Banking Law Prof Blog

OCC's Ombudsman

Report of the OCC Ombudsman for 2005-06 is now available on the OCC website.  The OCC is trying to buff its consumer-friendly image & this report is part of that effort.  However, the Office of the Ombudsman has been in place for 13 years.  Bank lawyers should not forget about this resource when their clients encounter "personality conflicts" with the examination staff.  The Report outlines the Appeals Process.  The Ombudsman's Office is not in the chain of command for the examination function and can often assist in resolving significant issues between a bank and the examination staff.  Sam Golden, who has served as Ombudsman from the inception of this office has announced his retirement in February 2008.  He will be missed.

Link:  http://www.occ.gov/Ombudsman/2006OmbudsmanReport.pdf

(ag) Nov. 28, 2008, in Consumer Protection

HR 3915 - The Mortgage Reform & Anti-Predatory Lending Act of 2007

This week, Representatives Brad Miller (D-NC), Mel Watt (D-NC) and Barney Frank (D-MA) introduced HR 3915, "The Mortgage Reform and Anti-Predatory Lending Act of 2007".  This bill is intended as comprehensive legislation to combat abuses in the mortgage lending market and to provide protections for mortgage consumers and investors.

The bill covers the following major areas:  1.  Establishing a federal duty of care in mortgage lending, prohibiting "steering" borrowers to higher priced loan products if they can qualify for a lower priced, more favorable loan, and setting up a new system for licensing and registration of mortgage originators, including brokers and bank loan officers; 2.  Requiring, as a minimum underwriting standard for mortgage loans, that the borrower must have a reasonable ability to repay; 3.  Attaching limited liability to secondary market securitizers of home mortgage loans that do not meet these new standards; 4.  Expanding consumer protections for "high cost home loans" under HOEPA and including protections for renters of foreclosed homes.

My take:  The subprime mortgage debacle demonstrates the need for better underwriting standards.  The public is crying for new protections.  So, just introducing this bill is a popular palliative move, but the bill itself will generate such controversy that delay is certain and passage very uncertain.

(ag) Oct. 25, 2007, in Consumer Protection, Predatory/Subprime Lending

What the Federal Reserve Is Doing About Consumer Protection

Sandra Braunstein, Director of the Federal Reserve Board's Division of Consumer & Community Affairs, testified before the House Committee on Oversight and Government Reform Subcommittee on Domestice Policy today. 

Director Braunstein discussed the Federal Reserve Board's consumer compliance supervision, which includes administration of the Community Reinvestment Act and fair lending laws, especially the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA).  She noted that, "One objective of our consumer compliance examination program is to identify and control compliance risks before they harm consumers."

During 2007, the Fed has referred six cases of ECOA violations to the Department of Justice for prosecution.  These cases involved:

ethnic and racial discrimination in mortgage pricing,

racial discrimination in the pricing of automobile loans,

restrictions on lending on Native American lands,

restrictions on row house lending that discriminated on the basis of race,

discrimination against unmarried people in the underwriting of consumer loans, and

discrimination on the basis of marital status by improperly requiring spousal signatures.

My take:  Congress has all the federal bank regulatory agencies on the hot seat about consumer protection for two reasons:  1.  The subprime mortgage meltdown has resulted in so many foreclosures that Congress must at least talk about solutions to the underlying lending issues; and 2.  Since federal preemption has eliminated the state authority to address consumer protection issues in banking, the federal regulators need to step up to the plate.

LInk:  http://www.federalreserve.gov/newsevents/testimony/braunstein20071024a.htm

(ag) Oct. 24, 2007, in Consumer Protection

FDIC Info About Fighting Fake Check Scams

Here's an interesting item from the FDIC website:  Videos and cautionary information warning that you could be the recipient of a fake check -- coupled with a request that you send cash for fees or wire back some of the funds.  It's a scam.

Link:  http://www.fakechecks.org/

(ag) Oct. 18, 2007, in Consumer Protection

OCC and Texas Department of Banking Agree to Share Consumer Complaint Information

Comptroller of the Currency John Dugan and Texas Banking Commissioner Randall James signed a Memorandum of Understanding on Oct. 2, 2007, that follows the CSBS model for sharing consumer complaints between their two agencies.

Twenty-seven states have previously executed such an agreement with OCC:  Alaska, Arizona, Colorado, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Utah, Vermont, Washington, Wisconsin, Wyoming, and the Commonwealth of Puerto Rico.

My take on this:  Having preempted most state consumer protection laws that deal with banks, the OCC is now trying to address -- or appear to address -- consumer issues that they are in no way staffed to cover in a meaningful way.  State banking departments are trying to make the best of a bad situation. 

(ag) Oct. 4, 2007

FDIC Tells Congress: Garnishment of Consumer Bank Accounts Containing Social Security Funds Is A Problem

FDIC General Counsel Sara Kelsey addressed the Senate Finance Committee on "The Impact of Garnishment on Social Security Benefits."  FDIC recognizes that Federal benefit payments are an important -- and often the sole -- source of income for many Americans.  Actions that limit access to these funds can result in hardship and expense for the benefit recipients.  Banks usually freeze deposit accounts when they receive a garnishment order, even if the account contains Federal benefit payments.

Under federal law, the following types of federal benefit payments are protected from garnishment or attachment by creditors: Social Security benefits, Supplemental Social Security benefits, Veterans Administration (VA) benefits, civil service retirement benefits, military retirement annuities, and railroad retirement benefits.  Many state laws conflict with this protection.  Banks, out of caution, freeze the funds and wait for a hearing to sort out the legal status of the funds.

Most benefit payment recipients are unaware of this legal protection from garnishment.  FDIC is engaged in an awareness campaign on this issue. 

FDIC also suggests that Congress might address this problem by amending the Social Security Act to spell out the extent to which protections for federal benefit payments extend to freezes as well as garnishment, and whether these protections operate as a bar to banks or merely a defense for benefit recipients. Congress could also address the problems that arise from commingling federal benefit payments with other funds.

Link to Testimony:  http://www.fdic.gov/news/news/speeches/chairman/spsept2007.html

(ag) Sept. 24, 2007, in Consumer Protection, Deposit Regulation, FDIC

Foreclosure Resources

The Federal Reserve has assembled an information page with links to agencies and organizations that may be able to help consumers facing foreclosure.

Link:  http://www.federalreserve.gov/pubs/foreclosure/default.htm

(ag) Aug. 23, in Consumer Protection/Predatory Lending/Subprime Lending

51 Ways to Cut the Cost of Credit

FDIC announces that its current quarterly Consumer News publication contains practical tips that can help consumers save "hundreds, if not thousands, of dollars on loans and credit cards."

Link:  http://www.fdic.gov/news/news/press/2007/pr07069.html

(ag) Aug. 23, 2007, in Consumer Protection

Members of Congress Concerned About Reg B

Three members of Congress -- Melvin Watt (D-NC), Chairman of the House Financial Services Subcommittee on Oversight and Investigations; Carolyn Maloney (D-NY), Chairman of the Subcommittee on Financial Institutions & Consumer Credit; and Barney Frank (D-MA), Chairman of the House Financial Services Committee -- have sent a letter to the Government Accountability Office expressing their concern that the Federal Reserve has decided not to amend Regulation B, which implements the Equal Credit Opportunity Act (ECOA). 

In fact, they're so concerned that they are asking the GAO to conduct its own study of the impact of removing Reg B's prohibition on collecting and publicly reporting of race and gender data for non-mortgage credit. 

Link to letter:  http://www.house.gov/apps/list/press/financialsvcs_dem/press2071707.shtml

(ag) July 18, 2007, in Congress, Consumer Protection, Federal Reserve, Lending Issues

Julie Williams Talks About the Watters Decision, Subprime Lending, and Consumer Protection

OCC's First Deputy Comptroller and Chief Counsel Julie Williams spoke to the New York Bankers Association this week. 

First, she addressed the Supreme Court decision in Watters v. Wachovia.  She says it's not new news.  She also says "move on". 

With respect to mortgage lending through subsidiaries of national banks, the OCC now clearly has responsibility to police predatory lending & deal with consumer protection issues. 

Ms. Williams calls for cooperation between state and federal regulators.

LInk:  http://www.occ.treas.gov/ftp/release/2007-72a.pdf

(ag) July 13, 2007, in Consumer Protection/Predatory Lending/Preemption

CSBS Asks Congress to Clarify Consumer Protection in Light of Federal Preemption

Steven Antonakes is the Massachusetts Banking Commissioner, Chairman of the State Liaison Committee and newest voting member of the Federal Financial Institutions Council (FFIEC).  The Conference of State Bank Supervisors (CSBS) reports his testimony on their behalf before the House Financial Services Committee at the Hearing on "Improving Federal Consumer Protection in Financial Services." 

Not surprisingly Antonakes addressed the consumer protection concerns following the expansion of federal preemption to include almost all state efforts to protect their citizens from predatory mortgage lending if a bank or its subsidiary is involved.  Here's what he had to say to Congress:  “The current state of confusion is not acceptable.”

Antonakes emphasized the value of the dual banking system, pointing out that “nearly every consumer protection regulation that exists at the federal level, or that Congress is currently contemplating, has its roots at the state level.”

Link to Testimony:  http://www.house.gov/apps/list/hearing/financialsvcs_dem/htantonakes061307.pdf

Link to CSBS Newsletter:  http://www.csbs.org/Content/NavigationMenu/PublicRelations/CSBSExaminer/ExaminerMain.htm

(ag) June 21, 2007, in Consumer Protection, Federal Preemption

Shop for a Mortgage

The Federal Reserve has posted a Mortgage Comparison Calculator on its website.

Here's what Federal Reserve Governor Randall Kroszner had to say about the calculator:  “We have created a tool that will allow consumers to look ahead to see how much equity they will build and what their mortgage payments might be three, five, seven or ten years down the road with different mortgage products.  The calculator will make it easy for consumers to compare monthly payments and equity accumulation among 30-year and 15-year fixed-rate mortgages, interest-only fixed-rate mortgages, adjustable-rate mortgages (ARMs), interest-only ARMs, and payment-option ARMs."

Link to July 19, 2007, Press Release with internal link to calculator:  http://www.federalreserve.gov/boarddocs/press/other/2007/20070619/default.htm

(ag) June 20, 2007, in Consumer Protection

How Can the Federal Banking Agencies Improve Consumer Protection?

FDIC Chairman Sheila Bair testified before the House Financial Services Committee, suggesting the following changes needed to improve consumer protection in financial services now that federal preemption has all but eliminated state consumer protection. 

1. 1.  Establish national standards for subprime mortgage lending by all lenders -- either by statute or through HOEPA rulemaking;
2. 2.  Expand rulemaking authority to all federal banking regulators to address unfair and deceptive practices;
3. Permit state Attorneys General and supervisory authorities to enforce TILA and the FTC Act against non-bank financial providers; and
4. Provide funding for “Teach the Teacher” programs to provide for more financial education in the public schools.

(ag) June 18, 2007, in Consumer Protection

Credit Card Disclosure Proposal Explained

In testimony before the House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit, Federal Reserve Board Governor Frederic Mishkin provided a concise summary of the Federal Reserve Proposal to revise credit card disclosures required under the Truth in Lending Act (TILA). These are the first revisions to credit card disclosures since 1981.

Key disclosure revisions include more information about "teaser" rates, limitations on the words "fixed rate" to those that truly will not change, an updated "Schumer box" with information about rates and fees which is required to be disclosed with solicitations for credit cards, and 45 days notice to a consumer before imposition of a penalty rate or other interest rate increase -- to give consumers an opportunity to shop around.

Link to testimony:  http://www.federalreserve.gov/boarddocs/testimony/2007/20070607/default.htm

(ag) June 18, 2007, in Consumer Protection

Congress Looks at "Remotely Created Checks" - Why Doesn't the Federal Reserve Close this Invitation to Commit Fraud?

Congressman Ed Markey (D-MA) and Congressman Barney Frank (D-MA), Chairman of the House Financial Services Committee, delivered a letter to the federal banking agencies expressing concern about the practice of allowing bankd to accept and process unsigned or “remotely created” checks.  These remotely created checks are often generated by fraudsters without authorization in the names of unsuspecting victims. The New York Times ran a story last month that highlighted problems with these checks (“Bilking the Elderly, with a Corporate Assist”, May 20, 2007, A1). 

This is not the first time these checks have received public criticism.  In 2005 the Attorneys General of 35 states urged the Federal Reserve to prohibit financial institutions from accepting remotely created checks as a form of payment precisely because they can be so easily used to commit fraud.

Link to Press Release:  http://www.house.gov/apps/list/press/financialsvcs_dem/press061107.shtml

(ag) June 14, 2007, in Consumer Protection 

Financial Education for Consumers - Captain Obvious to the Rescue

I know I've seen this old Saturday Night Live Skit before, but it's one of the most direct consumer education pieces around.  Thanks to Banklawyersblog for this U-Tube Excerpt: "Don't Buy Stuff You Cannot Afford."

You can find this in Bank Lawyer's Blog entry for May 16, 2007:  "Why Didn't I Think of That?"

http://www.banklawyersblog.com/3_bank_lawyers/2007/05/why_didnt_i_thi.html

(ag) May 30, 2007, in Consumer Protection

FDIC's Consumer News

The Spring Issue of FDIC's Consumer News highlights "Speed Paying and Banking:  High Tech Cards and Phones Could Change the Way You Spend and Manage Your Money".

Link:  http://www.fdic.gov/consumers/consumer/news/cnspr07/

(ag) May 17, 2007, in Consumer Protection

Be Careful What You Ask For . . .

It's the old story about the dog chasing the car.  What will he do if he catches it?

The OCC may find itself -- and the other banking agencies -- in a similar quandary as a result of the Watters v. Wachovia decision which exempts operating subsidiaries of national banks from state consumer protection laws.  Congressman Barney Frank, Chairman of the House Financial Services Committee, and Congressman John Dingell, Chairman of the House Energy and Commerce Committee, sent a joint letter dated May 11, 2007, to the federal banking regulators and the Federal Trade Commission, suggesting that if the federal banking agencies don't step up to the plate with stronger consumer protections following the exclusion of the states from this field, Congress may give this authority to the FTC instead of the federal banking agencies.

Link to letter:  http://www.house.gov/apps/list/press/financialsvcs_dem/press051107.shtml

(ag) May 14, 2007, in Consumer Protection, Federal Banking Agencies, Federal Preemption

Survey Demonstrates Consumer Education Does Work

FDIC hired the Gallup Organization to administer a survey on the effectiveness of FDIC's Consumer Education Program "Money Smart".  The survey results indicated substantial improvement in opening a checking account, opening a savings account, using a spending plan, and always paying bills on time.

Link to Press Release:  http://www.fdic.gov/news/news/press/2007/pr07034.html

(ag) May 4, 2007, in Consumer Protection

Working on the American Saving Ethic -- or Lack Thereof

FDIC's April 30, 2007, Press Release describes a program within the District of Columbia designed to provide consumer education about the benefits of debt reduction and personal saving and to encourage saving through small savings accounts offered through several local financial institutions.  Another component of this program, called "D.C. Saves", is to encourage "unbanked" persons to enter the financial institution mainstream.  This program is affiliated with "America Saves", a nationwide coalition of nonprofit, corporate and government agencies.

Link:  http://www.fdic.gov/news/news/press/2007/pr07035.html

(ag) May 1, 2007, in Consumer Protection

Chris Dodd Speaks Out - Credit Cards, GSEs, Hybrid ARMs

Senate Banking Committee Chairman Chris Dodd has been hitting the speaking circuit on several key issues. 

1. Credit Cards - Here's an excerpt from Sen. Dodd's Mar. 14, 2007, speech to the National League of Cities: 

"Just look at the credit card situation, if you will. The average American family has a revolving debt problem of over $9,300; 98 percent of that is in credit cards and it's growing.

When you consider that a median income for an American family is $43,000, with that kind of credit card obligations growing by the day, it's going to be very difficult for these people to put aside the savings or make the kind of investments for their own financial security and future.

When you have these kinds of interest rates and gimmicks that are being used to make it impossible for people to get out from under these obligations, then the problems only get worse and worse.

I'm a strong advocate of credit cards; don't misunderstand me. But the abuse by the financial institutions in making it impossible for people to get out from underneath these financial problems is causing us serious, serious problems.

We've already had hearings on this, and my hope is that we'll pass legislation that'll prohibit some of the practices that have made it so difficult for people to manage their financial affairs in a more solid and safe way."

Link to Speech:  http://banking.senate.gov/index.cfm?FuseAction=Articles.Detail&Article_id=121&Month=3&Year=2007

2.  GSEs.  Sen. Dodd tells Fed Chairman Ben Bernanke that there is broad support for legislation to create a new regulator to oversee Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.  Essential powers for the new -- and independent --- regulator, which would be outside the appropriations process, should include the ability to set both minimum and risk-based capital levels; enforcement and prompt corrective action powers, including the authority to set prudential management and internal control standards, to place a GSE in receivership, and to oversee both safety and soundness and adherence to the mission of promoting affordable home ownership (not turf building).

Link to Sen. Dodd's Mar. 6, 2007, Statement on GSEs:  http://banking.senate.gov/index.cfm?FuseAction=Articles.Detail&Article_id=120&Month=3&Year=2007

3.  Hybrid Adjustable Rate Mortgages (ARMs with "teaser rates" which, after 2-3 years, hit subprime borrowers with higher interest rates and monthly payments they can't afford).  Sen. Dodd finally received what he calls "the right answer" from the Federal Banking Agencies:  Proposed application of nontraditional mortgage guidance to these Hybrid ARMS. 

Link to Sen. Dodd's March 2, 2007, statement of approval to federal banking agencies for the proposal and urging that they finalize this proposal pronto:  http://banking.senate.gov/index.cfm?Fuseaction=Articles.Detail&Article_id=118&Month=3&Year=2007

(ag) Mar. 15, 2007, in Congress, Consumer Protection, Predatory Lending

Udall's Credit Card Bill

Congressman Mark Udall (D-CO) introduced H.R. 1461 on Friday, Mar. 9, 2007.  The "Consumer Credit Protection Act" is intended to ban abusive credit practices, enhance consumer disclosures, and protect underage consumers.The Bill has been referred to the House Financial Services Committee.   

Link to Bill Text:  http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.1461:

(ag) Mar. 13, 2007, in Congress, Consumer Protection, Predatory Lending

"Vishing"

You've heard about "Phishing" (an e-mail scam seeking personal financial information) and "Pharming" (a more sophisticated scam that redirects consumers to a fake website designed to gather personal financial information). 

The Federal Reserve Bank of Boston has posted a consumer advisory describing "Vishing" - a scam that uses Voice over Internet Protocol (VoIP).  The consumer may be contacted by telephone or by e-mail and instructed to call a fake toll-free number to correct account issues.

In the telephone contact form of the scam, the fraudster uses the VoIP tool with a modem to call phone numbers in a given region. When the consumer answers, an automated recording states that the consumer’s credit card is showing fraudulent activity.  The consumer is directed to call a specific toll free or local phone number immediately. The number dialed may show a spoofed caller ID for the financial company the scammer is pretending to represent.

The consumer may be contacted by e-mail, with a similar instruction to call a fake toll-free number.

Link to Consumer Advisory:  http://www.bos.frb.org/consumer/spotlight/vishing.htm

(ag) Feb. 19, 2007, in Consumer Protection

"Cookin' the Book$"

Don Silver has written a clear, simple presentation of corporate fraud techniques:  Cookin' the Books:  Say Pasta La Vista to Corporate Accounting Tricks and Fraud.  I teach a Corporate Governance class each spring which could be subtitled:  "Pick a Scandal".  Many of the law students enrolled in this class -- and for that matter, a fair number of lawyers -- have no background in finance and accounting.  This would be a quick, entertaining read.

(ag) Dec. 4, 2006, in Consumer Protection

Working Together Here

The OCC, as regulator of national banks, and CSBS, representing state bank regulators have agreed on a process to share consumer complaint information.  The model Memorandum of Understanding (MOU) will have to be executed by each state regulator on a state-by-state basis.  The idea is to take the burden off consumers to know which agency regulates their bank.

Link:  http://www.occ.treas.gov/toolkit/newsrelease.aspx?JNR=1&Doc=D39TFJ65.xml

(ag) Nov. 21, 2006, in Consumer Protection

Bernanke Talks About CDFIs as a Solution to Market Failures

Fed Chairman Ben Bernanke delivered remarks today to the Opportunity Finance Network's Annual Conference in Washington, D.C.  He stressed the positive contributions of Community Development Financial Institutions (CDFIs) in lending to the otherwise underserved and in promoting homeownership.  When Bernanke talks about CDFIs as a Solution to Market Failures, he is speaking as an economist.  Here's how he explains it: 

"Standard economic analysis tells us that when competitive conditions prevail in a market, the resulting prices induce firms and individuals to allocate resources in a manner that tends to maximize social welfare.  However, economimsts also recognize that various deviations from idealized market conditions, termed market failures, can inhibit the efficient allocation of resources."

For us non-economists, he's saying that low-income people can't always get standard loans -- and that may not be optimal for our economy.  CDFIs concentrate on making loans to underserved borrowers and neighborhoods -- and with that focus, they can be good at what they do.  Bernanke notes in his speech, that loan losses for CDFIs approximates that for commercial banks.

For banks:  Remember that loans to and investments in CDFIs count for CRA purposes!

Link to Speech:  http://www.federalreserve.gov/boarddocs/speeches/2006/20061101/default.htm

If you need more information about CDFIs and what they are, here's a link:  http://www.cdfi.org/whatare.asp

Link to Information about the Treasury Department's CDFI Fund created pursuant to the Reigle Neal Act:  http://www.cdfifund.gov/who_we_are/about_us.asp

(ag) Nov. 1, 2006, in Consumer Protection, Federal Banking Agencies - FRB, Lending & CRA

Teenagers & Money

Financial education is a critical component of consumer protection.  Here's FDIC's program for teenagers:

http://www.fdic.gov/consumers/consumer/news/cnsum06/index.html

Many states are moving towards requiring basic financial education as part of the high school curriculum.  Hmmm. . .  Could be a good volunteer opportunity or a service learning project. 

(ag) Oct. 25, 2006, in Consumer Protection