about their links with payday lenders and car title lenders -- but an open question is what the Fed is going to DO about it. In ICP's May 17 comments to the Federal Reserve Bank of Atlanta on SunTrust - National Commerce, ICP quotes from the Fed's questions to Regions - Union Planters:
Please describe all business relationships involving Regions or Union Planters and any of their direct or indirect subsidiaries (as lender or provider of credit facilities, for example) and unaffiliated payday lenders or car title lenders. In doing so, identify the relevant parties and describe the nature of the relationships, including the respective roles and responsibilities of the (i) payday lender or car title lenders and (ii) Regions, Union Planters, or any subsidiary of either company. Discuss whether Regions, Union Planters, or any subsidiary of either company plays any role, formal or otherwise, in the lending practices and credit review processes of the lender(s). Additionally, describe the due diligence concerning each lender's compliance with applicable consumer protection and fair lending laws that Regions or Union Planters typically conducts before extending a loan or providing a credit facility to such a lender. (Emphasis added).
SunTrust lends / provides credit facilities to car title lenders (and pawn and gun shops) throughout Georgia, Tennessee, Alabama, Florida, Virginia, Maryland and elsewhere. Huntington similarly funds fringe finance, in Ohio, Florida and elsewhere. At a minimum, questions like the above must be posed to these banks by the Federal Reserve...
JP Morgan Chase and Bank One continue their ex parte lobbying of the Federal Reserve, including on antitrust: last week ICP received a copy of a curt letter in which JPM Chase's outside antitrust counsel notified ICP and another party that they'd be calling Fed staffers. Under the Fed's rules, timely commenters like ICP are supposed to be invited to participate in, or at least listen in on, such communications. We're still waiting...
May 10, 2004
The Fed is for now allowing JPM Chase and Bank One to dodge the payday lending, check cashier and other fringe finance issues that ICP and many others raised at the hearings. In a letter to the Federal Reserve dated April 30, received by ICP last week, JPM Chase and Bank One purport to respond to testimony given at the public meetings. Amazingly, they entirely avoid the payday lending, pawnshop, check cashier and other fringe finance issues. One must assume that the Fed will pursue this...
In terms of the proposed combo's effects, on May 5, the banks announced in an employee memo that, for example, Bank One will slash at least 185 Indianapolis-area jobs. Between July 1 and Oct. 31, 170 mortgage service workers in Fishers and 15 other employees in Bank One's offices in Downtown Indianapolis will lose their jobs, said Bank One spokesman Tom Kelly. In Ohio, Bank One announced another 120 job cuts at a mortgage-processing center in Findlay, which will close. The company also told 200 workers in its capital-markets and commercial-banking divisions that their jobs will be cut....
On May 4, it was leaked then announced that Royal Bank of Scotland proposes to acquire Charter One Financial, for $10.5 billion. Unbeknownst to many, including what Citizens Bank calls its community partners (while seeking to redact their names, as we've previously noted), RBS' Citizens Mortgage Corporation has loan origination partnerships with subprime lenders, including Option One, Fremont Investment and Loan, and the KeyCorp unit known as Champion ("when you bank says no, Champion says.. yes," as the TV ads have it). Additionally, RBS owns the investment bank Greenwich Capital Markets, which securitizes subprime loans for such lenders as Aames, Accredited, and Delta (including while it was being sued for predatory lending). RBS has been defensive and arrogant about these connections with questionable subprime lenders; now RBS wants to more than double its size in the U.S..
ICP / Fair Finance Watch sprung into action, preparing a detailed filing and submitting it, on May 10, to the Federal Reserve. The Fed has gotten into a groove of giving proposals by RBS and others "waivers" from the need to apply. In late 2003, ICP wrote to each of the Reserve Banks, requesting notice of waiver requests (since otherwise, the Fed is eviscerating CRA, which is enforced on expansion proposals). The Fed's response has been, to say the least, unsatisfactory. But it seems clear that the Fed could not give a waiver here; watch this space.
May 3, 2004
Will mysteries never cease? Last week, ICP received from the Fed a copy of an April 12 letter from Credit Agicole, represented by the Fed's ex-general counsel Michael Bradfield, waiving the provision that the Fed "shall act on an application before the end of the one-year period of receiving a completed application," and asking the Fed to "discontinue processing" the application "until such time at the Board's staff informs Boetie and Credit Agricole that processing will continue." What's strange about this request to discontinue is that the application is for something Credit Agricole jumped the gun and did, without Fed approval: acquire Credit Lyonnais and its U.S. subsidiaries. There's better be meaningful enforcement at the end of this process...
As reported in more detail in this week's CRA Report, Always learning -- a flurry of correspondence that Inner City Press received last week instructed, among other things, that National City Bank of Cleveland funds at least four of the top thirteen payday lenders (NatCity provides the names, while other banks including JP Morgan Chase still try to withhold the names of the payday lenders they fund); that Union Planters refers denied applicants down to its subprime unit Colonial Loan, but has no referral-up process; and that JP Morgan Chase radically mis-reported its deposits, putting false information into the public domain until the Fed closed its comment period on JPM Chase - Bank One. Each is described in brief below. Not from correspondence, but rather from the salt mines of Uniform Commercial Code research, ICP learned (and has commented) that North Fork Bank, intent on acquiring non-prime lender GreenPoint, was the only New York State bank to fund the now-closed check cashier and bill payment fiasco, CashPoint Network. CashPoint has faced suspension orders in New York, Pennsylvania, Rhode Island and other states; that North Fork funded it raises serious questions, on which ICP is demanding public hearings -- and that the FRB ask detailed questions, especially since ICP raised these issues to the Fed so early in the North Fork - GreenPoint comment period.
April 26, 2004
At its two public meetings on JPM Chase - Bank One, the Fed staffers only asked questions during the first panel, consisting of the bankers. The questions were perfunctory (at the second hearing, a softball questions about how JPM Chase would serve rural areas). There was no mention of payday lending, no attempt to nail down the vagueness of the $800 billion pledge nor of why it includes middle income mortgages, no questions about the paying of pro-merger witnesses, or the withholding until after the hearing of long-ago-requested Loan Application Register data (that's what Chase did). Apparently, the Fed believes that community groups should be grateful that a public meeting was held at all, on a $58 billion merger. ICP has heard that Fed staffers bemoan that the public meetings are less than useful. But that's by the Fed's choice -- the Fed allows the banks to fill the witness list with paid shills whose testimony could easily have been submitted in writing; the Fed declines to ask questions of detailed commenters in opposition, etc.. It may be that a panel of four is not needed, if so few questions about going to be asked. The Fed should hold hearing on a higher percentage of challenged mergers, and should experiment with format until it arrives at a less absurd one, one that actually adduces relevant evidence. Allowing some back-and-forth between the banks and the commenters would be a good start. Allowing cross-examination would be better. But even short of that, the Fed panel members should ask better questions, or even solicit suggested questions from the commenters. This week's ICP CRA Report suggests a number of questions the Fed should ask North Fork Bank, which is applying to buy GreenPoint. In that, there is time for the Fed to for once get to the bottom of issues (unlike its current dodging of organized crime connections to Union Planters-funded Community Loans of America) -- so we'll see.
While the Fed is dodging the Mafia / car title / Union Planters connection, it did ask another round of questions, to which Regions replied on April 22, withholding from ICP a portion of its response. The Fed's questions -- which the Fed didn't send to ICP, despite the Fed's own rules to this effect -- included requests for more information about Regions' new statement that "Equifirst has recently taken steps to enhance its compliance programs, including... predatory testing programs." The Fed asks about Equifirst's audits "AFTER the brokers are chosen," and the Union Planters-owned subprime lender Colonial Loan of Morristown, Tennessee. The response refers to "Confidential Exhibit A," and uses a magic market to black-out information about "indirect recreational vehicle paper and its overall volume of subprime loans. A footnote discloses that Union Planters' Colonial Loan "originates 'high rate / high rate' real estate loans (commonly referred to as 'Section 32 loan')." Now things are getting interesting....
April 19, 2004
Beyond the specifics of the Fed's too-tentative inquiries on banks' support for payday and car title lenders, and inaction to date on similar support for check cashiers and pawn and guns shops, we're compelled to note here the absurd increased security we encountered last Thursday at the Federal Reserve Bank of New York. There were sub-machine gun, a force with badges saying "Federal Reserve Police." All payphones had been removed from inside the building, at least on the publicly-accessible floors. In fact, the building was almost not accessible to the public: only two elevators, and they rarely came. On the 13th floor, guards demanded to re-check visitors bags, and to confiscate for example umbrellas, filling a container with identical black fold-up umbrellas. There were video camera, through which the witnesses could be seen: but the cameras were not on. The Reserve Banks, when you submitted Freedom of Information requests, say they are not subject to FOIA. And most of the Reserve Banks refuse to answer their mail, for example ICP's October 2003 requests for clarification about, and notice of, requests by banks for waivers from the need to apply. ICP has recently reiterated those unanswered requests to a number of Reserve Banks, including Atlanta, Philadelphia and Cleveland, and has still received no response to the question. Perhaps, going forward, under new CEO Yellen, the San Francisco Fed will finally answer. Now ICP's made some simple requests to the Federal Reserve Bank of Chicago; we'll see.
On the question of payday lending (and pawn & gun shops), squarely raised by ICP's comment and exhibits, the American Banker of April 16 quotes a Bank One spokesman that "' "We have ethical standards for all the companies we do business with and we think we have adequate standards today.' A spokesman for JP Morgan referred questions on payday lending to Bank One." But the Columbus (Ohio) Dispatch of April 15 reported:
"Bank One is aware of concerns about the type of businesses that Inner City Press cited and has a "small number of lending relationships" with those firms, spokesman Jeff Lyttle said. 'We require our customers to comply with the law,' he said. 'If they comply with the law, we do business with them.'"
So that's these two banks' standards -- anything that's not illegal is fine with them. That's a long way from "best practices," and from the standards that JPM Chase claims to have. Even Alan Greenspan distinguishes between violations of trust and "even" legality -- to the Atlanta Fed's South Sea Island, Georgia conference last week, Greenspan said that "recent allegations on Wall Street of breaches of trust or even legality, if true, could begin to undermine the very basis on which the world's greatest financial markets thrive... Guilty parties should be expeditiously punished.'' We'll see...
April 12, 2004
The Federal Reserve -- which is allowing JPM Chase to fill the April 15 public meeting at the New York Fed with members of the bank's own community advisory board -- has finally mentioned the Parmalat scandal in one of its Orders. Not surprisingly, the mention is in the nature of a dismissive cover-up. Footnote 16 of the Fed's Manulife-Hancock order last week explains that Hancock's $152 million investment in Parmalat was only "0.1 percent of John Hancock's total assets." Maybe that's why the Fed loves consolidation and ever-larger banks: any particular scandal can be ignored based on what percent of assets it is. That BofA appears to have assisted Parmalat in its scam didn't cause the Fed any pause: ICP has been informed that "no member of the Board has requested that the Order be reconsidered or modified in any manner," based on ICP's request, of the BofA-Fleet approval. The Fed's letter states that while the SEC announced its damning enforcement action against BofA on March 10, "information about the status of the investigation was presented to the Board." Then why did the order claim that BofA is cooperative and transparent, when the SEC was preparing to find precisely the opposite? Well, the Fed's letter states that the Board "retains sufficient supervisory authority to address any adjudicated misconduct that would adversely affect the managerial resources of the combined entity." Hmm... Meanwhile, though ICP has shown that Union Planters does business with a Mafia-connected car title lender, the Atlanta Fed predicts that the Board won't consider the issue (see this week's ICP Bank Beat report). Perhaps relatedly -- well, we think so -- governor Ferguson on April 8, at a luncheon organized by the San Francisco Fed, acknowledged that "some households have become burdened with excessive debt. But," he went on, "financially overextended households represent a small fraction of the total economy, and at the macroeconomic level, financial distress in the household sector seems unlikely to cut off the expansion.'' Hmm...
April 5, 2004
The Federal Reserve Board's gamesmanship around the Freedom of Information Act has gotten even worse, since Governor Susan Bies has been put in charge of FOIA appeals. The goal appears to be never admitting, in the required annual report to the Department of Justice or elsewhere, that initial withholdings were wrong. So, for example, in response to ICP's appeal of the withholding in December 2003 of Royal Bank of Scotland's fair lending-related submissions, Gov. Bies writes in a March 25 FOIA appeal determination letter that "since the time of the Secretary's determination, the submitted of the documents has consented to the release of certain of the materials that were withheld from you." Gov. Bies doesn't mention the overarching scam here: RBS, which had a merger application pending, managed to put these 125 pages in for Fed consideration, without allowing any reply from ICP -- then, post-approval, "consents" to releasing the documents. And the Fed will report to DOJ that it never had to reverse itself on FOIA in this matter. The exact same game was played in a March 15 Bies letter, which adds that "these material, although properly withheld by the Secretary under exemption 4, will be released to you at this time in view of these changed circumstances." Apparently, the Fed includes under exemption 4's "competitive harm" test the harm caused by having to show a merger's opponents the documents on which the Fed will rely.... This is taking place in JPM Chase - Bank One -- JPM Chase and Bank One have refused to substantively respond to the predatory lending issues raised, except in purportedly "Confidential" exhibits to their March 23 submission. The FRB staff on March 11, 2004, posed questions to JPM Chase and Bank One. Questions 3 and 4 are about subprime lending; JPMC's response, at 35, refers to "Confidential Exhibit 8," a list of subprime lenders JPMC does business with. This list -- like purportedly Confidential Exhibits 4-15 -- is withheld in full, without any showing that it does not contain information that is otherwise publicly available (in SEC and UCC filings and elsewhere), nor any showing of competitive harm.
In fact, JPM and Chase have in the past made public lists of subprime lenders they do business with -- for example, in November 29, 2000, letter to the New York Banking Department, by this same outside counsel (in a chart headed "Chase Securities Lead and Co-Managed Business," including Conseco, Block Mortgage, Option One, Green Tree, Saxon and Centex, which ICP has submitted to the FRB). How can it be that JPM Chase is trying to be even less transparent now, in 2004, than it was in 2000, despite the increasing centrality of questions of (and JPMC's increasing, unverifiable claims about) predatory lending? Others of JPMC's peers have made public lists of subprime lenders they do business with. The only purpose of this withholding in full, it appears, is to deny the public the right to comment to the FRB on the list, and JPMC's claims to not do business with predatory lenders, prior to the public meeting. This cynical strategy cannot be countenanced -- on March 29, ICP submitted a FOIA appeal / request, demanding that all improperly withheld portions be released prior to the public meetings...
At those meetings, the banks' solicitations of favorable comments will be an issue -- as is, last week, National City's solicitation (but failure to provide copies) of letters of support of its proposed take-over of Provident. [Non-FOIA Fed report, from deal-relevant Dayton, OH: Chicago Fed president Mike Moskow, last week told students there that "Many of our business contacts have told us that they will have to hire soon if strong demand continues'' and ``I think that it will,." Well alright.] Meanwhile, on Capital One, the Fed waited until 5:30 p.m. on the day the comment period expired in order to fax ICP the responsive documents....
Gov. Bies has also taken to automatically denying requests for discretionary release of information under 12 CFR 261.22. ICP has made such requests exactly has it did in the past (when the requests were considered); under Gov. Bies, such requests "will not be considered further."
Well, here's something for the Fed to consider: this week's ICP CRA Report shows that Union Planters' funded Community Loans of America is owned by an individual who has been barred by gambling commissions in such states as New Jersey and Nevada for having organized crime connections. This week's ICP Bank Beat reports the Delaware Insurance Department's finding that Manulife directors neglected to disclose, in required biographical affidavits, corporate governance-related litigation against them (while Manulife is applying to become a bank holding company). Our question: what does it take, to make the Fed take action that's not merely bank-protective? We'll see...
March 29, 2004
The Federal Reserve Board late on Friday afternoon announced two public hearings, on April 15 in New York City and April 23 in Chicago. The announcement came 11 days after the Fed closed the comment period, and one day after an article in the American Banker newspaper reported that "as of Wednesday 95 comment letters on the Bank On deal, most of them negative, had poured into the Fed since J.P Morgan Chase submitted its application," and quoted ICP as " flabbergast[ed]... What is the standard?"
Now that hearings have been scheduled, ICP has put in a formal request to JPM Chase for its 2003 mortgage lending data, broken down into subprime and prime, and for information about "safeguards, if any, for purchasing, securitizing and otherwise enabling (including through warehouse lending) other subprime lenders." Bank One's enabling of payday lenders will also be explored...
JPM Chase on March 26 claimed to the New York Banking Department, in response to ICP's comments to the NYBD, that it is foreclosing on only 4.43% of its subprime loans in Philadelphia (a market ICP has analyzed) -- but then discloses, in a footnote, that "data do not include cases where a JPMC affiliate acts as trustee of a securitization but CMMC is not servicing the loan." But it's the trustee who forecloses...
To the Fed, JPM Chase has been submitting nearly identical "responses" to comments, and has yet to respond on, for example, the enabling of payday lenders. Now with the hearings scheduled, JPMC will presumably HAVE to respond.
March 22, 2004
So now we have to ask -- how can the Federal Reserve governors justify to themselves ignoring their recent BofA-Fleet precedent (two public hearings held on a $47 billion merger proposal), and not holding any hearings on JPM Chase - Bank One? JPM Chase's responses to comments are by rote, the same thing, letter after letter. It's not even clear if the Federal Reserve has asked JPM Chase any questions. Particularly heading into a March 25 Consumer Advisory Council where governor Gramlich and others will pretend to take seriously the GAO's admonition for the Fed to do more to fight predatory lending, the failure to ask JPM Chase any questions, the failure to hold a hearing, reflect a Fed out of control....
March 15, 2004
Inner City Press / Fair Finance Watch has now filed a timely request for reconsideration to the Federal Reserve on Bank of America - Fleet -- click here to view -- and another timely comment to the Fed opposing JPM Chase - Bank One. Numerous requests for extension and for public hearings on JPMC-Bank One went in, each urging the Fed to "pay close attention to, and inquire into, JP Morgan Chase's subprime lending, and its role as securitizer and foreclosing trustee for other lenders' subprime loans, as well as Bank One's tax refund anticipation lending and funding of high-cost payday lenders, documented in comments the Federal Reserve has already received." Meanwhile, on the business day just prior to the Fed's slated expiration of comment period, JPM Chase's executive vice president Mark Willis took questions at the Hyatt Regency on Capitol Hill, at a session on predatory lending. When asked (by ICP) if the standards which Chase claims for its own subprime lending are extended to the subprime lenders for which JPM Chase securitizes, acts as trustee, and to which it makes warehouse loans, Mr. Willis said that he wasn't sure, but that it is "a good question," one that he will look into and then definitively answer. The interim answer was that JPM Chase aspires to and/or claims to have achieved such consistency in practices -- a proposition that was immediately met with skepticism, by interlocutor and audience. Among the inconsistencies are the imposition of mandatory arbitration by subprime lenders JPM Chase works with, their use of five year prepayment penalties, YSPs and other matters. At press time, it is unclear if and when the Federal Reserve will hold the multiply-requested public hearings -- it not, it'd be an outrage. But there and/or elsewhere, the issues will be pursued...
The Fed's kid-gloves approach for mega-banks, even when they flout the law, was made even clearer last week, when the Fed "revolved" lawlessness by Credit Agricole and Lyonnais for a mere $13 million. Credit Agricole failed to keep its part of a 2000 agreement with regulators, failed to maintain accurate books and records, and to submit reports to state bank regulators. The fines include $3 million to the Fed to "resolve allegations it bought shares in Credit Lyonnais and a related securities firm in 2002 without prior Fed approval." The message, apparently, is that the privileged can ignore the BHC Act and acquire U.S. banks without application or approval, then pay $3 million after the fact -- this after BCCI and its "lessons"... Then again, Credit Agricole hired the Fed's ex-general counsel to schmooze his way through this -- effectively, it appears...
March 8, 2004
In the run-up to a week of Washington (and Fed) watching, a follow-up on last week's GAO sleazy story. The Fed's response was in the form of a two-and-a-half page letter from Governor Gramlich; it disagrees with the GAO recommendation that the Fed be given more, or clearer, power to examine subprime lenders which are bank holding company subsidiaries. Gov. Gramlich claims that "the existing structure has not been a barrier to Federal Reserve oversight" -- a statement called into question by the Fed's repeated response, in merger approval orders, that the evidence presented has merely been forwarded on to the Federal Trade Commission. "No barrier" -- if want you want is to stonewall. Gov. Gramlich -- we're quite clear this was written by Fed staff, but he is the one who signed it -- then offers as proof of the Fed's seriousness the Fed's purported examination of CitiFinancial, announced during Citigroup - EAB. But the Fed has never announced any results of this exam; it denied all FOIA requests, including requests by individuals whom it interviewed for transcripts of the interviews. "No barrier" -- if want you want is to whitewash the stone wall you erect. Finally, Gov. Gramlich claims that the GAO's recommendations would put the CitiFinancial's of the world as a competitive disadvantage when compared to unregulated lenders. Now, we think, we understand how Citigroup, JP Morgan Chase et al. got involved in Enron, WorldCom, Dynergy and all the rest -- the Fed didn't want to put them at a competitive disadvantage. For shame...
We'd also be remiss to let slide the Fed's 16-page approval order for New Haven Savings Bank, demutualizing and buying two other Connecticut banks. After months of review, the Fed entirely sidesteps the major issues raised, and relies on outdated and discredited CRA exams. The Fed refused to extend the comment period in light of state public hearings on the proposal, so perhaps it's no surprise... As reviewed in this week's CRA Report, the Fed is now faced with mounting evidence of Bank One's enabling of payday lenders -- what the Fed will do remains to be seen...
The Fed put BofA-Fleet on its agenda for March 8, despite the continued withholding of most of BofA's responses to questions about subprime and Oakmont (and despite Fed lawyer Kit Wheatley's "two to three weeks" representation to the federal District Court in Hawaii, well less than two weeks ago...
March 1, 2004
Policy first, then the concrete: the Federal Reserve's responses to the GAO predatory lending study released last week were shameful. Despite the harm to consumers that has flowed from bank holding company subsidiary lending -- the GAO says that over one-quarter of subprime loans are made by BHC subsidiaries -- the Fed doesn't want to have to examine these subsidiaries, allegedly because it would create a competitive disparity with non-holding company lenders. The Fed doesn't address the fact that, if you're going to engage in standardless subprime lending while affiliated with a bank, it raises reputational and even safety-and-soundness issues...
Meanwhile, the Fed has yet to ask JPM Chase about its subprime lending, direct and enabling. In the Chase FSB proceeding, the Fed shamefully did nothing, asked nothing, not even what it's asked Bank of America, Wells Fargo and others. Now Chase is citing that proceeding back to the Fed. Lazy proceedings make for bad precedents...
The Fed so far is allowing National City to withholding most of its response about First Franklin and its subprime lending, in essence allowing the company to make secret arguments. It's getting worse and worse, including on FOIA, at the Fed...
Problems in both BofA's and Fleet's business are increasingly coming to light, as their merger applications still pend. On Feb. 24, federal and state regulators filed charges Tuesday against two FleetBoston Financial Corp. fund management units, alleging civil fraud in connection with market timing of fund trades. The next day, a California jury on Wednesday ordered Bank of America to pay at least $75 million in a lawsuit that plaintiffs' lawyers said could eventually bring $1 billion of damages. The suit, filed on behalf of more than one million customers, claimed the Charlotte company illegally used electronically deposited Social Security funds to pay overdraft charges on checking accounts. Still brewing (or steaming, for you cappuccino lovers out there), is Parmalat. Meanwhile, Federal Reserve lawyer Katherine Wheatley says the Fed will rule on BofA's applications in two to three weeks. How does she know that? And if that time-frame's true, how could the Fed do anything but deny BofA's application? Until next time, for or with more information, contact us.
February 23, 2004
On February 19, Inner City Press received a copy of a BofA response, dated Feb. 10, to twelve Federal Reserve Board questions, including about Oakmont (a subprime lender of which BofA owns 82%) and other subprime lenders with which BofA does business. BofA has requested confidential treatment for nearly all of its response on these issues; ICP has appealed:
The FRB staff on January 29, 2004, posed 12 questions, three of which have been omitted from BofA's response (the FRB inexplicable, and contrary to the FRB's own rules, apparently did not transmit a copy of its Additional Information letter to ICP, by fax, mail, or otherwise). Question 3 is about Oakmont, the subprime lender owned and controlled by BofA; BofA responds, "See Confidential Section, Response 3(a)." Similarly without merit, BofA claims "Confidential" status for its management interlocks with Oakmont, its business relationships with Oakmont, whether it proposes to securitize or purchase Oakmont loans, etc.. In response to Question 5, about BofA's previous statement that, following comments, it is "reviewing its existing policies," BofA claims Confidential treatment for its whole response. BofA's delays and withholdings are outrageous...
Meanwhile, the Fed has allowed the comment period to start running on National City's Provident proposal less than a week after the deal was announced -- and apparently before National City has submitted any application. National City's Allegiant application has disappeared from the Fed's H2A web site. [Update: and then, after this Report, went back up, in the H2A midweek update of Feb. 24.] But what of standardless subprime lending at National City's First Franklin unit? We'll see...
February 16, 2004
Last week, Inner City Press filed five Freedom of Information Act appeals with the Federal Reserve, challenging the Fed's increasing opaqueness and lawlessness, particularly in the service of the largest banks and their subprime lending operations. JP Morgan Chase, Wells Fargo, Bank of America -- on this last, the Fed has allowed BofA to delay two weeks in mailing out to commenters its response to Fed questions (which themselves should have been sent to commenters, bu