The U.S. Bancorp Watch

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Updated March 31, 2014

Update of March 31, 2014


RBS Sale of 93 Branches to US Bank Stalled, Info Withheld, CRA Protests

By Matthew R. Lee

SOUTH BRONX, March 26 -- When Royal Bank of Scotland proposed to sell its 93 Chicago-area branches to US Bank, the comment period was set to expire on February 20. Today that was extended to April 25.

The extension or "re-publication of notice" came after Fair Finance Watch and other community advocacy organizations commented to the US Office of the Comptroller of the Currency, about lending disparities and US Bank's refusal to disclose how many and which of the 93 branches it would close.

FFW commented, back in January, that

While on this disclosure of branches which would be closed the OCC should extend the comment period, for now, to ensure consideration, US Bank NA (Ohio)'s 2012 HMDA data reflect that in the Chicago MSA for home purchase loans both conventional and subsidized, US Bank made a smaller portion of its loans to Latinos than did even the aggregate, including lenders not subject to the Community Reinvestment Act.

For conventional home purchase loans in the Chicago MSA in 2012, US Bank made 1083 such loans to whites, 78 to African Americans and only 77 to Latinos. That is, US Bank made 14 such loans to whites for each loan to a Latino, a bigger disparity than is the case with the aggregate.

For the home purchase loans in Table 4-1 in the Chicago MSA in 2012, US Bank made 268 such loans to whites, 68 to African Americans and only 60 to Latinos. That is, US Bank made 4.47 such loans to whites for each loan to a Latino, a significantly bigger disparity than is the case with the aggregate.

  US Bank replied that it needn't disclose which branches it would close. Fair Finance Watch reiterated its request in Washington DC in mid-March, along with NCRC, and in supplemental comments. And on March 26, the OCC confirmed that the comment period is extended to April 25, and portions of US Bank's response released.

  The problem is that large portions of US Bank's response are withheld, or simply redacted in black Magic Marker, first Tweeted here by @FinanceWatchOrg, click here to view. Fair Finance Watch and Inner City Press immediately filed with the OCC a Freedom of Information Act request

"for all withheld / redacted information from US Bank's March 21, 2014 submission in connection with its application to acquire branches from RBS Charter One. ICP / Fair Finance Watch commented on the application, and earlier today the OCC provided a redacted copy of US Bank's submission. Nearly the entire fair lending response is redacted, as is information about US Bank's claimed support to non-profits. Since such information is presumptively public, it must be unredacted and released. We are challenging each redaction, making this FOIA request for the entire, unredacted submission in this application process we timely challenged."

Now whether these withholdings can stand up must be ruled upon.

  In terms of commenting of what was released, ICP says "Now that US Bank has admitted to the Federal Reserve that it would eliminate Charter One's Credit Builder and energy efficiency loan programs, and make it more difficult for the customers it would acquire to avoid fees, the Fed should schedule public hearings."

  Prediction: the document put online yesterday will be reported in the Windy City.
Meanwhile Royal Bank of Scotland is looking to sell off its Citizen Bank unit in the Northeast, to Japan’s Sumitomo Mitsui Financial Group or another. Watch this site.

Update of February 24, 2014:

Inner City Press / Fair Finance Watch has put in a third comment on US Bank - RSB / Charter One:

On behalf of Inner City Press / Fair Finance Watch (ICP) this is a third timely comment on the application of US Bank to acquire 94 branches from RBS Citizens / Charter One and close or consolidate some still unknown number of them.

We write at the stated deadline for comments again requesting an extension of the comment period as, having belatedly received the "public" portion of the application, we find therein NO disclosure of the branches that would be closed.

After for example the precedent of Huntington (and, in the Northeast, of Rockville and United in Connecticut and Massachusetts), both of which disclosed which branches they would close during the comment period, Huntington even re-starting the comment period to do so, to not extend this comment period on 93 branches would be a major step backward for the OCC.

ICP submitted a first comment and request for at least the public portions of the application, on January 11. While the comment has been acknowledged, so far ICP has seen no questions put to US Bank by the OCC, nor any portion of the application. This stands in contrast to other Federal regulators processing of, for example, earlier still pending applications by Umpqua and Mercantile in Michigan. (The FDIC has also posed questions to Mercantile, see for the record http://www.innercitypress.org/merc1fdicicp012914.pdf).

The OCC should not be more lax, or less transparent. Information should be provided and the comment period should be extended.

On the current record, hearings should be held and the applications / notices should not be approved.

Update of February 10, 2014:

With the comment period on US Bank's application to acquire 94 branches from Royal Bank of Scotland set to expire on February 20, Inner City Press / Fair Finance Watch has put in a second comment:

Re: Second timely Comment Opposition and Requesting Hearings and an Extension of the Comment Period On the Applications of US Bank to Acquire 94 Branches from RBS Citizens' Charter One

Dear Director for District Licensing and others in the OCC:

On behalf of Inner City Press / Fair Finance Watch (ICP) this is a second timely comment on the application of US Bank to acquire 94 branches from RBS Citizens / Charter One and close or consolidate some still unknown number of them.

ICP submitted a first comment and request for at least the public portions of the application, on January 11. While the comment has been acknowledged, so far ICP has seen no questions put to US Bank by the OCC, nor any portion of the application...

In its January 11 comment, ICP analyzed the 2102 Chicago MSA HMDA data of US Bank NA (Ohio). In this second submission we look more closely at Ohio.

In the Cincinnati Ohio MSA for conventional home purchase loans in 2012, US Bank made 336 such loans to whites, only 16 to African Americans and only three to Latinos. For the home purchase loans in Table 4-1 in this MSA in 2012, US Bank made 225 such loans to whites, only 21 to African Americans and only three to Latinos. Thus, cumulated for all home purchase loans in this MSA in 2012, US Bank made 561 such loans to whites, only 37 to African Americans and only six to Latinos.

For refinance loans in the Cincinnati Ohio MSA in 2012, US Bank made 1232 such loans to whites, only 44 to African Americans and only six to Latinos. Its denial rate for whites was 18.2% but fully 35.7% to Latinos and 29.6% to African Americans. This is disparate.

In the Akron Ohio MSA for conventional home purchase loans in 2012, US Bank made 34 such loans to whites, only one to an African American and NONE to Latinos. For the home purchase loans in Table 4-1 in this MSA in 2012, US Bank made 13 such loans to whites, only one to anAfrican American and again none to Latinos. Thus, cumulated for all home purchase loans in this MSA in 2012, US Bank made 47 such loans to whites, only two to African Americans and NONE to Latinos.

For refinance loans in the Akron Ohio MSA in 2012, US Bank made 192 such loans to whites, only six to African Americans and again none to Latinos. Its denial rate for whites was 18.5% but fully 36.4% to African Americans. This is disparate.

In the Cleveland Ohio MSA for conventional home purchase loans in 2012, US Bank made 92 such loans to whites, only six to African Americans and NONE to Latinos. For the home purchase loans in Table 4-1 in this MSA in 2012, US Bank made 58 such loans to whites, five to African Americans and five to Latinos. Thus, cumulated for all home purchase loans in this MSA in 2012, US Bank made 150 such loans to whites, only 11 to African Americans and only five to Latinos.

For refinance loans in the Cleveland Ohio MSA in 2012, US Bank made 478 such loans to whites, only 21 to African Americans and only 14 to Latinos. This is disparate. Such disparities exist throughout US Bank's franchise, as we will further present including at the requested public hearings.

We are also timely putting into the record consumer complaint information [attachments]

Again, US Bank has a record of closing branches, and in connection with this proposed acquisition announced on January 7, US Bank spoke of "some overlap" between branches but "said it’s too early to say whether any will be closed." Chicago Tribune, January 7, 2014.

US Bank should have to disclose which branches it would close, during the comment period, as for example Huntington Bank recently had to do in connection with its smaller proposal to acquire Camco's Advance Bank. In that case, Huntington re-applied and gave public notice of which branches it would close -- that should be done here.

Update of January 13, 2014: After US Bank announced on January 7 it would seek to acquire 94 branches from RBS Citizens' Charter One, but that it is "too early" to say which of these it would close, Inner City Press / Fair Finance Watch four days later filed an initial comment with the Office of the Comptroller of the Currency:

Dear Director for District Licensing and others in the OCC:

This is a request in advance for a full copy of, and a timely comment requesting an extension of the OCC's public comment period on the Applications of US Bank to acquire 94 Branches from RBS Citizens' Charter One and close some as yet unknown number of them.

US Bank has a record of closing branches, and in connection with this proposed acquisition announced on January 7, US Bank spoke of "some overlap" between branches but "said it’s too early to say whether any will be closed." Chicago Tribune, January 7, 2014.

US Bank should have to disclose which branches it would close, during the comment period, as for example Huntington Bank recently had to do in connection with its smaller proposal to acquire Camco's Advance Bank. See, e.g., "Huntington plans 9 branch closings in Camco deal," by Evan Weese, Columbus Business First, Dec 23, 2013. http://www.bizjournals.com/columbus/news/2013/12/23/huntington-plans-9-branch-closings-in.html

In that case, Huntington re-applied and gave public notice of which branches it would close -- that should be done here.

While this disclosure of branches which would be closed, the OCC should extend the comment period. For now, to ensure consideration, US Bank NA (Ohio)'s 2012 HMDA data reflect that in the Chicago MSA for home purchase loans both conventional and subsidized, US Bank made a smaller portion of its loans to Latinos than did even the aggregate, including lenders not subject to the Community Reinvestment Act.

For conventional home purchase loans in the Chicago MSA in 2012, US Bank made 1083 such loans to whites, 78 to African Americans and only 77 to Latinos. That is, US Bank made 14 such loans to whites for each loan to a Latino, a bigger disparity than is the case with the aggregate.

For the home purchase loans in Table 4-1 in the Chicago MSA in 2012, US Bank made 268 such loans to whites, 68 to African Americans and only 60 to Latinos. That is, US Bank made 4.47 such loans to whites for each loan to a Latino, a significantly bigger disparity than is the case with the aggregate.

Such disparities exist throughout US Bank's franchise, as we will further present along with RBS issues including at the now-requested public hearings. Also to ensure consideration and action as quickly as possible, we are entering this into the record, from the American Banker newspaper of January 4, three days before this proposal was announced:

Banks Keep Offering Deposit Advances, Six Weeks After Crackdown

U.S. Bank [is] still offering deposit advances six weeks after regulators finalized sweeping guidance that raised doubts about the product's viability. As of Friday afternoon, the two big banks were still offering the product — which bears a strong resemblance to the payday loan — on their websites, with terms that appear out of compliance with the guidance. Judging from public statements, the banks' primary regulator has not blessed the product's continuation, even in the short term. The Office of Comptroller of the Currency, which issued the guidance alongside the Federal Deposit Insurance Corp., says the document became effective in late November, and there is no grace period.

"Banks that fail to comply with the guidance should expect that the OCC will take appropriate supervisory action, and enforcement action if necessary, to prevent harm to consumers, ensure compliance with appliance laws, and address any unsafe or unsound banking practice or violations of law associated with these products," OCC spokesman Bryan Hubbard says in an email...

U.S. Bank declined to say whether they have made any changes to their deposit advance products since the guidance was issued in late November. But a review of their websites suggests that what they're currently offering is not in compliance with the guidance.

The guidance contains a provision stating that banks should allow at least one statement cycle (which is typically a month) to elapse between the repayment of one deposit advance and the offer of a second loan. Yet... U.S. Bank's site says that the bank may limit access to the product if a customer uses it in nine consecutive statement cycles.

So did the OCC mean what it said? This is a timely request for public hearings.

The comment period should be extended to accept further HMDA analysis as well as information on the prospective branch closings.

On the current record, hearings should be held and the applications should not be approved.

Update of April 8, 2013 -- In the first study of the just-released 2012 mortgage lending data, Inner City Press and Fair Finance Watch have found that US Bank NA continued with high cost loans and disparities by race and ethnicity in denials and higher-cost lending. 2012 is the ninth year in which the data distinguishes which loans are higher cost, over a federally-defined rate spread of 1.5 percent over Treasury bill yields. The just released data show that US Bank NA confined African Americans to higher-cost loans above this rate spread 1.74 times more frequently than whites in 2012, Fair Finance Watch has found. Suntrust Mortgage confined Latinos to higher-cost loans above the rate spread 1.97 times more frequently than whites in 2012, the data show. There are some irregularities in US Bank NA's data that Inner City Press / Fair Finance Watch will be further raising.

Update of June 18, 2012: In Detroit, the group Moratorium argues that Michigan "Governor Snyder, trying to bully Detroit and stop the lawsuit against the 'consent decree,' is threatening that '100% of the city’s ongoing revenue sharing payments will be U.S. Bank … with no residual payments transferred to the city until the $80 million bond is paid in full' (Deputy Treasurer Thomas Saxton quoted in The Morning Sun). So the state is planning to give U.S. Bank all our revenue sharing money after years of refusing to pay revenue sharing money already owed to the City – the exact reason for the lawsuit in the first place. Who is U.S. Bank? This is one of the banks that criminally targeted Detroit by selling racist, fraudulent, predatory loans to over 80% of the people taking out mortgages or refinancing. This directly led to the foreclosure crisis that destroyed the tax base of Detroit and drove hundreds of thousands of people from the city."

April 2, 2012 -- In the first study of the just-released 2011 mortgage lending data, Inner City Press and Bronx-based Fair Finance Watch have found that US Bancorp continued with high cost loans and disparities by race and ethnicity in denials and higher-cost lending.

2011 is the eighth year in which the data distinguishes which loans are higher cost, over a federally-defined rate spread of 1.5 percent over Treasury bill yields.

The just released data show that US Bancorp confined African Americans to higher-cost loans above this rate spread 2.12 times more frequently than whites in 2011, worse that its disparity in 2010.

Update of January 16, 2012: Nickeled and dimed, per even the WSJ: U.S. Bancorp already hits customers with a 99-cent fee to make a mobile deposit.

Update of April 12, 2010: In the first study of the just-released 2009 mortgage lending data, Inner City Press / Fair Finance Watch has found that U.S. Bancorp confined African Americans to higher-cost loans above the Federal defined subprime rate spread 1.72 times more frequently than whites. U.S. Bancorp confined Latinos to higher-cost loans above the rate spread 1.71 times more frequently than whites, the data show. 2009 is the sixth year in which the data distinguishes which loans are higher cost, over the federally-defined rate spread. Further studies will follow.

Update of April 27, 2009: From the mailbag -

Subj: Attn: Matthew Lee, Executive Director or appropriate staff
From: [Name withheld in this format]
To: Inner City Press
Sent: 4/17/2009 10:37:28 P.M. Eastern Daylight Time

I'm in a fix with US Bank as they have attempted to keep me in perpetual debt to them by using late fees, or overdraft fees. Lately I've moved my account to a credit union, and closed my account with US Bank. I paid in full the negative amount in doing so, and now they claim I own them $795.50 in a negative balance. Again, "overdraft fees".It has been hard to shake these people off. They almost had me lose my apartment, my electricity was off for a week, my phone was off for 4 months. During that time, I had an auto deposit I could not stop because of a perpetual negative balance they claimed even when the deposit was well over the negative. Is there any law I can use to stop these idiots? I doubt I'm the only one having this problem with there predatory practices. And can't the state pull their charter?

Update of April 6, 2009 -- In the first study of the just-released 2008 mortgage lending data, Inner City Press / Fair Finance Watch has found that US Bancorp confined African American to higher-cost loans above the rate spread 1.55 times more frequently than whites, and 1.35 time more frequently than whites for Latinos. 2008 is the fifth year in which the data distinguishes which loans are higher cost, over the federally-defined rate spread of 3 percent over the yield on Treasury securities of comparable duration on first lien loans, 5 percent on subordinate liens.

Update of November 3, 2008:

 From the mail bag

Subj: A US Bank story

From: [Name withheld in this format]

To: Inner City Press

Date: 11/1/2008 12:53:33 P.M. Eastern Standard Time

In an issue of the Portland Oregonian in late 2001, there was a small 4-5 paragraph article buried in the last pages of the front part of the paper. It spoke of a high level security employee of US Bank that was gathering evidence to present to the FBI regarding US Bank account and Branch managers.  Apparently, they were selling names of consumers who had accounts to certain Cincinnati, Ohio Consumer Finance Division’s loan officers. Aggressive sales tactics were employed to recruit potential loan applications in which somehow dummy accounts were established not to the benefit of the person applying for a loan, rather those who were behind the scheme.

The US Bank security person who uncovered this scheme never did submit her documentation to the FBI, because she apparently decided to suddenly retire, and conveniently was unavailable for comment on the story. It never went nowhere. I consider myself as one of the victims of the scheme here 6 years later still have not found any closure nor justice.

It is unfortunate because I had not learned of this article until 3 maybe even 4 years after it had appeared in the Oregonian. Had I known, perhaps the outcome that personally tore this family to shreds may have been avoided. There was an accounts manager at my local Scappoose, Oregon branch that pursued me to refinance to the point of being totally annoying, so much so that I would not even go into the branch, opting to either going to a different branch or banking through the ATM. The most extreme was one morning while at the ATM, this individual saw me and came outside to ATM to once again “sign us up”.

Strange? Perhaps not except for the fact that it was during a torrential downpour.

The owner of the company my wife was consulting for had some issues with a competitor over patent rights or something along those lines, and decided to retire and dissolve the company. My wife, being tired of traveling and being away from home decided to go back to a firm on a salary basis, the consequence being a drastic reduction in income. That is not to mention the coinciding terrorist attacks of 9/11 and consequences that rippled through the economy that affected my business.

Finally, we succumbed to the pressure and gave permission to this accounts manager to forward our name to the Consumer Finance Division. Of course, we were investigating our options with our lenders and such, but none pursued us on a daily basis as did the loan officer from US Bank, promising this and promising that. The heavy handed sales tactics and pressure clouded our better sense, because we lost sight of all the problems we had at the local level branch level. Tellers posting to incorrect accounts resulting in bounced checks and overdrafts, I mean it was constant. If we are guilty of anything it is moving forward with US Bank on a refi, given all the problems we were already having.

It was after one of these “mispostings” that I had gone to see the same accounts manager that doggedly pursued us, to correct the tellers mistakes and set our personal accounts correct. We walked through it, he saw the mistakes made and promised that it would be taken care of and to stop in tomorrow if it was not done yet. The following day nothing was corrected and so I stopped in and to amazement this accounts manager was gone for good. I was told that he transferred to a location closer to his home, which I found very odd because he was from a rural area, more so than Scappoose, and this was a considerable step up for him. Just like that, overnight, he was gone. This “disappearing” act, I would come to learn over the years to come is a tactic used to keep consumers at bay. After discovering the article in the Oregonian, I went back through my records and checked for timeframe. Turns out that the day that the article was published was the same day I had met the accounts manager regarding the mispostings. Coincidence? It is one of those questions that never has been answered.

We were given assurances, verbally, time and again, that we were all approved for this refi and that was holding it up was the appraisal and if it would come in high enough. Once that was done, we would essentially be done in a couple of days. That was nothing more than deceit, lies and simply keeping us on the line of their hook. The appraisal was done and we were well above where it needed to be and we assured it would be wrapped up by Christmas of 2001. Christmas came and went with nothing done.

We were getting very concerned as estimated business taxes on my wife's consulting and my business we rapidly coming due. We were going fall 7800 dollars shy and part of the disbursements from the refi were going to cover that. It became apparent that this was going to drag through past the 15th of January and we were furious that all their promises had been unfulfilled, yet we had come this far and to start all over someplace else was just unthinkable at this point. Our loan officer suggested that we find someone to lend us the 7800 and that she would personally secure a note with that person to the disbursements funds, in essence guaranteeing payment back to this person.

I asked my mother in Cleveland Ohio and she agreed to lend the money, everything else was handled by the loan officer. She contacted my mother and explained that she would have some sort of document that would secure her name to the disbursement funds. As we are in Oregon, the funds needed to transfer via Western Union. This loan officer went as far as walking my mother step by step on how to do so. The note that guaranteed repayment that was promised never did arrive, nor for that matter did the refi.

People look at me when I tell that part of the story as if I am an idiot, a liar or a bad storyteller, and who is to blame them. After all it's totally outlandish. Preposterous, absolutely so, but totally true. Is it in writing? Of course not, US Bank puts none of their promises in writing, only what they can screw you with, not what would screw them.

However, phone records and transference of fund records, and my mother don’t lie. We later came to find out that this scheme was concocted by the loan officers supervisor. I call that fraud.

Finally, on morning in mid February 2002, as we walking out the door to go and sign the paperwork finalizing the refi. We get phone call from our loan officer. She tells us that their has been a stipulation added that simply destroyed the whole deal. We were told that because of my wife's short time at new place of employment and my being unemployed suddenly had caused concern as to whether we should be loaned money to. Never was this even a concern to them prior. We later came to find out that it was a concern long ago and that they had farmed us out to other lenders and they found one in a place call Greenpoint, but never shared that information with us, as a matter of fact it was deliberately held from us. All the while we were being told everything was hunky dory.

The stipulation for approval is again something that people look at me as if I am idiot.

I am in Architecture and I designed and built our home. It sits on a slight downslope because of that there is a basement area that is known as a daylight basement. I designed it as such so that in the future it could be modified into living space. However, that would be under a separate building permit and was for all intensive purposes is deemed as nothing but a crawl area. US Bank and Greenpoint decided in their infinite wisdom that in order to get the refi we would now have to make the daylight basement livable.

In other words, we would have had  to obtain a building permit, bring in rock and pour a slab over, and additionally insulate and drywall the walls at a cost of 15,000 – 20,000 dollars. That did it that was the final straw, to which we walked away very, very angry. We felt like we were raped. On top of that our loan officer told us not to pay the mortgage payment to Washington Mutual, that she had it worked out with them with all these prior delays and that it was all taken care of. Naïve our part? Absolutely it was, but this is their business, a consumer should be able to put trust in that. For that we were very very stupid.

In the early part of 2002 the lending practices were still rather strict and we found ourselves not being able to get a refi anywhere. No one would touch us because of a past 30 day on our mortgage that showed up on our credit report. It did not matter what the reason was.

Our intention to adjust our finances to our personal and economic changing times was destroyed. The stocks we held and the savings we had all withered away to keep pace with what had become financial chaos. I was determined to fight back because I believed in justice and truly believed that we mattered. I came to find out that we do not matter. I filed a complaint with the OCC, and they contacted me back asking me to send them all the info I had so they could review it and proceed further. They even told me to fax it as opposed to mailing my docs, as it would find its way quicker into their hands. I did that, on a Sunday evening. I faxed about 150 pages if not more, and the following day I called to ensure that it was received.

I was stunned when the woman on the side of the line admonished me for having the nerve and stupidity to fax that many documents. I asked them if they were going to review and she said that they do not have time to pour through that many pages and that they wrapped it all up with a cover letter and sent it to US Bank. As I understand it in a civil matter I am not obligated to provide the defendant with discovery. Any chance of that happening went right out the door when the agency designed to protect me as a consumer

Did just the opposite.

If you have ever missed a car payment then you know that the calls come daily if not 2 or 3 times, and that’s what my life became. A balancing act, paying the mortgage one month and skipping other ones and then the following month doing the opposite, all the while the credit report overall number divebombing. Being a one person office those calls came to that phone line. Every single I made it a point that I was going to find justice, and I called the 800 number of US Bank, never speaking to the same person twice, and being bounced all over the country to get nowhere. While at the same time I was also receiving phone calls from their collections department looking for the payment on a second that we had with them. I exaggerate not when I say that in a 1-1/2 year period I spoke with over one thousand different US Bank personnel, and the small handful that took an interest in my pleadings for help would  disappear……be transferred. To this day, I am still appalled by that.

The day that the refi fell apart, and after we were done screaming at the loan officer she had faxed me a copy of a field review that was commissioned by US Bank, which is common practice, but nonetheless a document that is to be used in house and not privy to us, the loan applicant. Their was so much emotion that day that it did not occur to me until long after a statement that she had made to me, and that was that “you did not get this from me”. In an effort to shorten an already very lengthy letter, what it came down to was that the person who did the field review was not licensed to appraise our particular zone or type of estate property, as we sit on 5 acres.

It took about a week of spouting off about the appraisal when all of a sudden, after months of getting nowhere, I suddenly find myself taking a call from The President of Consumer Finance. Which is just another long story ending in corporate America screwing the common man and getting away with it.

Update of July 21, 2008: Annals of financial journalism -- from Iowa last week, we have this: " Having never 'played in' the subprime lending industry, Donohue said U.S. Bank actually stands to benefit somewhat during a time of economic downturn." What? U.S. Bancorp owned 25% of notorious predatory lender New Century, and makes its own subprime loans...

Update of April 7, 2008: In the first study of the just-released 2007 mortgage lending data, Inner City Press / Fair Finance Watch finds that U.S. Bancorp continued to make super high-cost loans subject to the Home Ownership and Equity Protection Act (HOEPA) -- that is, at least eight percent over comparable Treasury securities.

Update of March 3, 2008: Now U.S. Bancorp must file reports on its mortgage delinquencies and foreclosures with the Office of the Comptroller of the Currency. Information from October 2007 through February is due by March 31. Better late than never.

Update of April 10, 2006: The 2005 Home Mortgage Disclosure Act data, which Inner City Press / Fair Finance Watch received in late March from US Bank, reveal that, considering all conventional first-lien loans, US Bank in 2005 confined African Americans to rate spread loans 2.14 times more frequently than whites. The Federal Reserve has defined higher-cost loans as those loans with annual percentage rates above the rate spread of three percent over the yield on Treasury securities of comparable duration on first lien loans, five percent on subordinate liens. While comprehensive income comparisons will not be possible until the aggregate data is released in September, ICP / Fair Finance Watch has designed an innovative way to consider income correlations, by calculating upper and lower income tranches based on each lenders own customers. Nationwide at US Bank for conventional first-lien loans, upper income African Americans were confined to higher cost loans over the rate spread 2.74 times more frequently than whites. Income does not explain the disparities at US Bank. More analysis will be forthcoming.  For or with more information, contact us.

Update of March 6, 2006: Payday lender ACE Cash Express last week put out a press release bragging that that it has "amended its existing bank credit facility" with the involvement of U.S. Bank as Documentation Agent...

Update of September 12, 2005: U.S. Bancorp will pay a $500,000 fine to settle Securities and Exchange Commission claims that it traded nearly $7 billion of foreign currencies with mutual funds it advised, violating federal laws that prohibit trading with affiliates. USB also agreed to a cease-and-desist order and will make changes to strengthen its compliance program. Yeah, right...

Some earlier reports, with a focus on FOIA:

Update of May 26, 2003: We're just received a Freedom of Information Act appeal response from the Office of the Comptroller of the Currency, one hundred-and-some pages responsive to Inner City Press' September 15, 2002, appeal regarding the OCC's handling of U.S. Bank's application to acquire Bay View Bank's 57 branches. On Sept. 11, 2002, Richard Hidy of U.S. Bank wrote to the OCC informing them that "Bayview received Proxy approval last night, so they will start calling their DC examiner for prompt OCC approval." This is followed by a Sept. 12 internal OCC e-mail, "Can you give me an idea of when the approval," etc; a Sept. 16 OCC e-mail referring to ICP's "complaint letter," stating that U.S. Bank "is obviously very interested in the approval since it determines when (or if) the bank will be able to close on this transaction. They are planning the shareholder vote for October 3, 2002 and would like to close the transaction as soon as possible after the shareholder vote [REDACTION]."

   Then, on Oct. 3, another OCC e-mail: "There are a couple of additional questions that have been raised, that I hope you can answer without too much additional research... The FRB has indicated that US Bank did make about 76 loans in San Francisco, and that those are reported somewhere in the disk that was provided to [ICP]. Based on this information, [REDACTED]."

  The reasons the Federal Reserve Board mailed ICP a disk containing US Bank's 2001 mortgage data is that the data uploaded to the FFIEC.gov website was incomplete. An e-mail submitted to US Bank to the OCC blames this incompleteness on "the anthrax scare," and goes to great lengths to show US Bank's burning desire to provide this data to ICP (to expedite its application). US Bank states that "we were one of 5% of reporting banks impacted by the anthrax scare in Washington from the 9/11 events of 2001... In order not to delay this process further, our CRA team generated a disk with all of our 2001 HMDA information, and shipped it to our New York counsel... We then instructed our New York counsel to print the contents of the disk (12,000 pages), and deliver the disk, and printed pages, to [ICP]... Also on September 18, we reached Patricia Dykes with the Fed. She agreed to generate a disk that would contain the information in the exact form as on a properly working FFIEC site, and overnight the disk directly to [ICP]." The OCC then wrote up this tale of woe (or judgment), trying to blame the community group commenter (ICP) for the inaccuracy of the publicly available data, for being unable to immediately analyze 12,000 pages of data, or to analyze data in the high-falutin computer program in which the bank provided it. The OCC did, however, extend the comment period to Oct. 2. ICP and others commented; the OCC, however, delivered approval to US Bank on October 10 -- later than the bank had requested, but still calling into question whether the analysis of the missing data, provided on Oct. 2, was even considered. The OCC continues withholding sixty pages of responsive records...  For or with more information, contact us.

Update of December 23, 2002: A development on the U.S. Bancorp beat -- in opposing Household International's proposal to sell-off its subprime credit card lending Orchard Bank division of Household Bank f.s.b., to Idaho's Panhandle State Bank (through which HSBC seeks to avoid the Community Reinvestment Act), ICP stumbled on a description of U.S. Bank as the proposed financier of this sell-off.

    On Dec. 13, 2002, ICP obtained a copy of Panhandle's application to the FDIC to acquire -- at no cost, see below -- Household Bank FSB's Orchard Bank division. Panhandle's Application states that its parent "has applied with and received preliminary approval from US Bank for $8 million in trust preferred securities... to maintain required capital ratios... no obligation to purchase the Securities and may in its sole discretion choose to terminate any potential transaction." Emphasis added.

     As set forth below in this U.S. Bancorp Watch Report, U.S. Bank's parent, U.S. Bancorp, has previously been questioned, by ICP and the Federal Reserve Board, among others, concerning its investments in the publicly-traded subprime lender New Century, and other subprime connections. U.S. Bancorp subsequently relinquished that stake, and made various statements about its "standards" with regard to business transactions with subprime lenders.

    Now, however, U.S. Bank is described by Panhandle as proposing to provide the sine qua non funding for the purchase of a subprime credit card lending unit of a company, Household, charged on Oct. 11, 2002, and since with predatory lending by state attorneys general and others. ICP has now begun raising this U.S. Bank / predatory lending issue to the regulators, based on statements in Panhandle's application, and requesting action thereon.

    There's another (U.S. Bank) issue in Panhandle's application: the tables to Panhandle's purported "Competitive Market Analysis" reflect that Household Bank f.s.b.'s Orchard Bank division has a whopping 34.47 percent market share, and that the pro forma "HHI" index, if Panhandle's application were approved, would rise to a presumptively anti-competitive level. Panhandle's Household application has been opposed by ICP on antitrust, as well as CRA, predatory lending and consumer protection, grounds. As stated in an FDIC Dec. 16, 2002, letter to ICP, Panhandle's application is incomplete -- including on this issue: since U.S. Bank is the proposed financier of Panhandle's ill-conceived desire to acquire Household's Orchard Bank, U.S. Bank's market share (in Panhandle's Table 2, 15.20 percent -- the second largest share after Household's Orchard's) may not legitimately be viewed separately, as an arms-length competitor. Our question, which we'll be trying to answer as soon as possible in this space: what is U.S. Bancorp doing?  It may be that things are not as Panhandle has presented them...

* * *

Update of October 21, 2002: In an October 15 conference call with stock analysts, U.S. Bancorp vice chairman David Moffett let slip that "We've already received OCC approval and the Bay View shareholders have also approved. As far as we're concerned, we will close very shortly." Despite the continuing lack of availability of U.S. Bancorp's 2001 Home Mortgage Disclosure Act data on the FFIEC web site, the OCC on October 10 approved U.S. Bancorp's application to acquire Bay View Bank's 57 branches. Much to the consternation of various arbitrageurs, the OCC put out no press release; it sent Inner City Press notice of the approval by regular mail...

Update of October 7, 2002: on October 2, ICP submitted a second comment opposing U.S. Bank's application to acquire Bay View Bank's 57 branches. The comment is summarized below. Thereafter, on October 4, U.S. Bancorp submitted a Response to ICP's comments. The Response does not address what consumer protection safeguards, if any, apply to U.S. Bank's high loan-to-value lending, and state without further explanation that despite the June 2002 Origination News report that ICP cited, "U.S. Bank is not currently a participant in New Century's long-term debt." U.S. Bancorp tries to explain the abnormally high percentage of its loans that are reported as "Race Not Available" as being attributable to "the combination of U.S. Bank and Firstar Mortgage operations in California in 2001." U.S. Bank does not address the legitimacy of closing the comment period while its 2001 California HMDA data is not available to the public, as it should be, on the FFIEC Web site. Meanwhile, the Philadelphia Inquirer of October 1 reported on U.S. Bank, N.A. settling charges of its involvement in predatory loans under HUD's Title-1 program in the Philadelphia area.

October 2, 2002

Via Fax to (312) 435-0951
Office of the Comptroller of the Currency
Central District Office
Attn: Dave Rogers, Licensing Manager,
440 S. LaSalle Street, Suite 2700
Chicago IL 60605-1073

Re: Timely comment on the applications by U.S. Bank, N.A. to acquire the 57 branches of Bay View Bank

Dear Mr. Rogers, et al.:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a timely supplemental comment on the applications by U.S. Bank, N.A., to acquire the 57 branches of Bay View Bank.

     ICP's September 15, 2002, First Comment noted, inter alia, that California 2001 Home Mortgage Disclosure Act ("HMDA") data was not available on the FFIEC.gov Web site. Under Federal Reserve Board ("FRB") cover letter dated September 19, 2002, ICP received a CD-ROM with fully 828 files for each HMDA Table. Since then ICP has endeavored to review and analyzed these files, which are notably less easy and practical to work with than the data that should be available on the FFIEC.gov site. While we appreciate the OCC's September 25, 2002, letter extending the comment period through October 2, and informing us that the OCC has asked the FRB to correct U.S. Bank's HMDA data, for the reasons set forth below we request an additional extension of the comment period, including until the FRB / FFIEC do, in fact, correct the publicly-available HMDA data for U.S. Bank, particularly in California.

    There are 25 Metropolitan Statistical Areas ("MSAs") in California; ICP has reviewed the CD-ROM files [FN: Or lack thereof: see infra] for HMDA Table 4-2 (conventional home purchase loans by race) for U.S. Bank, N.A. for these 25 California MSAs. According to the CD-ROM provided by the FRB, U.S. Bank in 2001 reported Table 4-2 HMDA data in 15 of these 15 MSAs. Notably, the CD-ROM provided by the FRB did not contain any HMDA Table 4-2 data for U.S. Bank in the San Francisco MSA [FN: Nor in the Visalia, Santa Rosa, Santa Cruz, Santa Barbara, San Luis Obispo, Salinas, Merced, Fresno or Bakersfield MSAs].

    For the California MSAs for which the FRB CD-ROM did provide U.S. Bank 2001 HMDA data, the data are troubling. For example, in the Oakland MSA in 2001, U.S. Bank did not originate a single conventional home purchase loan to an African American, originated only one such loan to a Latino, and 21 such loans to whites. Strangely, U.S. Bank reported an even larger number of 4-2 originations in this Oakland MSA as "Race Not Available." In any event, it is instructive to review the aggregate's 4-2 performance in Oakland in 2001: 2171 loans to African Americans, 5221 to Latinos and 19,157 to whites. Of these three groups, 8.2% of the aggregates' loans were to African Americans, and 19.7% were to Latinos. The percentage of U.S. Bank's lending that is to people of color in this MSA is substantially less than for the aggregate. The lack of any San Francisco MSA data should also be inquired into and explained.

    In the San Diego MSA in 2001, as in Oakland, U.S. Bank did not originate a single conventional home purchase loan to an African American, while originating in San Diego 33 such loans to whites. Meanwhile U.S. Bank reported fully 30 such originations in the San Diego MSA as "Race Not Available." In the Sacramento MSA, U.S. Bank originated only one conventional home purchase loan to an African American, 14 to Latinos and 131 to whites. Meanwhile U.S. Bank reported fully 52 such originations in the Sacramento MSA as "Race Not Available."

    In the Vallejo MSA, U.S. Bank originated no conventional home purchase loan to African Americans, three to Latinos and 14 to whites. Meanwhile U.S. Bank reported fully 24 such originations in the Vallejo MSA as "Race Not Available."

    U.S. Bank's disparities are not limited to conventional home purchase loans. For refinance loans in the Los Angeles MSA in 2001, U.S. Bank made only two such loans to African Americans, 15 to Latinos, and 28 to whites. It is instructive to review the aggregate's 4-3 performance in Los Angeles in 2001: 11,911 loans to African Americans, 46,636 to Latinos and 100,978 to whites. Of these three groups, 7.5% of the aggregates' loans were to African Americans. The percentage of U.S. Bank's lending that is to African Americans in this MSA is substantially less than for the aggregate.

    Finally (for now), for refinance loans in the Oakland MSA in 2001, U.S. Bank made only four such loans to African Americans, three to Latinos, and 56 to whites. It is again instructive to review the aggregate's 4-3 performance in Oakland in 2001: 7587 loans to African Americans, 10,708 to Latinos and 61,751 to whites. Of these three groups, 9.5% of the aggregates' loans were to African Americans, and 13.4% were to Latinos. U.S Bank's percentages are 6.3% to African Americans and 4.8% to Latinos. The percentage of U.S. Bank's lending that is to people of color in this MSA is substantially less than for the aggregate. Note that U.S. Bank in 2001 reported fully 88 of its refinance originations in Los Angeles, and 146 in Oakland, as "Race Not Reported,

    Clearly, U.S. Bank (even according to this informally corrected data) is reporting a far higher percentage of its loans as Race Not Available that other lenders, particularly those, like U.S. Bank, with branches in these markets. ICP had hoped that a review of U.S. Bank's 2001 HMDA data in California would allay some of its concerns; this has not been the case. In light of the issues raised, ICP formally asks the OCC to extend the comment period until the FRB grants or denies the OCC's (and ICP's) request that the 2001 HMDA data set be corrected, with U.S. Bank's HMDA data -- ICP also believe that it may be necessary for U.S. Bank to correct its own 2001 HMDA data, in light of the high (and less-than-credible) percentage of loans it initially reported as "Race Not Reported."

     On the current record, ICP does not believe that the OCC could legitimately approve U.S. Bank's proposal to acquire Bay View Bank's 57 branches in California.

    If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew R. Lee, Esq.
Executive Director
Inner City Press/Community on the Move
& Fair Finance Watch

    This will be updated. For or with more information, contact us

* * *

Update of September 30, 2002: on September 25, the OCC wrote to Inner City Press that, in light of the Home Mortgage Disclosure Act discrepancies ICP had identified, the OCC "has extended the comment period until October 2, 2002... In addition, please be advised that the OCC has requested the Federal Reserve Board to update the HMDA data as soon as possible." ICP has made a similar (perhaps broader) request to the Fed; it is summarized below. For or with more information, contact us

                                                                                           September 30, 2002

Board of Governors of the Federal Reserve System
Attn: Chairman Greenspan, Jennifer J. Johnson, Secretary, and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

Re: Formal request that the FRB forthwith make necessary corrections to the publicly-available HMDA data, of U.S. Bancorp and other HMDA-reporters (follow-up to referenced OCC request)

Dear Chairman Greenspan, Governors, Secretary Johnson:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a formal request that the Federal Reserve Board ("FRB") forthwith make needed corrections to the publicly-available Home Mortgage Disclosure Act ("HMDA") data, of U.S. Bancorp and others. By letter dated September 25, 2002, the Office of the Comptroller of the Currency ("OCC") has stated that "the OCC has requested the Federal Reserve Board to update the HMDA data as soon as possible." See Exhibit 1 annexed hereto. For the reasons set forth below, this "update" / correction is important and should be done immediately.

   As you know, HMDA data are one of the few comprehensive ways in which consumer groups, law enforcement agencies and the regulators can access banks' and other mortgage originators' compliance with the Community Reinvestment Act ("CRA") and the fair lending laws. That this publicly-available data should be as accurate as possible is self-evident.

    The 2001 HMDA data was made public on the FFIEC Web site in late July 2002. ICP began downloaded and analyzing the data, and has since submitted comments based thereon to the FRB, including with regard to Citigroup and its pending application to acquire Golden State Bancorp.

    In seeking to assess, for a possible comment to the OCC, U.S. Bancorp's HMDA-reporters' 2001 lending record, ICP found that no Metropolitan Statistical Area- ("MSA"-) specific data was available for U.S. Bancorp's reporters in the State of California, despite the fact that U.S. Bancorp owns and operates more than 100 branches in that state. ICP inquired with U.S. Bancorp how many HMDA-reporters it had; "three," was the answer. But none of these three reporters reported any MSA-specific data in California, according to the FFIEC's HMDA Web site. U.S. Bancorp told ICP that this was "the Fed's fault." On September 16, ICP raises this to the OCC.

     Behind an FRB cover letter dated September 19, 2002, ICP received a CD-ROM "containing the corrected 2001 HMDA disclosure statements for U.S. Bank NA (Respondent ID 24-1)." The FRB's letter went on to state that

[s]everal metropolitan statistical areas (MSA) where the reporter [U.S. Bank] has offices were inadvertently omitted from the reporter's panel information, and they were never included prior to the creation of the 2001 aggregate tables and disclosure reports, which began on May 9, 2002... We apologize for an inconvenience this omission may have caused. If you have any questions regarding the procedures we used to correct this error, please call Pat Dykes (Federal Reserve Board).

     Since we did have questions, on September 20 ICP called the FRB's Ms. Dykes. Ms. Dykes genially attributed the lack of the required U.S. Bank HMDA data on the FFIEC web site by referring to the chaotic atmosphere at the FRB in the first half of 2002, including reports of anthrax in the mail and the attendant screening and microwaving and semi-destruction of envelopes. Apparently, whereas in previous years the FRB analysts took time to compare institutions' submissions to those of prior years, in early 2002 each FRB analyst had to call approximately 150 institutions asking for their HMDA submissions.

     Without casting any aspersions on the diligence of FRB staff, ICP asked whether the errors in the 2001 publicly-available data base will be corrected. Ms. Dykes indicated that there are no procedures in place for uploading corrected data. Reflecting her commitment to her job, she said she'd love to do such an update. Apparently, then, it is a question of resource allocation -- and hence a question for higher-ups at the FRB...

    ICP's question: how badly inaccurate does this publicly-available data set have to be -- five percent is the figure being thrown around of the 2001 data set -- before the FRB / FFIEC decide to upload corrected data? The data is relied on not only by community groups, but by the FRB and other agencies as well, for CRA assessment and fair lending enforcement. ICP believes that a known five percent error rate is too much, and that the data set must be comprehensively corrected and uploaded -- that is, "updated." As reflected by Exhibit 1 hereto, the OCC feels similarly, and has made this request to the FRB. Accordingly, we ask the FRB to scope and disclose the errors in the 2001 HMDA data, and to correct them forthwith...

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director
Inner City Press/Community on the Move
& Fair Finance Watch

    This Report will be updated.  For or with more information, contact us.    We also wish to express: rest in peace, Lisa Bryant, Lola Elwood, Jo Mausbach, and Samuel Sun (as well as U.S. Bank Nebraska customer Evonne Tuttle).

Update of September 23, 2002: a U.S. Bancorp / Bay View-relevant update on the flaw Inner City Press exposed last week in U.S. Bancorp's 2001 Home Mortgage Disclosure Act (HMDA) data, as available to the public on the FFIEC.gov web site. We found that the FFIEC site did not report Metropolitan Statistical Area-specific data for U.S. Bank in California, despite the fact that U.S. Bank has branches there. We timely raised this to the Office of the Comptroller of the Currency on September 16, on U.S. Bank's application to acquire Bay View Bank's 57 California branches. U.S. Bancorp has told us that it's the "Feds' fault." On September 20, Inner City Press received in the mail from the Federal Reserve an envelope with a disk and a cover letter stating:

Several metropolitan statistical areas (MSA) where the reporter [U.S. Bank] has offices were inadvertently omitted from the reporter's panel information, and they were never included prior to the creation of the 2001 aggregate tables and disclosure reports, which began on May 9, 2002... We apologize for an inconvenience this omission may have caused. If you have any questions regarding the procedures we used to correct this error, please call Pat Dykes (Federal Reserve Board).

   Since we did have questions, on September 20 Inner City Press called the Federal Reserve Board's Ms. Dykes. Among our initial questions: since under the HMDA regulation, the OCC is in charge of the HMDA data of U.S. Bank, N.A., why did the disk and letter from the FRB? Ms. Dykes explained that, through the FFIEC budget, the OCC (and presumably OTS and FDIC) pay the FRB as a contractor to process their institutions' HMDA data.

    Thereafter Ms. Dykes genially attributed the lack of the required U.S. Bank HMDA data on the FFIEC web site by referring to the chaotic atmosphere at the FRB in the first half of 2002, including reports of anthrax in the mail and the attendant screening and microwaving and semi-destruction of envelopes. Apparently, whereas in previous years the FRB analysts took time to compare institutions' submissions to those of prior years, in early 2002 each FRB analyst had to call approximately 150 institutions asking for their HMDA submissions. A document entitled the Q595 Edit Report was sent to U.S. Bank, asking if the data were correct; somehow the responding fax signature page was separated from the pages that proceeded it.

     Inner City Press, without casting any aspersions on the diligence of FRB staff, asked whether the errors in the 2001 publicly-available data base will be corrected. Ms. Dykes indicated that there are no procedures in place for uploading corrected data. Reflecting her commitment to her job, she said she'd love to do such an update. Apparently, then, it is a question of resource allocation -- and hence a question for higher-ups at the FRB and the other agencies (or Congress).

    The question: how badly inaccurate does this publicly-available data set have to be -- five percent is the figure being throw around of the 2001 data set -- before the FRB / FFIEC decide to upload corrected data? The data is relied on not only by community groups, but by the FRB and other agencies as well, for CRA assessment and fair lending enforcement. We believe that a known five percent error rate is too much, and that the data set must be comprehensively corrected and uploaded. Will the FRB / FFIEC do so? We will see. More pressingly, we have formally asked the OCC to extend its comment period on U.S. Bank's application to acquire 57 California branches of Bay View, until U.S. Bank's California HMDA data is available as it should be. The OCC has acknowledged receive of our request and hopes to rule on the request shortly. Developing...

September 16, 2002:  Inner City Press / Community on the Move and Fair Finance Watch have just filed with the Office of the Comptroller of the Currency (OCC) a timely seven page challenge to U.S. Bancorp's proposal to acquire Bay View Bank's 57 branches. ICP's comment is summarized below: it analyzes lending disparities, etc., and identifies a major flaw in U.S. Bancorp's Home Mortgage Disclosure Act data. Searching the FFIEC web site, ICP found that no mortgage data was available for U.S. Bancorp in California, nor in certain other communities where "U.S. Bank, N.A." (based in Ohio) does not have branches. The argument seems to be that if U.S. Bancorp uses its Ohio-based bank to make its mortgage loans in areas served by another of U.S Bancorp's banks, it does not have to report the mortgage data with any specificity: it's all "out of MSA," out of market. This will be updated. For or with more information, contact us

September 15, 2002


Via Fax
to (312) 435-0951
Office of the Comptroller of the Currency
Central District Office
Attn: Dave Rogers, Licensing Manager,
440 S. LaSalle Street, Suite 2700
Chicago IL 60605-1073

Re: Timely comment on the applications by U.S. Bank, N.A. to acquire the 57 branches of Bay View Bank

Dear Mr. Rogers, et al.:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a timely comment on the applications by U.S. Bank, N.A., to acquire the 57 branches of Bay View Bank.

    ICP has for some time had concerns about U.S. Bancorp and its national bank subsidiaries. In order to assess U.S. Bancorp's 2001 lending, we visited the FFIEC Web site to view 2001 Home Mortgage Disclosure Act ("HMDA") data. We could not find any Metropolitan Statistical Area ("MSA") -specific data for U.S. Bancorp in California, where U.S. Bank already owns and operates 158 branches. We inquired with U.S. Bank and were told that U.S. Bancorp's 2001 HMDA data was reported through three subsidiaries: all three being national banks, headquartered in Ohio, Montana and North Dakota. Using these parameters, we were still unable to find any MSA-specific U.S. Bancorp 2001 HMDA data in California. We re-inquired with U.S. Bank and were told that it is apparently an error on the Feds' part. It appears that they did not add the information about our lending in California in the final set of information." On September 10, U.S. Bank e-mailed ICP a huge attachment that ICP was unable to open, much less analyze. In any event this issue affects the interested public at large, making it impossible to comment on U.S. Bank's performance in the communities most directly affected by U.S. Bank's Bay View proposal. We hereby formally ask the OCC to inquire into and act on this issue -- and to extend the comment period until the required U.S. Bank HMDA data is made available to the public. [FN: Also, on September 3 ICP submitted a FOIA request for this U.S. Bank - Bay View application. Portions were provided under cover letter dated September 11, 2002; other portions have been withheld. ICP has submitted a FOIA appeal and asks that it be ruled on as quickly as possible, so that ICP can comment on the improperly withheld documents. ICP requests an extension on that ground as well, as well as in light of the OCC's mis-identification of this proposal in its Weekly Bulletin as one between already-affiliated institutions.] In the interim, ICP has analyzed U.S. Bank's 2001 lending in those too-limited MSAs in which it is reported, with a particular emphasis on conventional home purchase lending. We'll begin in the Western-most city for which MSA-specific data is available through the FFIEC: Phoenix.

   In the Phoenix MSA in 2001, U.S. Bank, N.A. made 241 conventional home purchase loans to whites, only 7 such loans to Latinos, and none to African Americans. Of these three groups, 2.8 of U.S. Bank's lending was to Latinos, compared to 10.3% for the industry as a whole (the "aggregate"). U.S. Bank denied applications from Latinos in this MSA for conventional home purchase loans 5.68 times more frequently than those from whites: compared to the aggregate's denial rate disparity of 2.35. In this MSA, U.S. Bank's lending to Latinos is disparate; its lending to African-Americans is non-existent.

    In the Nashville MSA in 2001, U.S. Bank, N.A. made 167 conventional home purchase loans to whites, and only six to African Americans and only two to Latinos. Of these three groups, 3.4% of U.S. Bank's loans were to African Americans, and 1.1% to Latinos: both lower than the aggregate's percentages. Meanwhile U.S. Bank denied applications from African Americans for conventional home purchase loans 4.72 times more frequently than those from whites: much higher than the aggregate's denial rate disparity of 1.92.

   In the Chicago MSA in 2001, U.S. Bank, N.A. made 1112 conventional home purchase loans to whites, and only 49 such loans to African Americans, and only 51 such loans to Latinos. Of these three groups, 4.0% of U.S. Bank's loans were to African Americans (half that of the aggregate's percentage, 7.9%); 4.2% of U.S. Bank's loans were to Latinos (less than half that of the aggregate's percentage, 9.8%). Meanwhile U.S. Bank denied applications from African Americans for conventional home purchase loans 6.32 times more frequently than whites, and from Latinos 2.46 times more frequently than whites, both much higher than the aggregate's denial rate disparity.

   U.S. Bank's disparities extend to refinance loans. In the Chicago MSA in 2001, U.S. Bank, N.A. made 2475 refinance loans to whites, and only 129 such loans to African Americans, and only 171 such loans to Latinos. Of these three groups, 4.6% of U.S. Bank's loans were to African Americans (half that of the aggregate's percentage, 8.3%); 6.2% of U.S. Bank's loans were to Latinos (half that of the aggregate's percentage, 11.8%). Meanwhile U.S. Bank denied applications from African Americans for refinance loans 4.30 times more frequently than whites, and from Latinos 2.98 times more frequently than whites, both much higher than the aggregate's denial rate disparity.

    Given these disparities, the absence of MSA-specific 2001 HMDA data for U.S. Bancorp in California (where it owns and operates 158 branches) and in other affected communities is all the more problematic. Whether this springs from some error by the federal regulators (in the case of U.S. Bancorp's three HMDA-reporters, the OCC), or from inaccuracies in U.S. Bancorp's own Loan Application Register filings, this must be corrected and the comment period extended until this is done, and comment allowed on the presumptively-public mortgage lending data.

   Again in the interim, there are other issues that the OCC must consider. Since ICP has yet to receive the copy of the application it requested, ICP does not know whether U.S. Bank has addressed the issue of branch closings. We note, for example, the Milwaukee Journal Sentinel of July 27, 2001 ("Firstar to close, consolidate 6 bank branches; U.S. Bancorp seeking to cut its expenses") [snip]

    Note that "a few miles" qualifies as a closure, not a consolidation. U.S. Bank should be required to disclose any and all branch closures that would occur if this Bay View proposal were approved.

    Beyond U.S. Bank's direct lending, in 2000 ICP expressed concerns about U.S. Bancorp's ties with the subprime lender New Century. U.S. Bancorp has represented to ICP that it has since "sold all it ownership interest in the New Century Corporation" and "no longer ha[s] any ownership interest in New Century." However, we note that Origination News of June 2002 reported that " [r]ight now, the company owes $98 million in long-term debt, of which $58 million is due to Salomon Brothers and the rest to U.S. Bancorp., a former equity holder in the Irvine, Calif.-based mortgage company." So, U.S. Bancorp is still collecting and profiting from the questionable subprime lender New Century. And it does not appear that U.S. Bancorp sold its equity stake in New Century due to the adoption of any standards and safeguards with regard to questionable subprime lenders: Mortgage Servicing News of March 2001 reported that "[a]ccording to New Century, [U.S. Bancorp] made the forfeiture because if it took control of the warrants New Century would then be deemed an affiliate of USB's under the Federal Reserve Act, a move that might complicate the merger."

    In fact, National Mortgage News of September 2, 2002, reported that the questionable subprime servicer Fairbanks Capital Corporation recently acquired "about 23,000 loans totaling $765 million of high loan-to-value second liens from U.S. Bank." Regarding Fairbanks, see e.g., the San Antonio Express-News of August 30, 2002, "Clients, servicer differ on accounts ; Mortgage manager accused of poor record-keeping." ICP hereby formally urges the OCC to inquire into U.S. Bank's and its affiliates' continued involvement in questionable subprime lending. ICP also urges the OCC to ask U.S. Bank which branches it would close if this application were approved (see supra), and to inquire into the following:


Subj: US BANK
Date: 9/13/02 9:08:26 PM Eastern Daylight Time
From: [Name withheld in this format; provided to OCC]
To: info [at] innercitypress.org

...I just wanted to let you know of other problems within the bank. I found a house in Monroeville PA that is owned by US Bank. The realtor who has the listing says that every offer has been rejected. When I called US Bank to ask why, the "foreclosure division" insisted they had no record of the property. Even after I told them when they bought it, how much they paid and that they were behind in paying property taxes. They still insisted they had no record of the property. It leads me to believe that it is US Bank's intention to take houses from poor people and let the property rot.

    The comment period must be extended, including in light of the HMDA issues identified above. [FN: By e-mail dated September 11, 2002, OCC staff informed ICP that it had until the morning of September 16 to submit its initial comments. This is being faxed on September 15; it is timely.] On the current record, the OCC could not legitimately approve U.S. Bank's application.

    If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew R. Lee, Esq.
Executive Director
Inner City Press/Community on the Move
& Fair Finance Watch

* * *

    [Background:] In late 2000, Inner City Press / Community on the Move closely analyzed U.S. Bancorp (in connection with its merger with Firstar), and has continued monitoring the combined institution since then.  Below are updates, in reverse chronological order. See also, "Protesters Vindicated as U.S. Bancorp Dumps New Century Stake," by Eileen Canning, Bridge News, January 29, 2001;  "Fed Asks U.S. Bancorp, Firstar For Any Subprime Lending Info," Bridge News, December 22, 2000;  "Fed Requests More Information on Banks' Minority Lending Practices," by Paul Schwab, The Business Journal of Milwaukee, December 15, 2000;  "Firstar Protested," Wisconsin State Journal, December 8, 2000, Pg. C12; "Fed Officials Near End of the Comment Period on USB-Firstar merger," by Dee DePass, Minneapolis Star Tribune, December 7, 2000, Pg. 3D; "Protest to Firstar," Madison (Wisc.) Capital Times, December 5, 2000, Pg. 4A; "Minorities Might Pay Cost of Bank Merger, Group Says," Wisconsin State Journal, December 5, 2000; "Advocacy Group Tries to Block Banks’ Merger," by Getahn Ward, Nashville Tennessean, December 5, 2000;   "Activist's New Target: Firstar-U.S. Bancorp," American Banker, December 5, 2000; "Minorities Might Pay Cost of Firstar Merger, Group Says," by Paul Gores, Milwaukee Journal Sentinel, December 5, 2000; "N.Y. Group Challenges Firstar Deal," by Steve Jordan, Omaha World-Herald, December 5, 2000, Pg. 18; "Community Group Opposes Firstar - U.S. Bancorp Deal," Reuters, December 4, 2000.

     Concerns include U.S. Bancorp's  under-service of low- and moderate-income, African-American and Latino borrowers with normal interest rate loans, U.S. Bancorp's record of violating consumers' privacy, and, U.S. Bancorp's involvement in problematic subprime (high interest rate) lending, including through New Century Financial, in which U.S. Bancorp owns a controlling stake, and on whose board of directors U.S. Bancorp controls seats.   For or with more information, contact us

Update of July 29, 2002 On July 22, U.S. Bancorp announced a proposed deal to buy 57 branches and $376 million in consumer and small business loans from Bay View Capital for $429 million. AP reported that the list of cities where Bay View branches overlap with U.S. Bank includes Concord, Fremont, Walnut Creek, Lafayette, San Leandro, Pleasanton and Danville.... Until next time, for or with more information, contact us

Update of April 15, 2002: Last week, American Residential Investment Trust, which describes itself as "a REIT that has traditionally invested in subprime residential mortgage assets" announced that "U.S. Bank has joined the JPMorgan Chase Bank warehouse line with an additional $35 million." As previously reported, U.S. Bancorp has sought to withhold information concern what, if any, consumer protections and safeguards it has in place for such business with other subprime lenders...

Update of March 18, 2002: the National Mortgage News of March 11 reported that U.S. Bancorp "made a profit of nearly $18 million on its $40 million preferred stock investment in subprime mortgage lender New Century Financial Corp... This does not end U.S. Bancorp's relationship with New Century. It is the lead agent on a $300 million warehouse line, as well as still holding $40 million in subordinated debt"...

Update of January 22, 2002: On January 18, Ohio bank First Defiance Financial Corp. announced it has agreed to sell a mortgage unit with about $500 million in assets to U.S. Bancorp for an undisclosed sum...

Update of June 11, 2001: On June 5, U.S. Bancorp announced it will apply to buy 20 branches in southern California from Pacific Century Bank. "Terms were not disclosed," but U.S. Bancorp is trying to get $640 million in deposits, $570 million in loans and 300 employees. If its cost-cutting after merging with Firstar is any guide, U.S. Bancorp won't be keeping all 300 employees, by any means...

Update of April 2, 2001: In light of U.S. Bancorp's representations, earlier this year, about its "non-prime" lending (including its false statement that it didn't "control" subprime lender New Century), the following news squib, in the American Banker of March 27, 2001, is of note: "U.S. Bancorp has sold its high-loan-to-value mortgage portfolio, which totaled $1 billion to $1.5 billion, according to Lori Appelbaum, an equity analyst at Goldman Sachs Group. The high-LTV mortgages, which were part of the old U.S. Bancorp's portfolio, incurred annual losses of $100 million to $150 million, she said." Meanwhile, U.S. Bancorp laid off another 60 people last week (Bloomberg, 3/29)...

Update of February 20, 2001: Well, on February 12, the Federal Reserve Board approved the U.S. Bancorp - Firstar merger, in a 57-page Order. The Fed's footnote "addressing" the U.S. Bancorp - New Century connection is more than half a page long, single-spaced. It states:

"One commenter contended that New Century Financial Corporation, Irvine, California ('New Century'), a nondepository mortgage company, is a subsidiary of U.S. Bancorp and that it engages in predatory lending by making subprime loans and imposing prepayment penalties more frequently that its competitors. The commenter also alleged that New Century engages in a higher level of subprime lending to African Americans in certain metropolitan areas than its competitors. U.S. Bancorp has indicated that it currently does not own or control, in the aggregate, 25 percent or more of the shares of New Century, or otherwise control New Century. Consequently, New Century is not a subsidiary of U.S. Bancorp for purposes of the BHC Act. The Board, however, has carefully considered these comments in light of the relationships between New Century and U.S. Bancorp.

"The Board has forwarded copies of the comments regarding New Century to the Department of Housing and Urban Development ('HUD'), the Department of Justice, and the Federal Trade Commission, which have responsibility for fair lending law compliance by nondepository companies like New Century. The Board also has consulted with these agencies. In addition, the Board has considered information submitted by U.S. Bancorp on New Century's consumer lending practices, including the processes by which New Century makes credit available to consumers, the compliance procedures established by New Century, the methodology employed by New Century in setting risk-based interest rates, and the relationship of New Century with loan brokers and correspondents."

                   --Emphasis added.

     Months after applying to merge with Firstar, months after denying, to community groups and to the press, that it owned or controlled over 25% of New Century, in January 2001, U.S. Bancorp "forfeited" warrants in New Century. Only that way could the Fed recites that "U.S. Bancorp has indicated that it currently does not own or control, in the aggregate, 25 percent of more of the shares of New Century." This is similar to the semantics, much focused on by the press, when then-President Clinton stated, on national television, "this IS no relationship" -- that is to say, it's a non-responsive answer. Since, until the January 2001 forfeiture of warrants, U.S. Bancorp DID "control" New Century, it is simply not enough, to "refer" New Century to the DOJ, HUD and FTC. Nor is it enough to "consult with these agencies" -- the last two of which have few staff, to oversee the thousands of "nondepository lenders" in the United States. And what of U.S. Bancorp's misstatements, to the press, community groups, and to the Fed, that it didn't, pre-warrant forfeiture, control New Century?

      Similarly, the Fed in another long footnote (64) "addresses" the issues of U.S. Bancorp's other connections with subprime lenders:

"One commenter alleged that U.S. Bancorp has indirectly supported predatory lending through the business relationships of U.S. Bank with a number of subprime lenders that the commenter characterized as predatory lenders. According to the applicant, U.S. Bancorp's and Firstar's lending and trust affiliates have corporate loans to non-affiliated subprime lenders and act as trustee, registrar, and/or paying agent for securitization transactions. Some trust clients have securitizations that may have subprime assets as collateral. Firstar and U.S. Bancorp have represented that neither has a role, formal or otherwise, in the lending practices and review processes of the loan and trust customers nor has any knowledge of the lending practices followed by the party originating the loans."

    Hey -- that's some great due diligence there, not having "any knowledge of the lending practices" of the subprime lenders you do securitizations and trust work for, and even (warehouse) lending to... This U.S. Bancorp Watch will continue...

Update of February 11, 2001: The U.S. Bancorp - Firstar application is on the Federal Reserve Board's agenda for February 12, 2001. Whatever action is taken will be reported here, in our next weekly update (Feb. 18), or before. Meanwhile: don’t believe that globalization is on the agenda of all the big U.S. banks? On Feb. 8, the Indonesian government approved a plan to merge two companies affiliated to the Texmaco Group: PT Polysindo Eka Perkasa Tbk and PT Texmaco Jaya Tbk. Bloomberg quoted Tim Sandell, a spokesman for U.S. Bancorp that "investors would also receive an equity stake in the new Polysindo," noting that U.S. Bancorp acts as trustee for the debt...

   ICP received the following letter last week, to which readers with expertise are free to respond:

Subj: U.S.BANK/FIRSTAR Merger
Date: 2/7/01
From: cfb6677@earthlink.net
To:  info [at] innercitypress.org

Dear Sir,

     I own 35351 shares of US Bancorp stock. I just learn yesterday that John Grundhofer will be paid $8000 per day for the rest of his life, commencing with his retirement in 2002, if the merger US BANCORP and FIRSTAR goes through.  This outrageous give away of stockholders equity is in addition to the other benefits agreed to be paid to him by Firstar.  I would like to file a protest to this merger because of this ridiculous agreement, but I need help... Can you help me?   Thank You.

    (Note: Just hit the sender's e-mail address, above, to respond).

Update of February 5, 2001: Things would appear to be moving to "end-game," on U.S. Bancorp - Firstar, now that U.S. Bancorp has "forfeited" its warrants in the subprime lending New Century. (ICP contends that the Federal Reserve Board must still address the New Century issues, including because U.S. Bancorp "controlled" this company, from 1998 to January 2001). In a January 31, 2001, letter to the Fed, the banks' counsel "commits that prior to the consummation of the Merger, Firstar will execute a sale agreement with a purchaser determined by the Board to be competitively suitable. Firstar further commits that in no event will Firstar enter into such an agreement with Wells Fargo & Company... The sale agreement will provide for the sale of eleven branches located in the Minneapolis, Minnesota banking market and two branches located in the Council Bluffs, Iowa banking market. These branches are listed in the Confidential Exhibit hereto... On behalf of Firstar, I hereby request confidential treatment for the branches listed in the Confidential Exhibit. The information set forth therein is not publicly available and would cause competitive harm to Firstar if disclosed at this time."

    Well, ouch. The Minneapolis Star Tribune of February 1 (under the byline of the ever-intrepid Dee DePass) names the Minneapolis buyer (Bremer Bank), and the street addresses of the divestiture branches: "4061 N. Lexington Av. in Arden Hills; 5540 Brooklyn Blvd. in Brooklyn Center; 6900 France Av. S. in Edina; 372 St. Peter St. in St. Paul; 2965 White Bear Av. in Maplewood; 427 N. Snelling Av. in St. Paul; 17600 Hwy. 7 in Minnetonka; 6500 Nicollet Av. S. in Richfield; 2401 Lowry Av. NE. in St. Anthony; 8800 Hwy. 7 in St. Louis Park; and 80 S. Eighth St. in the IDS Center in downtown Minneapolis." There, then: how much "competitive harm" did that cause? Time to withdraw the request for confidential treatment...

     From the mailbag, at deadline:

Subj: U S Banks
Date: 2/3/01 11:05:23 PM Eastern Standard Time
From: billlorence@mediaone.net
To:  info [at] innercitypress.org

   Your site references the U S Bank privacy issues that our small group of three is actively appealing against U S Banks in regards to the $3.5 million class action lawsuit .

    I am one of the three class action members who testified in Minneapolis during the class action hearing on December 1. I continue to work with the other two parties who testified and we have all filed appeals speaking out against the $1.2 million awarded to the lawyers in the case.

    My own personal position is summarized in this article. A pending conference call is scheduled to discuss the consolidated appeals on February 13th with the counsels of record and the 8th circuit district court of appeals in St. Louis. The case continues to be very active which is probably unknown to the 4 million account holders who were impacted and the 90,000 members who filed to participate in the class action.

Thanks for your initial coverage. Your assistance in getting the word out is greatly appreciated. Best of luck in your cause.

Update of January 29, 2001:  There's been a new development. In its December 4, 2000, protest (below), ICP contended, among other things, that U.S. Bancorp controls the subprime mortgage lender New Century. U.S. Bancorp denied this, to the press, and then to the Federal Reserve. (These denials are quoted from, below). Well, in a "Memo to File -- Firstar/U.S. Bancorp," dated January 17, 2001 (ICP believes that "January 12" is meant), Federal Reserve staff memorializes that:

"Staff of the Board and the Federal Reserve Bank of Minneapolis (collectively, 'Staff') today spoke with representatives from Firstar Corporation and U.S. Bancorp (collectively, the 'Representatives') regarding U.S. Bancorp's interest in New Century Financial Corporation ('New Century'). Staff informed the Representatives that, based on information provided in Firstar's letter dated January 9, 2001... Staff deemed U.S. Bancorp to control New Century for purposes of the Bank Holding Company Act ('BHC Act'). The Representatives stated that they had not considered New Century to be a U.S. Bancorp subsidiary, either as a practical matter or for purposes of the BHC Act. The Representatives indicated that they would discuss options to restructure U.S. Bancorp's interest in New Century so that Staff would not deem U.S. Bancorp to control New Century for purposes of the BHC Act. This call lasted approximately 30 minutes.

Approximately one hour later, Representatives phoned Staff to state that U.S. Bancorp was taking steps to: (1) cancel the New Century warrants held by a bank subsidiary of U.S. Bancorp, and (2) terminate a voting agreement between U.S. Bancorp and officials of New Century. Staff confirmed that, once these actions were taken, U.S. Bancorp would not be deemed to control New Century for purposes of the BHC Act. This call lasted approximately 5 minutes.

U.S. Bancorp then faxed documents to Staff concerning U.S. Bancorp's cancellation of the warrants and termination of the voting agreement."

    These documents including a letter from U.S. Bancorp Senior Corporate Counsel Karen J. Canon, to the Fed, stating that "effective today, U.S. Bancorp is terminating its Shareholder Agreements with individual executive officers of New Century Financial Corporation and forfeiting all of its rights under the warrants to purchase 650,000 shares of Common Stock of New Century Financial Corporation dated April 28, 2000 and the warrant to purchase 37,500 shares of Common Stock of New Century Financial Corporation dated April 28, 2000." Behind that, is a letter from U.S. Bancorp executive vice president Lee R. Mitau, to New Century, stating that

"U.S. Bancorp has made every effort to structure its equity investment in New Century Financial Corporation in such a manner as to ensure that New Century would not be deemed to be an 'affiliate' of U.S. Bancorp for purposes of Section 23A of the Federal Reserve Act. U.S. Bancorp has determined that it would be advisable to forfeit all of its rights under the Shareholder Agreements, each dated November 24, 1998, with Robert K. Cole, Edward F. Gotschall, Steve Holder and Brad A. Morrice (the 'Shareholder Agreements') in order to clarify that New Century is not such an affiliate. U.S. Bank National Association has also determined that it would be advisable for this reason to forfeit all of its rights under the warrant to purchase 650,000 shares of the Common Stock of New Century Financial Corporation dated April 28, 2000 and the warrant to purchase 37,5000 shares of the Common Stock of New Century Financial Corporation dated April 28, 2000 (collectively, the 'Warrants'). Effectively immediately, U.S. Bancorp and U.S. Bank National Association hereby forfeit all rights under and interests in the Shareholder Agreements and the Warrants, respectively. Please execute, or have executed, the acceptances below...".

    The document is signed by all of the above-named executives of New Century, except Mr. Steve Holder.

     ICP anticipates, after this sleight-of-hand, the Fed's final order in this matter evading the question of U.S. Bancorp's responsibility for New Century's lending practices. But it appears clear that U.S. Bancorp controlled New Century, at least between November 1998 and January 2001. U.S. Bancorp apparently never sought a ruling from the Fed, about whether its unique "arrangement" with the subprime lender New Century constituted "control" -- U.S. Bancorp simply went on its own (self-serving) "understanding" that it did not control New Century. If the issue had not been raised in comments opposing U.S. Bancorp - Firstar, it is doubtful that U.S. Bancorp would have made these changes. As noted in ICP's first, December 4, 2000, comment on the U.S. Bancorp - Firstar application, the applicants should have disclosed the New Century matter, in the application, but didn't. The ramifications for this? Developing...

     A few more loose ends have been tied up: U.S. Bancorp DID withdraw its application to the Fed to "charter an interim national bank and to merge U.S. Bank Trust National Association SD and U.S. Bank National Association ND with and into U.S. Bank Interim National Association ND." This is based on a December 18, 2000 letter from Gary Preszler, Banking Comissioner of North Dakota, waiving his state's "age" and "reciprocity" requirements. Oh, those Dakotas...

Update of January 22, 2001 -- The documents are flying. In an undated letter that the Federal Reserve Board faxed to ICP on January 17, the Board's Secretary writes that "counsel for Firstar was informed today of my decision to release the confidential attachment to the December 18, 2000, submission, which consists of approximately 167 pages of the documents withheld from you in their entirety, on January 24, 2001. Accordingly, the documents will be made available to you on that date, unless a court enjoins its release." The exhibits (improperly) withheld from Firstar's December 18 submission consisted of the dollar level of warehouse commitments to subprime lenders, and these lenders' "production volumes." So we'll be waiting...

   In the interim, in a January 17 submission, the banks' have disclosed the level of litigation against Piper Capital Management, which U.S. Bancorp has owned since 1998. The banks' submission lists fully 25 cases against Piper Jaffray, 32 of them "settled," and three of them identified as "Damages Awarded." Piper settled with Catholic Charities for $38,295.33; with Fairview Hospital and Foundation for $1,400,000; with the Wounded Knee School District for $66,666; with the University of Minnesota for $6,750,000. Damages were awarded to "Fredrikson & Byron" in the amount of $2,400,000. Ouch!

Update of January 16, 2001:   The application still pending. The Fed has asked for more information regarding U.S. Bancorp's stake in the subprime lender New Century. In a January 9 response, the banks' counsel states that U.S. Bancorp controls at least "24.79 percent of New Century's voting securities." U.S. Bank also owns "warrants" to buy another 3.50% of New Century's voting stock. When one company owns or can own 25% of another company's voting stock, it is a "control relationship." But U.S. Bancorp is arguing against this, stating that it "does not believe that the Warrants should be deemed voting securities [for] purposes of this presumption because they are held pursuant to authority derived from the National Bank Act, and not the BHC Act, and hence should not be aggregated for purposes of Regulation Y with U.S. Bancorp's other holdings in New Century." January 9, 2001, letter, at 4. According to U.S. Bancorp, it could own 24% of a subprime lender though its holding company, and any other amount through its bank, and still not be held responsible to the subprime lender's activities. The argument is so ludicrous that U.S. Bancorp concludes: "U.S. Bancorp's investment in New Century is more appropriately resolved as part of the supervisory process... [I]n the event that Board staff determines that the facts of record support of finding by the Board that New Century is a subsidiary of U.S. Bancorp, Firstar request... that it be granted a one year period to conform the terms of the New Century investment to those prescribed by Board staff such that the Board would not view New Century as a subsidiary of New U.S. Bancorp." Whew! Similar to Citicorp-Travelers: "Give us a year, outside of any limelight, to 'conform' the arrangement" -- or to change the law.

   In a January 9 letter to ICP, the Fed's Associate Secretary writes that "Comment #207 was withdrawn and Comments #185 and #187 have been accorded confidential treatment." How these "CRA communications" (as defined in the Fed's recent "CRA Sunshine" regulation) can be withheld -- remains unclear.

Update of January 6, 2001: U.S. Bancorp and Firstar finally, on January 3, submitted a response to ICP's December 4, 2000 comments. The purported response attempts to dodge the issues raised, stating that the banks "believe that ICP's comments reflect concerns that have been addressed by Board staff and responded to by Firstar and U.S. Bancorp during the processing of the Application...". The response stops mid-sentence ("As a threshold matter, it should be noted that--"), followed by a new sentence: "Because U.S. Bancorp holds its investment in New Century directly, Firstar is not acquiring the investment pursuant to the Application." What the "threshold matter" was, we have no way of knowing. The banks conclude that "ICP's other concerns... have also been addressed in detailed fashion by Board staff by requests to Firstar and U.S. Bancorp for additional information. Firstar and U.S. Bancorp have submitted, or are submitting contemporaneous herewith, information that is responsive to those requests." That's a reference to the banks' delayed response to the subprime lending questions. While some is still being withheld, the banks' response states:

"Firstar also has warehouse loans to: Countrywide Credit Home Loans, Inc., Woodlands Mortgage Company, Delmar Financial Company and Gershman Investment... The aggregate principal amount of these loans is set forth in Confidential Exhibit B. Firstar acts as trustee, registrar and/or paying agent for... New Century Mortgage, First Merit Bank and Greentree."

     The Response continues:

"Firstar has corporate lending outstanding to the following companies that engage in subprime lending: Burt Commercial Finance, Security National Finance Company, Oxford Commercial Funding, Conseco, Inc., Advance America, Finance Supervision Company, Globe Loan Company, USA Check Advance, LLC, Bob Fays Rent to Own, AAA Cash Advance, Messanie Payday Loans, LLC, and Easy Money Express Company."

     Firstar's extensive links, through loans, to pay-day loan and other companies has not, contrary to the banks' response, been "addressed in this proceeding." Developing...

Update of January 1, 2001: U.S. Bancorp's application to acquire Firstar remains pending. By letter dated Dec. 22 (a copy of which ICP received last week), the Federal Reserve has asked the banks nine more questions. The questions largely request "commitments" from the banks, including that the proposed "New U.S. Bancorp will divest U.S. Bank National Association, North Dakota within two years of Firstar's [proposed] merger with U.S. Bancorp, in accordance with North Dakota Century Code Section 6-08.3-13 and Wisconsin Stat. Section 221.0901(8)." This implies that the "Dakotas problem" (described below on this page) has not been solved, but that the Fed (as it did on the Travelers-Citicorp merger in 1998) reserves its right to waive virtually any law, for two years. Citigroup used the two years to... lobby to change the law, the Glass-Steagal Act; these banks would probably just find a way to merge the North Dakota bank into another entity, eliminating the need to "divest" it. When you're the Federal Reserve, who cares about state laws? Or Federal laws? Or international laws?

     The Fed's questions also refer to the Minnesota Attorney General's consumer privacy lawsuit against U.S. Bancorp, and ask for a "discussion [of] actions taken by management to address reputational risk at U.S. Bancorp resulting from the lawsuit." The answers are due January 5, and the Fed's letter states: "send a copy of the public portion of your response to [ICP]." So we will report the responses here. In a separate letter, dated Dec. 27, the Fed has informed ICP that it has given the banks "an opportunity... to submit written objections to disclosure of a responsive document for which the [banks] requested confidential treatment." This is a ten-day process; its results will be reported here.

    In other U.S. Bancorp news, the bank on December 29 announced that six institutional bondholders (for which U.S. Bancorp serves as "trustee," as it does for some of the most problematic subprime mortgage lenders, see below) have agreed to renew $632 million of secured debt owed by Indonesia-based Polysindo Eka Perkasa Tbk, a unit of Texmaco Group, a self-described "textile maker" (here in the Bronx, we call it a sweatshop). That U.S. Bancorp serves as trustee to predatory lenders in the United States, and sweatshops overseas, including in Indonesia -- says it all, and will be further analyzed in subsequent editions of this U.S. Bancorp Watch.

      An issue of import beyond this proceeding has arisen, within it: Firstar and U.S. Bancorp have solicited one-page letters of support from non-profits (all of which the banks have apparently funded, see below) -- without telling these non-profits that, by submitting the letters, they've made themselves subject to Senator Phil Gramm's and the Fed's "CRA Sunshine" regimen, which will require "detailed" financial reporting to federal bank regulators by June 30, 2001. This provision was included in the Gramm-Leach-Bliley Act of 1999, and, on December 21, the Fed issued a regulation implementing the provisions. This regulation uses a definition of "CRA communication" (triggering the financial reporting requirement), which encompasses all of the letters that Firstar and U.S. Bank solicited. For example:

     On December 11, 2000, the National Equity Fund, Inc. ("an affiliate of Local Initiatives Support Corporation," according to its letterhead) wrote to tell the Fed that "in cooperation with NEF... Firstar continues its dedication to community investment."

      By the Dec. 21 Sunshine regulation's definition, this is clearly a "CRA communication." Under the reg, we assume the NEF, and LISC and its other affiliates, will be filing Sunshine reports with the agencies, on June 30, 2001. LISC of the Twin Cities also, for example, wrote in, stating that "we look forward to [Firstar's] merger with US Bank." This question of "affiliates" was left unaddressed in the regulation, and will, we predict, become a major mine field in its implementation. Consider:

      Neighborhood Housing Services of St. Joseph, Missouri wrote in to the Fed, also on December 11, stating that "Firstar has been a financial contributor to NHS St. Joseph." NHS of Louisville, Kentucky wrote in, praising Firstar. NHS of St. Louis stated that their "relationship [with Firstar] has survived the Mercantile/Firstar merger and we believe it will survive the Firstar/US Bank merger." The NHS' in the Twin Cities, and in Dayton's Bluff (St. Paul, Minnesota), also wrote in. Local NHS' are all, legally, affiliates of one another. NHS of Davenport, Iowa's letterhead states, "member of the national NeighborWorks network," and Community NHS of St. Paul, Minnesota's letterhead bears the NeighborWorks logo. So how many "Sunshine" reports will that be?

     The United Way of Southern Kentucky wrote in, that "Firstar Bank has been a major supporter of the United Way of Southern Kentucky for many years." The United Ways of Crawford County, Kansas, Greater St. Louis, and Johnson County, Missouri, wrote in as well. Local United Way's are all, legally, affiliates of one another...

     The YMCA of Metropolitan Chicago wrote to the Fed, stating that "Firstar has been... contributing every year to our annual campaign." The agencies' Sunshine regulation appears to give an exemption for such an "annual campaign" -- but only if there is no "CRA communication," which there clearly now has been... From the YMCA of Metropolitan Milwaukee, as well. Local YMCA's are all, legally, affiliates of one another...

      The Herbert Hoover Boys and Girls Club of St. Louis, Missouri, sent in a "letter of support on behalf of Firstar Bank," noting that "Firstar has contributed over $113,500 to the Club." The Boys and Girls Clubs of Greater Milwaukee chimed in to the Fed, stating that "Firstar has... provided major gifts over the years -- $20,000 - $100,000."

     Citizens for Community Improvement of Des Moines, Iowa, wrote in, describing among other things Firstar's participation in CCI's annual home buying seminars, and that "Firstar also donates to CCI... to continue our work in Iowa," and stating that "we are in favor of the merger as long as our relationship can continue to assist in furthering the cause of CRA." CCI's letter noted that "with the most recent merger we lost the privilege of [a] 'signed agreement,' because the new bank's upper management had a policy against such agreements." Not any more -- since the agencies' regulation would define such letters as "CRA communications," and such donations as agreements, they will have to be reported on in detail...

    The American Red Cross, St. Louis Area Chapter, wrote in that they are an "advocate for Firstar Bank... in support of the proposed merger of Firstar and US Bank... Firstar is currently helping support Red Cross programs."

      The March of Dimes' letter was most open-ended, "recommend[ing] Firstar Bank with regard to any business transaction that you might be pursuing." This is an ONGOING "CRA communication...". When the March of Dimes offices are required to submit annual "CRA Sunshine" reports, they'll have Senator Gramm, and the agencies, to thank for it...

      Consumer Credit Counseling Services of Central Ohio wrote in, stating that "we at CCCS look forward to expanding our Firstar relationship. As their service footprint expands, so does ours. We are now part of a credit counseling team serving clients in three states. This merger could strengthen these services and Firstar partnerships." This letter, explicitly in favor of the proposed merger, is without question a "CRA communication," as the agencies (and Senator Gramm) have defined it. Another CCCS office (in Dayton, Ohio) also wrote in. Reports from every CCCS office? If not, it'd be selective enforcement...  And if so, all of these groups will have not only Senator Gramm and the Fed, but also U.S. Bancorp and Firstar, to thank for the reporting burden, and possible penalties...

Update of December 26, 2000:  While U.S. Bancorp and Firstar have YET to file a response to ICP's December 4 comments (despite their spokespeople's promise to do so, to newspapers from Milwaukee to Nashville), the Federal Reserve has continued to ask the banks questions. On December 18 (too late for last week's report), the Fed asked, among other things, "Does Firstar or USB have any policies or procedures whereby subprime lending affiliates refer applicants who appear to be qualified for traditional or 'prime' home mortgage or consumer loans to Firstar of USB prime lending subsidiaries?" The banks' December 21 response is short, but not sweet: "Firstar has indicated that it does not have any such policies or procedures." Fair lending problems, anyone?

     The Fed also asked: "With respect to Firstar's and USB's business relationships with subprime lenders as warehouse lender or trustee in securitizations of subprime loan pools, discuss any specific due diligence measures and related actions taken by Firstar, USB and their relevant affiliates in connection with such relationships." The banks' response, as to warehouse lending is evasive, stating that "the more prudent practice is to follow their credit policies and procedures uniformly in making these loans and not to deviate from them in making loans to subprime lenders." Translation? No standards at all... The response, as to work as trustee / registrar / paying agent on subprime loan pools, is even worse: the banks "do not perform due diligence with respect to the origination practices of the lenders...". The banks cite to the Fed's 1999 Deutsche Bank - Bankers Trust order, in which, they claim, the Fed "has declined to impose any such due diligence obligations." Meanwhile, the Fed has given the banks' ten days (from Dec. 21) to further justify another of their requests for confidential treatment. Developing...For or with more information, contact us

Update of December 20, 2000:  Inner City Press has just received a portion of U.S. Bancorp's and Firstar's response to the Federal Reserve's December 6 questions about the banks' involvement with subprime lenders (the questions were reported on, and quoted from, below on this Web page). The banks' December 18 response states that "U.S. Bancorp owns preferred stock in New Century that, if converted, would represent 24.9% of New Century's outstanding common stock." If that's true, it's a recent change -- because New Century's SEC Form 10Q, filed a month ago, on November 15, 2000, stated:

U.S. Bancorp...and its affiliates hold convertible preferred stock, common stock and warrants in the Company that, if exercised, would total over 27% of the Company's outstanding common stock.

    ICP has raised that, again, to the Fed. The banks' Dec. 18 submission (the "Letter") also states that "New Century in turn owns 100% of three companies engaged in non-traditional or subprime lending: New Century Mortgage Corporation, PWF Corporation (which does business as Western Capital Mortgage), and Worth Funding Incorporated... U.S. Bancorp has the contractual right to designate members of the Board of New Century roughly in proportion to U.S. Bancorp's ownership interest in New Century. At present there are two U.S. Bancorp-designated directors serving on New Century's nin-seat Board. There is also currently one vacancy on New Century's Board."

   So let's see: U.S. Bancorp controls 27% (or "24.9%") of New Century's common stock, and has 25% of the occupied seats on its Board. There has been no discussion of the "passivity commitments" that the Fed would require to rebut the presumption that U.S. Bancorp controls New Century -- and yet U.S. Bancorp has now repeatedly said, publicly and privately, that it is "just an investor" in New Century (see below). But the Letter also states:

U.S. Bank National Association ND ('U.S. Bank ND') has entered into a Service Provider Agreement with New Century Mortgage Corporation ('New Century'), dated as of November 24, 1998, relating to subprime home equity loans. Pursuant to the Service Provider Agreement, New Century has agreed to process and underwrite home equity loans for customers turned down for home equity loans by U.S. Bank retail branches. new Century provides sales, underwriting and processing services to the U.S. Bank customers and U.S. Bank ND provide the customer leads, funding, technology and physical space for New Century. The loans originated under this agreement are made by U.S. Bank ND and remain on the U.S. Bank ND balance sheet. U.S. Bank ND and New Century have also entered into a Mortgage Loan Collection Services Agreement dated as of June 1, 1999, pursuant to which New Century agrees to provide certain collection services to mortgage loans originated pursuant to the Service Provider Agreement

     Hmm... As reported below, in the Business Journal of Milwaukee, December 15 edition, U.S. Bancorp's vice president of communications, Wendy Raway, claimed that U.S. Bancorp is "just an investor" in New Century. This is simply not accurate...

     The banks' Letter also provides information about U.S. Bancorp's other involvements with subprime lenders. U.S. Bank National Association "has corporate loans outstanding to the following companies that engage in subprime lending: Fox Financial Corporation and FINOVA." The "U.S. Bank Corporate Trust Services division of U.S. Bank... acts as trustee, registrar and/or paying agent for securitization transactions. Following is a list of USB Corporate Trust clients that have securitizations that may have 'sub-prime' assets as collateral... New Century, Conseco Financial Services, Metris, EquiCredit Corporation of America [Bank of America's subprime affiliate], Chevy Chase Bank, Aurora Loan Services, Aegis Mortgage, First Union/Money Store, Cityscape, Keystone Bank, Mego/Altiva, FirstPlus, Empire Funding Corporation, Western Interstate Bank, United National Bank, Republic Bank, Prime Financial."

    There's more to say about these companies (and it will be said, in forthcoming submissions to the Fed, and in this space)-- but note that Keystone Bank is an institution that recently failed, and whose executives have been indicted for fraud.

     The Letter goes on to state that the "Mortgage Banking Services division of U.S. Bank provides warehouse lines of credit for several companies that originate subprime loans: Alliance Mortgage Company, CH Mortgage Company Ltd., Columbia National, Inc., First Franklin Financial Corp., Guild Mortgage Company, New Century Mortgage Corp., RBNG, Inc., Ryland Mortgage Corp., Universal American Mortgage Corp.... U.S. Bank was the warehouse lender to the following companies which have filed for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code: Homeowners Funding Corporation of America, Developers Mortgage, Harbour Financial Group."

      There's more to say about these companies (and it will be said, in forthcoming submissions to the Fed, and in this space)-- but note that U.S. Bancorp not only controls 27% (or "24.9%") of the common stock of New Century, has two of the eight occupied seats on its board, and has its customers underwritten, and collected from by, New Century -- U.S. Bancorp also funds New Century's loans, as a warehouse lender. So what of U.S. Bancorp's Wendy Raway's claim that U.S. Bancorp is "just an investor" in New Century? There's a problem...

     The Letter then goes on to request confidential treatment for "the amount of U.S. Bank's commitment level and the portion of the commitment that is available for subprime warehousing, the client's total production and the percent that is subprime." ICP has submitted a Freedom of Information Act request / appeal for this information, which is often "otherwise publicly available," in SEC filings and elsewhere.

      The banks' December 18 response to the Fed's Dec. 6 questions is incomplete, stating, for example, that while "Firstar Bank, N.A. owns 100% of the voting stock of Fidelity Credit Corp. [whose] main business location is Paducah, Kentucky... Additional information.. regarding Fidelity Credit is still being compiled and will be sent shortly under separate cover." Wait -- Firstar owns this subprime lending company, but can't answer questions about it, in twelve days? The Letter also states that "Firstar has not yet completed its internal review of its business relationships with subprime lenders. Firstar will submit its response to the Board shortly under separate cover." Again -- Firstar conducts so little oversight of its "business relationships with subprime lenders" that it cannot answer questions about these relationships, within twelve days? There's a problem...

And these problems will be followed up on in this space, and in forthcoming submissions to the FRB. Stay tuned, and, happy holidays.

Update of December 18, 2000:    U.S. Bancorp and Firstar have YET to submit a response to ICP's December 4, 2000 protest, despite their statements to the press that they will be doing so. In the Business Journal of Milwaukee, December 15 edition, U.S. Bancorp's vice president of communications, Wendy Raway, claims that U.S. Bancorp is "just an investor" in New Century. But that's entirely inconsistent with New Century's April 2000 proxy statement, filed with the SEC, which states that

in 1999, the Company implemented a multifaceted strategic alliance with U.S. Bank National Association, ND. The elements of the alliance included (i) originating loans to U.S. Bank customers who did not qualify for a U.S. Bank mortgage loan, (ii) assisting U.S. Bank to develop its sub-prime loan origination capability, (iii) performing selected servicing functions for sub-prime loans originated by U.S. Bank, and (iv) soliciting bids from U.S. Bank for the Company's whole loan sales.

         "Just an investor?" Please... The article also quotes Firstar's spokesman Steve Dale that, "Obviously, as far as the Inner City Press complaint goes, we will address the complaint as we normally would with any complaint." And how would that be? U.S. Bancorp's Raway is quoted: "Because U.S. Bancorp does a significant number of refinancing loans through its South Dakota subsidiary, which has few black customers, the numbers Inner City Press uses paint a distorted picture, Raway said." But we analyzed the Milwaukee (and other) market(s) -- the home state of the lender makes no different, and is not a defense...

        Something, it's unclear what, has broken in the Dakotas situation detailed in our last Report, below. U.S. Bancorp DID submit an application to the Office of the Comptroller of the Currency, on December 4, to merge its North Dakota bank into its South Dakota bank. Then, U.S. Bancorp withdrew the application, on December 6, and has not re-filed it.

     While the Fed is inquiring into U.S. Bancorp's stock- and warrant-holdings in subprime lenders, including New Century, last week Morgan Stanley Mortgage Capital stepped up with a new warehouse line of credit to New Century. Will U.S. Bancorp claim that this lessens its control of New Century? We shall see... ICP asked the banks' lawyer for a copy of their subprime response, due December 18, by fax -- but, at press time, it had not been received.

     While we wait, there are two lawsuits that were reported on last week:

U.S. Bancorp was ordered to pay $3.5 million by a federal judge to settle a 1999 class- action lawsuit that accused the bank of sharing customer information with outside marketing firms, the Minneapolis Star Tribune reported on its Web site. The newspaper said U.S. District Judge Jonathan Lebedoff also ordered the five original plaintiffs to receive $2,000 each in addition to their portion of the claim...U.S. Bancorp will mail an undetermined number of checks to customers after March next year, the newspaper said, citing bank officials. The bank said it won't know until then how many claimants there are, the Star Tribune said. Minnesota Attorney General Mike Hatch filed a separate lawsuit in June 1999 accusing the bank of violating customer privacy rights by sharing customer account information with marketing firms in exchange for commissions, the newspaper reported. Several other attorneys general soon joined that suit. In September, the bank, which denied wrongdoing, agreed to pay $4 million, the amount it made from selling the customer data to third-party marketers, to settle with the attorneys general and set aside $3.5 million to pay plaintiffs and customers with claims, the newspaper reported. --Bloomberg

Firstar is being sued in U.S. District Court by a dozen Illinois banks that allege the company illegally terminated agreements it had made to provide them with data processing services... According to the lawsuit, Firstar exited the business of providing such services shortly before its 1998 merger with Star Banc of Cincinnati... In the lawsuit, the banks collectively seek damages in excess of $900,000. But Timothy Cerney, a Chicago attorney representing the banks, said, "The banks will be seeking recovery for the full amount of their damages resulting from the breach, which will be far in excess of the amount stated in the complaint." (Chicago Tribune)

       For or with more information, contact us

Update of December 12, 2000:   Beyond the Community Reinvestment Act and predatory lending issues focused on below, a new issue has arisen. On December 11, Inner City Press received from Firstar's lawyers a copy of Firstar's December 7 submission to the Federal Reserve Board, reciting and responding to various FRB questions. These questions include:


1. In light of the fact that U.S. Bancorp will be the entity that survives the proposed merger, please discuss in detail the factors that influenced the parties' determination that Firstar rather than U.S. Bancorp should apply for Board approval of the transaction.

2. Identify the effects on the parties, specifically in terms of obtaining necessary regulatory approvals, meeting the requirements of the Riegle-Neal [Interstate Banking] Act, and retaining the grandfather or other rights held by either party, if U.S. Bancorp should be deemed the acquiror.

3. Provide a detailed analysis of whether the proposed transaction would be permissible under Section 3(d) of the BHC Act if U.S. Bancorp should be deemed the acquiror...

4. Supplement your previous analysis of why the transaction is permissible under Section 3(d) of the BHC Act should Firstar be deemed the acquiror. In particular, please discuss in more detail the North Dakota reciprocity requirement referenced in the application...

     This last question may explain the first three. North Dakota, you see, would apply Firstar's home state's (Wisconsin's) law to Firstar's proposed acquisition of U.S. Bank National Association ND ("U.S. Bank-ND"), "a national bank headquartered in Fargo and dedicated primarily to credit card and consumer loan activities." Wisconsin law prohibits acquisition of an in-state bank less than five years old by an out-of-state bank. U.S. Bank - ND was formed in 1997: less than five years ago.

     North Dakota banking commissioner Gary Preszler has been lobbied, by letters dated November 17 and December 4, 2000, to bend the rules and treat Firstar's application as a mere "retention" of U.S. Bank - ND by the proposed new U.S. Bancorp. The banks' letter to the Fed states that they "have been in communication with Mr. Preszler and Mr. Preszler has not yet issued a final determination in the matter. In the event that Mr. Preszler were to rule unfavorably, U.S. Bancorp plans to merger U.S. Bank - ND into U.S. Bank prior to consummation of the merger." Call it "bank empowerment" -- it doesn't MATTER what the state regulator says, these banks will simply work around it, merging a credit card bank into a larger bank to get around the restriction. The banks sent Mr. Preszler a draft of this threat (in the form of a draft their Dec. 7 letter to the Fed, before it was sent) -- but in that version, dated Dec. 4, the banks proposed a different evasion: "In the event that Mr. Preszler were to rule unfavorably, U.S. Bancorp has filed an application with the Office of the Comptroller of the Currency for permission to combine U.S. Bank - ND with U.S. Bancorp's South Dakota-based trust company under the charter of an interim national bank to be located in Sioux Falls, South Dakota... U.S. Bancorp has been advised by the Director of the South Dakota Division of Banking that no minimum age limitation is applicable to the transaction." Always good to have a back-up plan -- threaten to leave the state. South Dakota's inviting (the referenced S.D. Director, Mr. Richard Duncan, shepherded through Citigroup's application to acquire Associates First Capital's predatory credit card lender in that state, in October 2000). But why is the OCC accepting speculative, law-evading applications? And wouldn't there be a comment period, with CRA as a factor, on either of the banks' two escape plans? Developing...

Footnote: the banks' December 7 letter to the Fed also lists the following companies, as shareholders who might, if the merger is approved, own more than five percent of the resulting company: Putnam Investment Management, Inc., Barclays Global Investors and State Street Global Advisors. Didn't we tell you that corporate globalization is everywhere? That's a joke -- partly. The above strategy of sending a government regulator a draft of a plan to leave the jurisdiction, because the law is inconvenient, is reminiscent of sweatshops' regulatory strategies in the "free trade" or export processing zones of the Philippines, Taiwan and Indonesia... Except that this time, it's the Dakotas... For or with more information, contact us

Update of December 11, 2000: Despite U.S. Bancorp's denials that it has any responsibility for the practices of New Century, the subprime lending in which U.S. Bancorp has a stock and warrant stake of between 27.5% and 23% (to be determined in this proceeding), the Federal Reserve Board has now asked U.S. Bancorp and Firstar questions about this relationship. After the filing of ICP's Dec. 4 protest, the Fed wrote a letter to the banks, asking:

"In further review of the proposal and public comments received to date, it has been determined that the following additional information is required... Please list all organizations engaged in subprime lending ('subprime lenders') in which either Firstar of USB directly or indirectly have an ownership interest of five percent or more. Provide the full name, main business location, and market area(s) of each subprime lender and identify the ownership interest of Firstar or USB. Also, discuss any management interlocks (direct or indirect) between Firstar or USB and these subprime lenders... [T]o the extent not provided in your response to the November 22, 2000 letter requesting additional information, describe the fair lending policies and procedures of these subprime lenders, including the methods adopted to ensure that such subprime lending activities comply with the requirements of the Equal Credit Opportunity Act, Fair Housing Act, and Home Ownership Equity Protection Act....Discuss whether Firstar of USB or any of their affiliates have other business relationships with any subprime lenders (e.g., as warehouse lender or trustee). If so, please identify the relevant business parties and describe the nature of the business relationships, including the respective roles and responsibilities of the subprime lenders and the Firstar and/or USB entities... Please provide seven copies of the requested information... by no later than December 18, 2000... Any information for which you desire confidential treatment should be so labeled and separately bound with an explanation for your request."

    The questions are appropriate, and the banks' responses will be reported in this space. Herebelow in reverse chronological order are ICP's two supplemental comments, of Dec. 7 and Dec. 11, 2000.  This will be updated...

                                                                                       December 11, 2000

Dear Secretary Johnson and others in the FRS:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a second timely supplemental comment in opposition to the Applications of Firstar Corporation and its affiliates ("Firstar") to acquire U.S. Bancorp and its affiliates ("U.S. Bancorp;" together, the "Applicants") -- including, as contended in ICP's December 4, 2000, comment (the "First Comment"), New Century.

      Since ICP's submission of December 7, 2000 (the "Second Comment." see below), ICP has received a number of documents, from the Federal Reserve Board ("FRB") and from counsel to the Applicants. ICP was most heartened by the FRB's December 6, 2000, letter to the Applicants (hereinbelow, the "FRB Letter") requesting information about subprime lenders in which U.S. Bancorp or Firstar "directly or indirectly have an ownership interest of five percent or more." As set forth in ICP's First Comment, this clearly includes New Century. And, ICP notes that the FRB Letter's Question 1 is not limited to loans reported under the Home Mortgage Disclosure Act ("HMDA"), and thus includes all home equity and other loans.

      The Applicants' response to the FRB Letter is due December 18, 2000. ICP hereby requests a complete copy of the Applicants' response, and an extension of the comment period in which to analyze and comment on the response. Particularly because the Applicants inexplicably did not even mention their involvements in subprime lending in their Application, and have not responded to ICP's First Comment by the current expiration of the comment period, December 11, the requested extension should be granted.

       Strikingly, the Applicants' two responses to the FRB's November 22 request for additional information (the "Nov. 22 Letter") did not mention their involvements in subprime lending, either. The Applicants' silence on this issue during the comment period justifies the extension ICP is requesting.

     The Applicants' first response to the Nov. 22 Letter resists provide information on the branch closings inferrable from the Applicants' cost-cutting projections, but, significantly, as Exhibit 4, reflects for example that in Illinois in 2000, Firstar closed a branch in a low or moderate income ("LMI") census tract (apparently, the branch at 225 N. Naperville Road, Bolingbrook), leaving it with a smaller percentage of its branches in Illinois in LMI tracts in 2000 than in 1999. The same is true in Kentucky, where, additionally, the percentage of Firstar's ATMs that are in LMI tracts declined between 1999 and 2000. Note that while the first page of Exhibit 4 reflects only one Kentucky branch closing between 1999 and 2000, the remainder of this Exhibit reflects five Kentucky branch closings: three in Louisville, and one each in Hopkinsville and Coldspring. This discrepancy should be addressed.

Exhibit 5 reflects inter alia that in Ohio, excluding multi-state MSAs, Firstar in 1998 made 347 home purchase loans to low income individuals. In 1999, the number ell to 302; and, in 2000 YTD, to 256. There has been a similar decline in Indiana, Arizona, and Minnesota; and, from 1999 to 2000, in the following multi-state MSAs: St. Louis, Quad Cities, Kansas City, Louisville and Cincinnati.

Exhibit 18 reflects deterioration in U.S. Bancorp's small business and small farm lending. U.S. Bancorp's small business loans that are in low income census tracts declined, from 1998 to 1999, in Idaho, Illinois, Nevada, Utah and Wisconsin, and declined, from 1999 to 2000, in Colorado and Wisconsin. In Wisconsin, the decline has been from 72 in 1998, to 62 in 1999, to only 32 in the first ten months of 2000. In the Minneapolis MSA, U.S. Bancorp's headquarters, it made 231 such loans in 1999, and only 102 in the first ten months of 2000.

U.S. Bancorp makes virtually no small farm loans in low income census tracts. In moderate income tracts, its small farm lending declined from 1998 to 1999 in Idaho (1000 to 52) and Oregon (26 to 13). In Washington State, U.S. Bancorp made 100 such loans in 1999, and only 61 in the first ten months of 2000.

U.S. Bancorp's community development and affordable housing investments have also been in decline (Exhibits 19 and 20). Such investments in California have declined from $18.2 million in 1998, to $16.2 million in 1999, to only $9 million in the first ten months of 2000. Similar declines have taken place in Illinois and other states; U.S. Bancorp's total of such investments, nationwide, fell from $98.3 million in 1999 to only $49.3 million in the first ten months of 2000.

On December 8, 2000, the Applicants' submitted a second response to the Nov. 22 Letter, including a purportedly "Confidential" supplement about U.S. Bancorp's community development programs, which ICP hereby requests.

ICP has also today submitted a Freedom of Information Act ("FOIA") appeal of the FRB's December 7, 2000, withholdings of information, inter alia from the Antitrust Memo, various e-mails, and the notes taken at the October 24 and 25, 2000, meetings in Milwaukee between the FRS and various Firstar executives, including its CEO....

      For all of reasons ICP has specified, the comment period should be extended. Hearings should be held, and, on the current record, the Applications could not legitimately be approved.

Respectfully submitted,

Matthew Lee, Esq.
Executive Director

                                                                                            December 7, 2000

Dear Secretary Johnson, Ms. Robinson & others in the FRS:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a timely supplemental comment in opposition to the Applications of Firstar Corporation and its affiliates ("Firstar") to acquire U.S. Bancorp and its affiliates ("U.S. Bancorp") -- including, as contended in ICP's December 4, 2000, commment (the "First Comment"), New Century.

       ICP's First Comment, while raising antitrust, branch closing, Community Reinvestment Act ("CRA") and other issues, began with analyses of U.S. Bancorp's controlling stake in New Century, and of New Century's clear targeting of African Americans and Latinos, protected classes under the Fair Housing Act, with its high interest rate loans.

      While U.S. Bancorp and Firstar have yet to respond, to the Federal Reserve Board ("FRB"), to the issues raised in the First Comment, ICP notes (and hereby timely makes part of the record) that U.S. Bancorp's executives have, in public responses to ICP's comments, attempted to distance themselves from New Century. For example, the Milwaukee Sentinel Journal of December 5 reported that U.S. Bancorp's "Reza Aghamirzadeh said that although U.S. Bancorp and New Century sometimes collaborate to make sure money is available to customers who don't qualify for standard mortgages from the bank, New Century is not considered an affiliate of U.S. Bancorp, as [ICP] contends." Reuters, after running a first story on ICP's challenge, which noted only that "a Firstar spokeswoman said it would respond to the allegations in the normal course of the federal approval process," was thereafter (re-) contacted by U.S. Bancorp, which "said it has a relationship with New Century as a way to help broaden the spectrum of credit products its customers could have access to."

      First, ICP hereinbelow contests U.S. Bancorp's above-quoted attempts to distance itself from New Century. Second, ICP contends that U.S. Bancorp's misleading statements to the press and public, on the important topic of its relationship with a controversial subprime lender, separately make out an adverse factor under the Bank Holding Company Act, under the "managerial resources" standard and otherwise. Third, and to be addressed immediately below, even without reference to the New Century and other problematic subprime lending issues, U.S. Bancorp's and Firstar's records of lending to African Americans and Latinos are weak, as evidenced by a comparison of Firstar Bank's and U.S. Bank's lending, not only to New Century's, but also to the aggregate industry's (that is, all Home Mortgage Disclosure Act-reporting entities added together). Consider this: [snip]

U.S. Bancorp Controls New Century;

New Century Must Be Considered An Affiliate of U.S. Bancorp

      Compare U.S. Bancorp's above-quoted statements with New Century's SEC Form 10Q, filed on November 15, 2000, which states:

U.S. Bancorp, a bank holding company with total assets of approximately $83 billion, and its affiliates hold convertible preferred stock, common stock and warrants in the Company that, if exercised, would total over 27% of the Company's outstanding common stock.

Prior to the third quarter, the Company had also received $35 million in subordinated debt from U.S. Bank National Association, an affiliate of U.S. Bancorp. The Company received additional $2.5 million installments of subordinated debt from U.S. Bank in the third and fourth quarters of 2000. The subordinated debt bears interest at 12%and matures in June 2002.

           U.S. Bancorp has been stating publicly that it owns less than 25% of New Century. This is misleading, because this recent SEC filing discloses that it holds "convertible preferred stock, common stock and warrants in the [New Century] that, if exercised, would total over 27% of the Company's outstanding common stock." See supra. See also, New Century's own Web site.

       Similarly, U.S. Bancorp's above-quoted statement to Reuters that "it has a relationship with New Century as a way to help broaden the spectrum of credit products its customers could have access to" is also a mischaracterization of the origin, purpose and scope of U.S. Bancorp's relationship with New Century. Consider New Century's April 2000 proxy statement, which states:

The Company has a variety of business relationships with several U.S. Bancorp affiliates. U.S. Bank National Association is the agent and lead lender on the Company's $320 million warehouse credit agreement. In 1999, the Company's outstanding borrowings under that agreement averaged approximately $208 million, and the Company expects its borrowings in the current year will be in a similar range.

[I]n 1999, the Company implemented a multifaceted strategic alliance with U.S.Bank National Association, ND. The elements of the alliance included (i) originating loans to U.S. Bank customers who did not qualify for a U.S. Bank mortgage loan, (ii) assisting U.S. Bank to develop its sub-prime loan origination capability, (iii) performing selected servicing functions for sub-prime loans originated by U.S. Bank, and (iv) soliciting bids from U.S. Bank for the Company's whole loan sales.

        These disclosures speak for themselves. Additionally, they give rise to questions that the FRB must inquire into, and that must be answered, in this proceeding. In the above-quoted, (i) gives rise to these questions, among others: does U.S. Bank track, by race, credit profile, New Century-offered interest rate, and otherwise, those applicants which it refers to New Century? Does U.S. Bancorp receive any type of referral fee, directly or indirectly, from New Century? Supra (ii) gives rise to this question: what is the status of U.S. Bancorp own subprime lending program? It is described as beginning in 1999. U.S. Bancorp should provide information to the FRB, and to commenters including ICP, about its own subprime lending, in addition to information about its referrals to New Century. Supra (iii) gives rise to this question: what "servicing functions" on U.S. Bancorp's subprime loans does New Century perform, and under what arrangements? Supra (iv) gives rise to this question: does U.S. Bancorp have a right of first refusal in connection with New Century's sales of its whole loans? If so, this, combined with U.S. Bancorp's stock and warrant ownership in New Century, its role as lead warehouse lender and trustee, makes it all the more clear that U.S. Bancorp in fact controls New Century -- and its practices.

       U.S. Bancorp's involvement with problematic subprime lenders is not limited to its controlling relationship with New Century: U.S. Bancorp has done warehouse lending to Aames, has served as trustee to the closed-down West Virginia subprime lender Keystone (see ICP's First Comment), and, ICP has since found, served as trustee for pools of loans issued by Equicredit and Green Tree / Conseco, both of whose practices ICP has analyzed in previous submissions to the FRB, incorporated herein by reference. What standards does U.S. Bancorp have, for working with subprime lenders? This question should be answered as to, inter alia, Aames, Keystone, Equicredit and Conseco / Green Tree; this question MUST be answered, in this proceeding, as to New Century, which, as demonstrated above, U.S. Bancorp controls....

      On the current record, these Applications could not legitimately be approved.

Respectfully submitted,

Matthew R. Lee, Esq.

Executive Director

Update of December 5, 2000Surprise, surprise -- faced with questions about its investment in the subprime lender New Century, U.S. Bancorp on December 4 sought to characterize the relationship as simply a matter of U.S. Bank referring consumer whose applications it denies over to New Century, for a higher-rate loan. The Milwaukee Sentinel Journal of December 4 reported that "Reza Aghamirzadeh said that although U.S. Bancorp and New Century sometimes collaborate to make sure money is available to customers who don't qualify for standard mortgages from the bank, New Century is not considered an affiliate of U.S. Bancorp, as the consumer group contends."

     Consider the block-quote below, from New Century's own Web site (once there, click under "Acquisitions" -- or, through the wonders of Internet technology, if all works as it should, click here to view U.S. Bancorp's most recent SEC Form 13D, as to New Century):

In November 1998, U.S. Bancorp, a bank holding company with total assets in 1999 of approximately $82 billion, purchased 20,000 shares of the Company's Series 1998A Convertible Preferred Stock for an aggregate purchase price of $20 million. In December 1998 and April 1999, U.S. Bancorp purchased an aggregate of 565,000 shares of the Company's Common Stock through third party private transactions, increasing their equity position in New Century from 16% to 18.75%. In July 1999, U.S. Bancorp purchased 20,000 shares of the Company's Series 1999A Convertible Preferred Stock for an aggregate purchase price of $20 million. The Preferred Stock is also entitled to a liquidation preference as well as a dividend payable quarterly at a rate of 7.5% per year for Series 1998A and 7.0% per year for Series 1999A Preferred Stock. In October 1999, U.S. Bancorp invested an additional $20 million in the Company and in February 2000 invested an additional $10 million. Each transaction was structured as subordinated debt provided by U.S. Bancorp's subsidiary, U.S. Bank National Association. In late March 2000, U.S. Bancorp committed to provide an additional $10 million in subordinated debt over the course of 2000 provided that the Company achieves certain specified milestones.

        Reuters, after running a first story on ICP's challenge, which noted only that "a Firstar spokeswoman said it would respond to the allegations in the normal course of the federal approval process," was thereafter (re-) contacted by U.S. Bancorp, which "said it has a relationship with New Century as a way to help broaden the spectrum of credit products its customers could have access to."    To the Omaha World-Herald, U.S. Bancorp's Aghamirzadeh acknowledged that "U.S. Bancorp owns New Century stock and is represented on New Century's board of directors." In fact, U.S. Bancorp has two of eight board seats, consistent with its percentage of ownership. 25% stock ownership is, legally, a controlling interest. Anything over 10% is a presumption of control. This should and will be developed during the Federal Reserve's proceeding. The companies' SEC filings about the deal refer vaguely to "state regulatory approvals" necessary, without further specificity.

     ICP has compared Firstar Bank's and U.S. Bank's lending, not only to New Century's, but also to the aggregate industry's (that is, all Home Mortgage Disclosure Act-reporting entities added together). Beyond the material in ICP's comment, below, consider this: [snip]

      U.S. Bancorp's involvement with problematic subprime lenders is not limited to its controlling relationship with New Century: U.S. Bancorp has done warehouse lending to Aames, was served as trustee to the closed-down West Virginia subprime lender Keystone, and, we've now found, served as trustee for pools of loans issued by Green Tree / Conseco.

      Consider, for the record, Greentree's / Conseco's 1998 lending record (in the context of this question: what standards does U.S. Bancorp have, for working with subprime lenders?):

       For conventional home purchase loans in the New York City MSA in 1998, the aggregate made 5416 loans to African Americans, 4018 loans to Latinos, and 35,134 loans to whites. For these race-specified loans, 12.2% of the aggregate’s loans were to African Americans, and 9.0% of the aggregates loans were to Latinos.

      Green Tree / Conseco, a high interest rate/subprime lender, for these race-specified loans, made 40.3% of its loans to African Americans. This is a pattern / targeting similar to that, for example, of Delta Funding, which has settled discrimination charges with the N.Y. Attorney General, the N.Y. Banking Department, the FTC and Department of Justice.

      ICP has been concerned about Green Tree's (and Conseco's, after Conseco bought Green Tree) lending for some time. In 1999, ICP opposed Conseco's and Green Tree's applications for a thrift charter from the Office of Thrift Supervision. ...

    So:  what standards does U.S. Bancorp have, for working with subprime lenders? That's a question that will be explored, in this proceeding, and in this space. This will be updated...For or with more information, contact us

* * *

[ICP's December 4, 2000, filing with the Federal Reserve:]

                                                                                               December 4, 2000

Board of Governors of the Federal Reserve System
Attn:  Jennifer J. Johnson, Secretary
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

Re: Timely Comment in Opposition to the applications of Firstar Corporation and its affiliates to acquire U.S. Bancorp and its affiliates, including the subprime lender New Century Financial Corporation

Dear Secretary Johnson, Governors and others in the FRS:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a timely comment in opposition to the Applications of Firstar Corporation and its affiliates ("Firstar") to acquire U.S. Bancorp and its affiliates ("U.S. Bancorp").

         There are a number of adverse Community Reinvestment Act ("CRA"), antitrust and compliance issues that the Federal Reserve Board (the "Board" or the "FRB") must consider in connection with this transaction. Below, ICP analyzes Firstar's under-service of low- and moderate-income ("LMI"), African-American and Latino borrowers, U.S. Bancorp's record of violating consumers' privacy, and, to the degree possible (given Firstar's improper withholding of information), the branch-closing and anti-competitive effects this proposed combination would have, including in the Minneapolis banking market. Because of the Application's total silence on the important matter of subprime (and, ICP contends, predatory) lending, however, ICP will begin by entering into the record U.S. Bancorp's controlling (over 25%) stake in the problematic subprime lender, New Century Financial Corporation ("New Century").

       While it is nowhere addressed in the Application, U.S. Bancorp controls a 27.5% stake in New Century. See, e.g., Los Angeles Times of June 24, 2000, at C1 ("NEW CENTURY FINANCIAL OF IRVINE, SERVING THE POOR AND CREDIT-POOR, SEEKS A BUYER; CONTROVERSY HOUNDS THAT SECTOR"). U.S. Bancorp's control over New Century goes beyond this over-25% shareholding: U.S. Bancorp has a number of seats on New Century's board of directors. On June 8, 2000, U.S. Bancorp's Vice Chairman, Richard Zona, was appointed to the New Century board. He was replacing Francis Partel, Jr., a U.S. Bancorp senior vice president. See, e.g., P.R. Newswire of June 8, 2000. Long-time U.S. Bancorp executive Terry Sandvik re-joined New Century's board in October 2000. See, e.g., P.R. Newswire of October 13, 2000. New Century's announcement of its first quarter 2000 earnings stated that "U.S. Bank provided $10 million and committed an additional $10 million for 2000, increasing the bank's investment to $85.7 million." See, e.g., P.R. Newswire, April 28, 2000.

        To document for this proceeding that the subprime lender New Century disproportionately targets its high interest rate loans at people of color, consider its refinance lending record in the following Metropolitan Statistical Areas ("MSAs"), compared with the aggregate's refinance lending record, and Firstar's and U.S. Bancorp's records:

In the Minneapolis MSA in 1999, New Century made 420 refinance loans to whites, and 64 to African Americans, a ratio of 6.56-to-one. U.S. Bank, N.A. in this MSA in 1999 made 415 refinance loans to whites, and only five to African Americans, a ratio of 83 to one. U.S. Bancorp-controlled New Century is 12.65 times more likely to target African Americans with its high interest rate refinance loans than is U.S. Bank, with normal interest rate refinance loans. Firstar Bank, N.A. in this MSA in 1999 made 1931 refinance loans to whites, and only 20 to African Americans, a ratio of 96.55 to one. U.S. Bancorp-controlled New Century is 14.72 times more likely to target African Americans with its high interest rate refinance loans than is Firstar Bank, with normal interest rate refinance loans. As noted below, in this Minneapolis MSA where U.S. Bancorp would gain an anti-competitive share, U.S. Bancorp's, New Century's and Firstar's lending patterns are disparate, and should be referred to the Department of Justice for prosecution.

In the Milwaukee MSA in 1999, New Century made 38 refinance loans to whites, and 24 to African Americans, a ratio of 1.58-to-one. Firstar Bank, N.A. in this MSA in 1999 made 786 refinance loans to whites, and only 45 to African Americans, a ratio of 17.47 to one. U.S. Bancorp-controlled New Century is more than 11 times more likely to target African Americans with its high interest rate refinance loans than is Firstar, with normal interest rate refinance loans.

In the Cincinnati MSA in 1999, New Century made 117 refinance loans to whites, and 43 to African Americans, a ratio of 2.72-to-one. Firstar Bank, N.A. in this MSA in 1999 made 1079 refinance loans to whites, and only 72 to African Americans, a ratio of 14.99 to one. U.S. Bancorp-controlled New Century is 5.5 times more likely to target African Americans with its high interest rate refinance loans than is Firstar, with normal interest rate refinance loans.

In the Denver MSA in 1999, New Century made 171 refinance loans to whites, and 52 to Latinos, a ratio of 3.29-to-one. U.S. Bank, N.A. in this MSA in 1999 made 237 refinance loans to whites, and only 32 to Latinos, a ratio of 7.41 to one. U.S. Bancorp-controlled New Century is 2.25 times more likely to target Latinos with its high interest rate refinance loans than is U.S. Bank, with normal interest rate refinance loans.

In the Nashville MSA in 1999, New Century made 34 refinance loans to whites, and 15 to African Americans, a ratio of 2.27-to-one. Firstar Bank, N.A. in this MSA in 1999 made 74 refinance loans to whites, and only five to African Americans, a ratio of 14.8 to one. U.S. Bancorp-controlled New Century is 6.52 times more likely to target African Americans with its high interest rate refinance loans than is Firstar, with normal interest rate refinance loans.

In the Cleveland MSA in 1999, New Century made 126 refinance loans to whites, and 71 to African Americans, a ratio of 1.77-to-one. Firstar Bank, N.A. in this MSA in 1999 made 555 refinance loans to whites, and only 89 to African Americans, a ratio of 6.24 to one. U.S. Bancorp-controlled New Century is 3.53 times more likely to target African Americans with its high interest rate refinance loans than is Firstar, with normal interest rate refinance loans.

Now, comparing to the aggregate: in the Philadelphia MSA in 1999, New Century made 134 refinance loans to whites, and 61 to African Americans, a ratio of 2.2 to one. The aggregate industry made 42,476 refinance loans to whites in this MSA, and 5301 to African Americans, a ratio of 8.01 to one. New Century is over 3.5 times more likely to target its (high interest) refinance loans to African Americans in this MSA than is the industry aggregate, with its (admittedly blended interest rate) loans.

In the Newark, New Jersey MSA in 1999, New Century made 18 refinance loans to whites, and 12 to African Americans, a ratio of 1.5 to one. The aggregate industry made 16,074 refinance loans to whites in this MSA, and 2,243 to African Americans, a ratio of 6.58 to one. New Century is 4.39 times more likely to target its (high interest) refinance loans to African Americans in this MSA than is the industry aggregate, with its (admittedly blended interest rate) loans.

In the Washington DC MSA in 1999, New Century made 52 refinance loans to whites, and 70 to African Americans, a ratio of 0.74 to one. The aggregate industry made 48,894 refinance loans to whites in this MSA, and 13,663 to African Americans, a ratio of 3.58 to one. New Century is over 4.5 times more likely to target its (high interest) refinance loans to African Americans in this MSA than is the industry aggregate, with its (admittedly blended interest rate) loans. Infra, we will analyze New Century's targeting of minorities with high interest rate loans, and Firstar's and U.S. Bancorp's disparate home purchase lending, in communities in which U.S. Bancorp and Firstar have Community Reinvestment Act duties.

      The Application's "CRA Attachment," the 28-page Exhibit 7, strikingly does not even mention U.S. Bancorp's effect on LMI neighborhoods and communities of color through its affiliate, New Century. Given the Board's publicly-expressed concerns about subprime lending, this omission is troubling. As explained in greater detail below, in light of the Board's failure to date to respond to ICP's Freedom of Information Act ("FOIA") request of November 13, 2000, of Firstar's improper withholding of material portions of its Memorandum on Competitive Consideration (the "Antitrust Memo") and the Disclosure Schedules to the merger agreement, and of the omissions, including of New Century, in the Application, the comment period should and must be extended.

      To demonstrate just how glaring the Application's failure to even mention New Century is, consider that Crain's Chicago Business of March 20, 2000, "Banks Risk Losing City Biz, Deposits," named "U.S. Bancorp-owned New Century Mortgage Corp." as one of the three most active refinance lenders in predominantly African American Chicago neighborhoods, and named U.S. Bancorp as one of three banks "in danger of losing their right to do business with City Hall, according to mayoral aides... for potential violations of a new anti-predatory lending ordinance proposed last week by Mayor Richard Daley." It must be asked: how is it legitimate that the Application doesn't even MENTION New Century, despite (or perhaps because of) the FRB's recently-expressed concerns about abuses in subprime lending? The Federal Reserve Board’s Chairman in March of this year expressed the Board’s worries about predatory lending, stating: "Of concern are abusive lending practices that target specific neighborhoods or vulnerable segments of the population and can result in unaffordable payments, equity stripping, and foreclosure. The Federal Reserve is working on several fronts to address these issues...". "Remarks of Chairman Alan Greenspan Before the Annual Conference of the National Community Reinvestment Coalition," March 22, 2000. See also, Reuters newswire of March 22, 2000: "Greenspan Says Fed to Target Abusive Lending;" American Banker of March 23, 2000, "Greenspan Wades In On Predatory Lending, Joining Other Regulators."

     Since then, in scheduling and attending Fed hearings on the Home Ownership and Equity Protection Act on 1994, Governor Gramlich has reiterated the Fed’s concern with predatory lending, while claiming that there is little that the Fed can do, by itself, about the problem. See, e.g., Fed Says Can't Curb Subprime Lending Abuses Alone, Reuters, August 4, 2000: "’Our authority in the overall scheme of things is a bit limited,’ Gramlich said before a panel discussion on predatory subprime lending. ‘We certainly can't do it all.’"

      Of particular significance, in this proceeding, is Governor Gramlich’s April 14, 2000 speech in Syracuse, New York (justifying the FRB’s lack of action on the issue of predatory lending by noting that only a third of the 239 HUD-identified subprime lenders are bank affiliates -- ICP contends that the subprime lender New Century IS an affiliate of U.S. Bancorp, but was not included in Governor Gramlich's, or the FRB's, "count"). In that speech, Governor Gramlich stated:

"HUD compiles an annual list of the subprime lenders that report data under the Home Mortgage Disclosure Act (HMDA). For 1998, this list showed 239 subprime lenders, of which 168 were regulated only by the Federal Trade Commission (FTC). Thirty-six of these institutions were banks or subsidiaries of banks and savings and loans that were regulated, and the remaining thirty-five were banks or subsidiaries of bank holding companies, where the holding company was regulated but the subsidiary operated with some freedom from the holding company and its regulator."

      U.S. Bancorp's controlling stake in, and representation on the board of directors of, the subprime lender New Century is a type of inter-penetration of subprime lending by banks which the FRB has not, to date, addressed. For example, on November 21, 2000, the FRB asked Chase Manhattan whether it controls or affects the lending practices of the subprime lenders for which it serves as warehouse lender or underwriter. "No," Chase essentially answered, in its November 30, 2000, submission to the Board. While ICP contests that (elsewhere), note that U.S. Bancorp owns 27.5% of the stock of New Century, and has representation on New Century's board of directors. The FRB must, in this proceeding, inquire into the degree to which U.S. Bancorp controls and affects the (troubling) lending practices of New Century. Since the Application inexplicably does not even mention New Century, despite its 28-page presentation on the banks' affects on LMI neighborhoods, the comment period must be extended.

     U.S. Bancorp is, beyond its control of New Century, involved in the (questionable) subprime mortgage market in other ways, as well: for example, as a warehouse lender to the subprime lender Aames. See, e.g., Aames SEC Form 8K reciting that "[o]n April 10, 1998, Aames Financial Corporation entered into a Second Amended and Restated Mortgage Loan Warehousing Agreement," including with U.S. Bank, N.A. (for whom Edwin D. Jenkins, Vice President, signed).

       As to Aames, and simply as one example, consider the following, from the District of Columbia:

A few years ago, Mrs. Johnson had fluctuating blood pressure that drove up her medical bills, and she had trouble paying her mortgage each month... On the advice of friends, she decided to refinance her mortgage and borrow against the equity in her home to get money to pay off debt. Mrs. Johnson understood from a mortgage broker that she would receive a lump sum of $10,000 to pay off her debts, and that the new lender would refinance her mortgage. Instead, she said she received less than $500, though the bank did settle her back mortgage payments... Mrs. Johnson's rate was the LIBOR plus 8.75 percent. That would mean that if she still held the mortgage, she would be paying over 14 percent... After Mrs. Johnson's refinancing, her $664-per-month mortgage payments rose to over $1,100, then to over $1,300. She and her mother have a combined income of about $1,600 a month. As she continued to fall behind on payments, the company that now owns her mortgage, Aames Capital Corp., foreclosed and marshals came knocking. Mrs. Johnson was frantic...Since Aames owns Mrs. Johnson's house, the marshals could return at any time.

--Washington Times, July 10, 2000, at D10, "Officials aim to curb loan sharks," emphasis added.

    Aames targets people of color with its troubling subprime loans. For example, in the New York City MSA in 1999, Aames Funding made 71 refinance loans to African Americans, 18 to Latinos, and 34 to whites. For these three groups, the aggregate industry in the NYC MSA in 1999 made 20.2% of its refinance loans to African Americans, and 8.0% to Latinos. For Aames, the targeting is clear: 14.6% to Latinos, and a whopping 57.8% to African Americans. The FRB must also, beyond the New Century matters supra, and the issues raised below, inquire into U.S. Bancorp's standards for doing business with subprime lenders, including as a warehouse lender.

    U.S. Bancorp's subsidiaries also do business, in the role of trustee, with questionable subprime lenders -- including the recently-closed down West Virginia subprime lender, Keystone. See, e.g., Saint Paul Pioneer Press of December 1, 2000, reporting about "pools of loans that Keystone generated and sold to trusts. The trusts, in turn, sold securities to investors who receive the principle and interest from those loans over time and giving Keystone its profit up front. The practice, called securitization, is common for big lenders. U.S. Bancorp's St. Paul-based trust subsidiary serves as trustee for investors who purchased certificates from Keystone between 1993 and 1998." That U.S. Bancorp was doing business, even as trustee, with Keystone raised serious questions. The FRB must also, beyond the New Century matters supra, and the issues raised below, inquire into U.S. Bancorp's standards for doing business with subprime lenders, including as a trustee.

       There are, of course, other issues. In 1999 in its headquarters MSA, Milwaukee, Firstar Bank, N.A. denied the conventional home purchase loan applications of African Americans 2.5 times more frequently than those of whites. In the Chicago MSA in 1999, Firstar Bank, N.A. denied the conventional home purchase loan applications of African Americans a whopping 4.2 times more frequently than those of whites, while outreaching and lending to African Americans must less than the rest of the industry: Firstar Bank made 1081 such loans to whites, and only 39 such loans to African Americans, and only 41 such loans to Latinos. [FN 1: While Firstar disproportionately excludes and denies LMI and minority borrowers, it's worth noting that Firstar Bank, N.A. is a lender to one of the largest private prison companies in the United States, Cornell Companies (f/k/a Cornell Corrections) -- its Credit Agreement amendment of July 21, 2000 shows Firstar Bank, N.A. as lending $8.5 million. Concern has also grown in Chicago around Firstar's role in financing new construction by the Adam's Mark hotel chain, which has been sued for race discrimination by the U.S. Department of Justice, Florida Attorney General and others]. As noted above, New Century in Chicago in 1999 made 611 (high interest rate) refinance loans to whites, and fully 386 to African Americans, and fully 156 to Latinos. Relevant to U.S. Bancorp and its CRA duties, in the Los Angeles MSA in 1999, New Century made 396 (high interest rate) refinance loans to whites, and fully 303 to African Americans, and fully 311 to Latinos. In the Denver MSA in 1999, U.S. Bank, N.A. denied the conventional home purchase loan applications of Latinos more than four times more frequently than those of whites.

As has been widely reported, but has yet to be acted on by the Federal Reserve Board, U.S. Bancorp has, by its practices, come to symbolize the worst, in terms of financial institutions' violations of consumers' privacy. U.S. Bancorp has given its customers' private information to so-called "marketing partners," including for marketing non-financial products. U.S. Bancorp has been sued by, and has settled with, the Minnesota Attorney General, and, on September 1, 2000, preliminarily settled a class action on the same grounds. See, e.g., Bloomberg newswire of September 1, 2000, "U.S. Bancorp Settles Second Case Related to Consumer Privacy." These matters are inexplicably not even mentioned in the Application. Compliance violations at U.S. Bancorp and its affiliates have continued: Bloomberg of December 1, 2000, reported that "U.S. Bancorp's Piper Capital Management Inc. was ordered by a Securities and Exchange Commission judge to pay about $2 million for not disclosing...that one of its funds contained high-risk derivatives and had plunged in value. Piper Capital Management Inc., through a fund manager, deviated from the fund's stated goal of making conservative investments, administrative law judge H. Peter Young found. The Minneapolis, Minnesota-based advisory firm also manipulated the fund's net asset value to disguise fund losses and misled investors about the fund manager's educational background, the judge held... In addition to ordering Piper Capital to pay $2,005,000, Young revoked Piper Capital Management's SEC registration as an investment adviser." Note that Firstar's CEO Jerry Grundhofer told the Cleveland Plain Dealer (Nov. 28, 2000) that "[a]nother major reason we did this is it brings to us an investment bank and brokerage company, Piper Jaffray," and see supra. Firstar itself has recently suffered problems with its investment advisory units. See, e.g., Investment Management Weekly of February 28, 2000, "Milwaukee Cans Firstar, Review Bond Portfolio:" "Moving quickly after a team of six fixed-income managers left Firstar Corporation earlier this month, the $4.3 billion Milwaukee Employees' Retirement System has fired the firm from a $298 million enhanced index bond portfolio... Executive Director Anne Bahr said[] '[t]he decision was directly related to the exodus of the top management team.'" The FRB must inquire into these issues, and extend the comment period. It would seem that these many compliance violations would be discussed in the "Disclosure Schedules to the Agreement and Plan of Reorganization," which Firstar is impermissibly seeking to withhold. The FRB has yet to rule on ICP's November 13, 2000, FOIA request. That should take place, forthwith, and the comment period must be extended.

The Minneapolis banking market is already over-concentrated; now, U.S. Bancorp and Firstar seek to combine, and divest only $700 million. The specifics of the divestiture have been impermissible redacted from the "Public Version" of the Antitrust Memo. Again, the FRB has yet to rule on ICP's November 13, 2000, FOIA request. That should take place, forthwith, and the comment period must be extended.

Firstar and U.S. Bancorp are projecting fully $266 million in annual savings, including through the "optimization of commercial banking, retail branch and alternative delivery channels for bank products and services." App. at 14. This would appear to involve branch closings; no information in this regard is provided in the Application. The FRB must inquire into this, and must extend the comment period.

Note that ICP's November 13, 2000, submission stated, inter alia, that "[i]n light of previous difficulties in obtaining responsive records from the FRS, and in order to avoid having to submit FOIA request seriatim throughout the comment period, we formally ask that you treat this letter (which is being faxed to the Board Secretary's office) as a filing triggering the Board's Ex Parte rules... [C]onsider that 'For years, U.S. Bancorp branch customers with questions or complaints were shooed from tellers and toward a bright red telephone sitting just beyond the bank of teller windows. Such sterile customer service symbolized everything customers disliked about USB, which for years emphasized efficiency above all else... When Minneapolis-based First Bank System bought Portland, Ore.-based U.S. Bancorp in 1997 for $9 billion, adopted its name and gained a Western foothold for the first time, the Portland bank was known for customer service. First Bank quickly instituted its efficiency-driven model, which emphasized sales over service and technology over person-to-person transactions. The changes prompted an exodus among West Coast customers...'. Minneapolis Star- Tribune, October 29, 2000. If further detail is required (in order to trigger the Board's Ex Parte rules), please inform us of this as quickly as possible, and we will make such a supplementary submission."

       [A member] of the Board's Legal Division thereafter telephoned ICP, stating that in her view ICP's November 13, 2000, submission did not trigger the Board's Ex Parte rules, and that, in order to do so, ICP would have to submit another, separate comment. The instant comment clearly suffices; ICP notes that a similar November 13 submission it made, on another application, was treated as a comment triggering the FRS' Ex Parte rules. ICP cannot understand why the Board could not have responded to ICP's November 13, 2000 FOIA request prior to this submission, three weeks later. The comment period must be extended; ICP is hereby timely requesting an evidentiary hearing and/or public meeting on the Applications.

    Communications regarding this proceeding, including the Applicants' response(s), any and all FRB communications with the Applicants, should be provided to the undersigned.

      On the current record, these Applications could not legitimately be approved.

Respectfully submitted,

Matthew Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
Tel:  718-716-3540
Fax: 718-716-3161


    NOTE: This page will be updated, when we receive the information that Firstar and U.S. Bancorp are seeking to withhold, in the face of Freedom of Information requests from ICP, and Firstar's and U.S. Bancorp's  responses to the regulatory agencies. For or with more information, contact us.


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