Bank Lawyer's Blog

Taylor Trashes Preemption

Late last year, New York State Banking Superintendent Diana Taylor was on the fast track to become the head of the FDIC when the National Rifle Association gunned down her nomination as "payback" for boy-toy Michael Bloomberg's advocacy of gun control. Sure, the NRA denied culpability, but I got the information straight from the New York Post, so it simply HAD to be true.

I hated to see that happen, for reasons that should be obvious to anyone who's read this blog (or a restraining order that involves a certain admirer of the stunning Ms. Taylor). Sheila Bair stole Diana's FDIC glass slipper and now gets all the Washington, D.C. press that Diana, by all that is right and holy in the universe, should now be receiving. May the NRA fire blanks in bed for all eternity!

Well, she might have flirted with a federal agency that has proposed its own form of preemption, but  she's regained her hatred of federal preemption principles, especially as they are used by the OCC. According to trade paper reports, (paid subscription required), she's baring her claws and letting the fur fly.

New York State Banking Department Superintendent Diana Taylor reiterated criticism of the Office of the Comptroller of the Currency's preemption of state consumer laws, arguing that it has undermined the dual banking system.

Ms. Taylor said Wednesday at the Exchequer Club in Washington that she was encouraged that Comptroller John Dugan called this week for state regulators to require nonbank lenders to follow the same alternative mortgage guidelines already instituted on banks and thrifts.

However, she said New York already would have addressed problems with exotic mortgage products, including disclosures and underwriting standards, if the OCC had not preempted such rules for national banks.

Ohhh, catty, Ms. Taylor. Very catty. "Thanks, John...For nothing!"

"Many consumers in this country may not be sophisticated enough to make decisions that are in their best financial interests," she said. As a result of the OCC's 2004 preemption rules, "it is getting increasingly difficult for New York and other states to provide what we believe are adequate protections for our consumers."

See, that's the problem when incompatible beliefs collide. You end up in a "clash of civilizations."

The OCC's rules also prompted JPMorgan Chase & Co. and HSBC Holdings PLC to switch to national charters, taking away 30% of the Banking Department's revenue, she said.

Ah, THERE WE HAVE IT! "Damn you, OCC, you stole my banks!"

Never underestimate the fury of a bank superintendent scorned.

Can you imagine what would happen if Julie Williams made a play for Mayor Bloomberg? I mean, Diana's furious that the OCC uses preemption to steal her banks, what would she do if the "Darth Vader" of the OCC stole her MAN! I could sell tickets to that event and then retire. A side benefit would be that if Julie were successful, that would mean Superintendent Taylor would be "available" and, if I could just get these pesky legal prohibitions that currently bind me removed, my shoulder would be there to be cried upon. Yes, this scenario is making more sense by the minute.

We'll be working on ways to encourage that development. Any suggestions will be appreciated.

Diana should perk up, though, with these kind words regarding her from a man we simply can't get enough of here at BLB, Eliot (Pin Head) Spitzer, future Governor of New York:

"She has been wonderful to work with, done great stuff," Spitzer gushed during a sitdown with the Daily News Editorial Board.

Taylor has led the state Banking Department for Gov. Pataki since 2003. But Spitzer - who has otherwise promised to clean house in Albany - said Taylor would be welcome to stay if he is elected governor next month.

Spitzer may be a punk and a schoolyard bully, but he's got eyes in his head that clearly possess 20/20 vision. Princess Diana has obviously dazzled another New York pol. Let's see if we can make the mayor jealous.

Comptroller, Comptroller Über Alles

As the OCC fires up its Tigers and Panzers, as its Stukas scream earthward issuing the whistle from hell that precedes the impact of its dive-bombing preemption opinions, as the sweet sound of an erupting blitzkrieg of expansion of national banking power shatters the stillness of a dawn rising over a benign land of honest real estate brokers and unbiased NAR lobbyists slumbering peacefully beneath the soft, warm quilts of their multi-list monopoly, let us pause and burn September 15, 2006 searingly into our cerebral cortexes where it will live forever in our DNA as the day the music died: the day the OCC finally launched total warfare against Middle Earth, and every other corner of Earth, while they were at it. The day those jackbooted minions of the Comptroller issued "A Letter Too Far."

As war corespondent Stacy Kaper reported from the front lines in Washington for The American Banker last Friday (paid subscription required):

A deal to let a national bank lease land to retail businesses is raising new questions about whether the Office of the Comptroller of the Currency is again moving the line on permissible banking activities.

The agency released a letter this week allowing an unspecified bank to lease half its property to a third-party developer for 40 years in exchange for the building of a branch and parking lot at no cost to the bank. The Sept. 15 letter said that the developer planned to use the remaining space for retail businesses.

The OCC characterized the approval as "nothing new" - the same position it has taken on other controversial bank approvals - noting that banks routinely lease space to other businesses. But observers and critics said the deal raises several questions, including why an interpretive letter was necessary if the lease was routine and whether it is appropriate for a developer to build a branch for the bank in return for the lease.

Let's review: a bank owns land free and clear, has an obsolete branch building that needs to be completely replaced, and instead of funding the cost of construction of a new branch building itself, it cleverly structures a deal whereby it receives (A) a new bank branch building without any cost to the bank, (B) monetization of the real estate through the vehicle of a ground lease, (C) construction of improved parking for bank customers and, (D) on the 50% of the property that is now vacant, construction of a retail strip center that will both enhance the market value of the real estate and drive more potential customers to the branch. The fiends!!! This...is...simply...DI-A-BOL-I-CAL!!!!!!!

From behind the concertina wire of their fortified stockade "somewhere high in the Rocky Mountains," NAR rebel spokesmen were quick to respond.

The National Association of Realtors, which has criticized the OCC's past three approvals as blurring the line between banking and commerce, wasted little time in condemning the agency's latest move.

"It's just stretching the law, and it's another baby step toward national banks' expanding their powers that really weren't given to them by Congress," Thomas Stevens, the trade group's president, said in an interview.

The OCC is "stretching the powers to mix banking and commerce, banking and real estate - real estate development - which the law basically says you shouldn't mix," he said.

"By 'baby' I mean Baby Huey," Stevens bellowed. He then screamed "INCOMING!", hit the deck, rolled to his back, and fired his tommy gun wildly into the blazing sun of a bright blue sky until his drum was empty, at which point our faithful (but not foolhardy) correspondent beat a hasty retreat. As her fuel-efficient Toyota Prius "sped" away down the twisting, rock-strewn logging trail, she distinctly heard Thompson shouting "Wolverines! Wolverines!"

OCC Information Minister Kevin "Goebbels" Mukri scoffed at such allegations.

[Goebbels] said the lease arrangement was standard except for a "very slight wrinkle" that lets the developer build the branch. He also contrasted it with other recent approvals by OCC.

"They are keeping ownership of the land, and they are leasing out the right to build on that property and as part of that lease," he said.

Anonymous sources report that, out-of-earshot of reporters, Mukri turned to an aide and whispered savagely, "NAR must be obliterated. Do it, dummköpfe. Schnell!"

Bert Ely, a former ally of the OCC in its long, and ultimately successful, campaign to destroy the Federal Home Loan Bank Board and its former Reichfurher Danny Wall in the 1980s, but now a gadfly-in-exile who turned against the OCC for reasons that remain clouded in mystery but apparently have something to do with a tin foil hat and a silver tooth filling that picked up radio waves from the  frozen space rock formerly known as the planet "Pluto," jumped all over the blatant hypocrisy of the OCC's contention that this transaction was "business as usual" while issuing an interpretive opinion letter on the matter.

"Banks have been leasing out space in their buildings for as long as there have been banks," said Bert Ely, an independent consultant in Virginia. "I don't know why they would feel the need to have a letter on this."

You can see the unassailable logic of Mr. Ely's thought process:

They didn't need to issue an opinion.
They issued an opinion.
Therefore, something's rotten in Denmark.

"Not so," insisted Goebbels Mukri.

Mr. Mukri said the OCC released the letter because it knew the issue was getting publicity.

"This is like going the extra mile to ensure that people know that we are being transparent," he said.

Mukri, not realizing his microphone was still live, then sneered, "Ely! That name is not Aryan. What is it, Slavic?"

Strangely, no one involved mentioned another possibility. The OCC doesn't issue interpretive letters unless it's requested to do so. Do you think that a bank and/or its counsel, out of an excess of caution as a result of the controversy surrounding national banks and real estate development mixed together, might have actually requested such a letter? Hmmmmm? Might that explain the "nefarious" reason that the OCC issued such a letter?

You'd think that, perhaps, if you were a naive, foolish little girly man. Real men understand that the OCC knows only one imperative: conquer or decay. Responding to its innate drive to dominate, it uses any justification, no matter how seemingly innocuous, as a weapon to extend its rule, like the expanding universe itself, into the very nanospace between every subatomic particle presently occupied by any enterprise that is not currently controlled by its evil essence.

Today, real estate.

Tomorrow, Krispy Kreme.

The day-after-tomorrow? To even consider it will compel your mind to launch itself into the black abyss of utter nihilism and despair from which no freedom-loving human being has ever emerged with his or her sanity intact.

Below is rare footage of Kevin Mukri's address to adoring OCC stormtroopers employees at a recent OCC "retreat" (ironically named) in Branson, Missouri. His speech, "Totaler Krieg," was interrupted frequently by spontaneous enthusiastic applause from the enthralled masses. Also included are shots of Comptroller Dugan (sporting a nifty little mustache) meeting and greeting the faithful, as well as scenes showing the results of the "debate" with NAR engendered by the OCC's most recent interpretive letters. Real estate seems to be the issue, and the OCC seems to be acquiring it.

Not Neutral on Net Neutrality

Yes, I realize that I'm not exactly Switzerland when it comes to net neutrality. As the only bank lawyer apparently concerned with this issue, I tend to get a little cranky about it. Yet, whenever things look bleak, as they did a couple of months ago when net neutrality legislation was stymied in Congress by a Republican majority that loathes the concept of any restraints being placed upon big campaign contributors the free market, there's always somebody who manages to cheer me up. In this case, it's the Associated Press.

A Democratic takeover on Capitol Hill would be good news to those who say the government should prohibit telecommunications giants from playing favorites with Internet content.

The idea, known as 'network neutrality,' is about preventing those who control traffic on the Internet from allowing well-heeled Web sites to in effect buy their way to the front of the line in a world where data flow can be as congested as Los Angeles traffic. Proponents say it should be a bipartisan issue.

[...]

Net neutrality advocates say the 'Internet's First Amendment' is at stake. They argue that if those who run the network are allowed to discriminate against Web traffic based on which sites pay them the most, it will strangle the Internet's freewheeling, democratic nature.

Those who provide Internet service call it a simple issue of economics. Since companies like Google are pumping more and more information through their networks, those who provide the data pipelines should be able to charge more to pay to upgrade transmission capacity, they say.

[...]

In the House, if the Democrats prevail, neutrality advocates can expect a much warmer reception than when the Republicans were in control.

The current chairman of the House Energy and Commerce Committee is Rep. Joe Barton, a Republican from AT&T's home state of Texas. Barton has consistently opposed network neutrality, as has Rep. Fred Upton, R-Mich., who chairs the Internet and Technology subcommittee.

By contrast, Rep. John Dingell, also of Michigan and who would assume the chairmanship if Democrats take over, has been sympathetic to network neutrality proponents. And Rep. Ed Markey, D-Mass., who would take over the Internet and Technology subcommittee, wrote an unsuccessful network neutrality amendment in the House and has made the issue a top priority.

Dingell is also expected to live up to his reputation as a tough overseer of the agencies that answer to his committee, such as the Federal Communications Commission.

On the Senate side, while a Democratic takeover is less likely, a Democratic pickup of one or two seats may still be significant.

A network neutrality amendment sponsored by Sens. Olympia Snowe, R-Maine, and Byron Dorgan, D-N.D., tied by a vote of 11-11 among members of the Commerce, Science and Communication Committee.

Sen. Daniel Inouye, D-Hawaii, the ranking Democrat who would take over the committee if the Democrats win control, supports network neutrality, while current chairman Ted Stevens, R-Alaska, blames the issue for sinking his broad telecommunications bill.

Being more Google than Ma Bell, I obviously tremble with anticipation at the possibilities. At least I did until I finished reading the story.

Regardless of the election's outcome, network neutrality legislation would still have to be signed by President Bush -- something that both sides acknowledge is unlikely to happen.

Bush! The man who single-handedly caused Hurricanes Katrina and Rita and global warming, and who "stole" the 2000 election from the Gorevinator (aka the Inventor of the Internet). I never considered the dreaded possibility of a veto by El Jefe in the White House.

If that guy hadn't fathered a set of hot twin girls, I might not be able to forgive him for standing between me and a neutral net.

This is why God revealed to man the greatness of Shiner Bock. When things are looking their gloomiest, you can always pop a frosty and sing:

The sun'll come out
Tomorrow
Bet your bottom dollar
That tomorrow
There'll be sun!

Just thinkin' about
Tomorrow
Clears away the cobwebs,
And the sorrow
'Til there's none!

When I'm stuck in a day
That's gray,
And lonely,
I just stick out my chin
And Grin,
And Say,
Oh!

The sun'll come out
Tomorrow
So ya gotta hang on
'Til tomorrow
Come what may
Tomorrow! Tomorrow!
I love ya Tomorrow!
You're always
A day
A way!

Then, you can top the day off by drop-kicking a puppy. That always makes me feel better, especially when he sails right between the goal posts. Because, you see, no matter how bad your day might be, everybody enjoys a field goal.

Lukewarm Comfort

A reader recently alerted me to this federal district court decision from Arkansas and offered the view that it should give some comfort to financial institutions who may be concerned--in light of all the recent publicity about data losses and thefts--about potential class action litigation based upon such losses or thefts. While I think that the decision provides more than merely "cold comfort," it doesn't seem to me to provide a great deal more than that.

As discussed in this article concerning the decision, the case involved a suit against personal information aggregator Axciom by an individual whose name may have been contained in databases that were downloaded by a criminal who sold the information to a direct marketing business. The crook, a spammer himself, and his accomplises exploited a security flaw in Axciom's file transfer protocol (FTP) to penetrate the secured Axciom server where the data was stored, and downloaded "an encrypted password file called 'ftpsam.txt' in early 2003. Then they ran a cracking utility on the ftpsam.txt file, prosecutors said, discovered 40 percent of the passwords, and used those accounts to download even more sensitive information."

The plaintiff couldn't prove that her information was contained in the downloaded databases or that her information had been misused. Her alleged "harm" was that she bore the increased risk of receiving unwanted direct marketing material and of identity theft. The court determined that those grounds were not sufficient to show "actual harm" and ruled that she had no standing to sue. Ergo, complaint dismissed.

I love saying "ergo."

Moreover, several courts have held that the receipt of unsolicited and unwanted mail does not constitute actual harm. Additionally, while there have been several lawsuits alleging an increased risk of identity theft, no court has considered the risk itself to be damage. Only where the plaintiff has actually suffered identity theft has the court found that there were damages. Furthermore, Plaintiff does not know whether her name and information were contained within the databases stolen by Levine. More than three years after the theft, Plaintiff has not alleged that she has suffered anything greater than an increased risk of identity theft. Because Plaintiff has not alleged that she has suffered any concrete damages, she does not have standing under the case-or-controversy requirement.

I think that this was a useful decision in terms of the risk of damages from a class action lawsuit based upon the causes of action of negligence and identity theft. Actual harm must be shown. On the other hand, as applied to financial institutions, I wouldn't do handsprings of joy for a couple of reasons. First, as Chris Hoofnagle, former head of the West Coast office of privacy advocacy group EPIC and currently a senior fellow to the Berkeley Center for Law and Technology at the University of California-Berkeley Boalt Hall School of Law (and an occasional correspondent with the nameless trolls who run this blog), observes that California law (AB 1950) requires any business that owns or licenses personal information about Californians to "implement and maintain reasonable security procedures and practices appropriate to the nature of the information, to protect the personal information from unauthorized access, destruction, use, modification, or disclosure."

"I would hope that one could think of more causes of action other than identity theft and negligence," Hoofnagle said.

Oh, give class action lawyers time, Chris. No cause of action rock shall be left unturned.

Moreover, the Interagency Guidelines Establishing Information Security Standards require the same of financial institutions with respect to customer nonpublic personal information and consumer information, and they are required to make third parties to whom they transfer, or provide access to, such information to have such protections in place. I can easily see a defect in security such as the one that afflicted Axciom ripening into a claim of a violation of the Guidelines, which would, in turn, constitute an unsafe and unsound banking practice. All kinds of supervisory fun could then be experienced by the bank, depending upon the judgment (and mood) of the regulator in question.

I also note that the linked article made reference to testimony before the FTC by the CEO of Axciom, which included this gem:

Finally, it must be noted that Acxiom undertakes exceptional security measures to protect the information we maintain for our own information products and around the information we process for our clients to ensure that information will not be made available to any unauthorized person or business. We use a variety of multi-level security systems to control access to our services and information products. All users at client locations, as well as all Acxiom associates, must be expressly authorized to access certain data and applications and have the appropriate access codes.

Acxiom conducts risk assessments and regular audits of our internal and external information systems to ensure the integrity of client data and Acxiom data. Our enterprise security operations center maintains real-time monitoring for information system vulnerabilities and unauthorized access attempts into internal systems. We also maintain rigorous physical security for our facilities and limit access to certain critical areas of the business.

That's highly embarrassing. Not only that, but affirmative statements using descriptions such as "exceptional" run the risk of an action under Section 5 of the Federal Trade Commission Act (an unfair or deceptive trade practice). We've posted previously about the banking regulators' (and specifically, the OCC's) use of Section 5 to police "bad behavior" that might not be specifically addressed by the regulations. Chief OCC Counsel Julie Williams specifically referred to that power when discussing national banks' privacy notices that do not match up to the banks' privacy practices. If you claim, under oath, that you have in place "exceptional security measures" and you, in fact, do not, you're asking for trouble, in my humble opinion.

While I think that it's a good thing that a bank that suffers a security breach that doesn't result in actual identity theft or other misuse of personal information won't automatically have to worry about massive class action liability in Arkansas, I wouldn't rely on the decision for much more comfort than that. Then again, I'm not a litigator, so what do I know?

UPDATE: Chris Hoofnagle and Eric Gold of Technology & Marketing Law Blog have a little back-and-forth on this case on Eric's blog. Chris reinforces my concern about a claim of deceptive or unfair trade practice, and also advocates a cause of action based on injury to "dignity" involved in the unauthorized release of personal information. From the purely selfish standpoint of my clients, I hope that latter idea goes nowhere. Eric also cites a recent case from the Federal District Court for the Southern District of Ohio where the court reached the same conclusion as in the Axciom case (Key v. DSW, Inc., 2:06-cv-00459-GLF-TPK (S.D. Ohio Sept. 27, 2006).

Revenge of the Nerds

Page One of Monday's The Wall Street Journal (paid subscription required) featured a story on the strange bedfellows who conspired joined forces to derail the Wal-Mart express on its way to ILC heaven in Utah.

Today, Wal-Mart's banking bid is on life support. The FDIC in July issued an unprecedented six-month moratorium on all applications for these specialized banks, freezing Wal-Mart's effort. Utah, which also must approve the application, has stayed mum. Powerful members of Congress are lining up to pass laws that would block Wal-Mart, or any nonfinancial company, from getting into the U.S. banking business.

[...]

Wal-Mart's effort to open a bank has galvanized a broad coalition of opponents: large banks, small banks, the Federal Reserve, unions, grocers, real-estate agents and congressmen of both parties. Some in the coalition are mainly interested in dealing a blow to Wal-Mart. Others are worried about the trend of allowing commercial companies into banking, which they fear could undermine the soundness of the financial system. That argument has been around for years, but it generated little political heat until Wal-Mart came along -- illustrating the power of the company's name to transform stalemated policy debates.

This just shows you what you can accomplish if you just remember the Arab proverb, "The enemy of my enemy is my friend." That and this other one: "Slit the throat of the infidel and God will reward you with 70 71 72 virgins raisins."

NAB Annoyed Again

A Not-So-G'Day, Mate!

Poor National Australia Bank. A few months ago its customers were targeted by sophisticated criminals who attempted a "phshing" expedition that involved an e-mail alleging the bank was going bankrupt and a Trojan horse that infiltrated gullible customers' computers to pilfer their identities. Last week, NAB was hit with an outside attack on its online banking web site by attackers who were trying to shut it down.

"They did this by jamming NAB's connection to the internet with hits making it more difficult for legitimate users to gain access," [NAB CIO Michelle Tredenick] said.

While the attack didn't penetrate the bank's security systems (nor did it appear to be designed to do so), and no customer information was at risk, Ms. Tredenick also stated that "the incident highlighted the need for banks and customers to be vigilant at all times." Yes, if you see some shady looking character engaged in cybercrime, be sure to notify your local cybercop. Assume that he or she is wired and dangerous and do not --I repeat--DO NOT attempt to knock the criminal offline yourself.

It seems to me that while the attack could be "good kids gone bad," and no more than cyber-delinquents playing a prank "just because they could," it's more likely that the perpetrators of the attack were either exploring vulnerabilities in the bank's system or, more likely, testing whether the bank might be subject to a denial-of-service attack that could be used to extort "protection" money from the institution. I wouldn't be surprised if the bank received a communication that warned that there was a lot more where that came from, and that the bank would be wise to "pay up" or face the consequences.

It's great to see the Tony Sopranos of the world (many of them with charming Eastern European or Russian accents) so in love with online banking, isn't it?

Greed Is Good

Last February, I posted about the conviction of former Sunbelt Savings Association of Texas Chairman Edward T. McBirney III on 27 criminal counts in federal district court in Dallas arising out of his use of a trust to hide money from the FDIC, money that should have gone to pay restitution ordered by the court in connection with McBirney's conviction for theft of money from that colossal failure of a Texas savings association known as Sunbelt Savings Association (fondly referred to as "Gunbelt Savings" by those of us representing thrifts in Texas during the "Dark Ages"). You'd think one stint in the slammer would have cured Mr. McBirney of trying to keep money that didn't belong to him, but apparently the previous rehabilitation didn't "take." Maybe that had something to do with that fact that his original fifteen year sentence in 1993 was reduced to five years in return for his ratting out another paragon of the thrift business, and that he was let out of jail on probation after serving only three years.

The sordid details of his latest crimes are detailed in the U.S. Attorney's press release (scroll down to the last item). McBirney, ordered to pay $7.5 million in restitution in connection with his original conviction (and subject to an $8.5 million civil judgment), managed, in 13 years, to make a hefty down-payment of $29,000. Curiously, during the same time period, he somehow managed to use a trust that he set up after his original conviction to stash millions of dollars. Neither the jury nor the judge were amused.

It's nice to see the Justice Department give the FDIC its "props" for "excellent investigative work." It's apparent that, in nailing someone as famous as Mr. McBirney, the prosecutors are "feeling the love."

Last week, U.S. District Court Judge Sidney Fitzwater sentenced McBirney to two eight-year terms to run concurrently (meaning he'll serve at least eight years). He also ordered McBirney to pay $312,000 in restitution and forfeit more than $2 million from the trust. The eight years is three more than a man who walked in and robbed a bank with a firearm received, if you peruse some of the other convictions announced in the press release.

According to The Dallas Morning News, "Judge Fitzwater ordered Mr. McBirney to report to an as-yet-undisclosed federal prison Dec. 5. But Mr. McBirney's attorneys said he would probably be allowed to remain free – for up to a year – while his case is appealed."

The twice-convicted white-collar felon was once known for throwing lavish parties using money stolen from savings and loan depositors. He once testified that he won a $2 million mansion from another corrupt S&L executive as the two men flipped coins while standing up in sunroofs of separate limousines.

Ah, the good old days. Some guys are just so Old School that they can't let them go.

The point is, ladies and gentleman, that greed -- for lack of a better       word -- is good.

Greed is right.

Greed works.

Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.

Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the   upward surge of mankind.

And greed -- you mark my words -- will not only save Teldar Paper, but that other malfunctioning corporation called the USA.

---Gordon Gekko, "Wall Street" (1987)

Bankruptcy Reform: Beneficial or Bust?

With the arrival this past Tuesday of the first anniversary of the Bankruptcy Reform Act of 2005, a lot of people have been throwing around hot opinions about whether or not the law has been as beneficial to banks as intended, and whether or not it's been unduly burdensome to debtors. As expected, lenders and their advocates have painted a rosy scenario of the law's effects thus far, while conumer advocates (including consumer bankruptcy counsel) have been, to say the least, skeptical about the benefits and adamant about the burdens.

The American Bankers Association finds that the new law "has created a more balanced system that better matches the level of relief with the filer's ability to repay their debts. Debtors who are unable to pay their debts will receive a full discharge through Chapter 7 bankruptcy protection. Those who have significant income will be required to repay some of what they owe. The new system will help eliminate abuse and filings of convenience, while protecting those in need." Nothing surprising there. The ABA also takes on what it calls the "myths" of anti-reform zealots and the "facts" that rebut those "myths." Read them and judge for yourselves what's "myth," what's "fact," and what's plain old "opinion."

The National Association of Bankruptcy Attorneys says "phooey" to reform and points out that consumer bankruptcies are on the rise, costs are up, administrative burdens are increased, and, in the words of the association's president, Henry Sommer, "[t]he only thing Congress succeeded in doing when it adopted the 2005 bankruptcy amendments was to erect new hurdles in the path of people who legitimately and often desperately need the bankruptcy system, especially those with lower incomes. They have made it more cumbersome, more time consuming and more expensive for people who already are flat on their backs financially." The guy sounds like a trial lawyer, for crying out loud!

According to the National Consumer Law Center, the requirement that debtor's undergo pre-filing credit counseling has been a colossal waste of time.

"The vast majority of consumers who are filing are essentially too far gone for there to be any viable alternatives," said John Rao of the National Consumer Law Center.

On the other hand, Clifford White, acting director of the Executive Office for U.S. Trustees, contends that there is evidence that "10% of consumers who received a consumer credit counseling certificate did not file bankruptcy, suggesting that they were shifted into an alternative, such as a debt-management plan, where the counseling agency works out a deal with the consumers' creditors." Or, it might suggest they turned to a life of crime, drank Drano, or simply swam back across the Rio Grande.

Apparently, one problem that is not disputed is that a lot of people are not aware that bankruptcy is still a viable option. Misconceptions about the nature of bankruptcy reform led many people to believe that rather than being merely restricted, bankruptcy is no longer available. Not that lenders would encourage that misconception (cough, cough). Who said "ignorance is bliss"?

Chicago bankruptcy lawyer Steve Jakubowski, author of The Bankruptcy Litigation Blog,  has another take on how to measure the success of reform, looking at the issue from the perspective of unsecured creditors.

At least in theory, therefore, bankruptcy provided enhanced recoveries for unsecured creditors by minimizing "collective action problems."   Such rational thinking was a prime impetus behind passage of the Bankruptcy Code in 1978, and most practitioners, Judges, and academics would tell you that this reasoning remains valid to this day.  As neatly summed up by Professor Doug Baird in a great article entitled "A World Without Bankruptcy" (published at 50 Law and Contemporary Problems 173 (1987) (We$tlaw Link)):

We may not desire a world without bankruptcy because the self-interest of creditors leads to a collective action problem, and a legal mechanism is needed to ensure that the self-interest of individuals does not run counter to the interests of the group.

[...]

Isn’t the ultimate measure of success determined by aggregate unsecured creditor recoveries? And, has the lot of unsecured creditors as a whole really been improved as a result of BAPCPA? While some individual creditors may benefit in particular cases by winning a "race to the courthouse," Professor Baird's analysis of the "collective action" problem suggests that unsecured creditors as a whole may in fact be worse off in BAPCPA's Hobbesian "world without bankruptcy" where each creditor selfishly pursues its own parochial interests at the expense of the whole.

[...]

In the end, I suspect that unsecured creditors as a whole will suffer from BAPCPA's restoration of "collective action problems."  Time (and some very much needed academic research) will tell.

Needless to say, Steve's not a fan of reform. Regardless of your perspective on the matter, though, his last statement is important. At this point, it's too early to tell if the Act  (1) will correct the abuses it was intended to correct, (2) will impose unreasonable (as opposed to simply "increased") costs and other burdens on debtors, and (3) will create unexpected problems for creditors or debtors.

That lack of solid data shouldn't stop all interested parties from shooting off their mouths, though. After all, that's what makes blogging such a pleasure. As long as we're all "fair and balanced," of course.

SEC Worries About Cybercrooks

The SEC is worried about the increasing sophistication of cybercrooks in hijacking online brokerage accounts.

High-tech crooks are hijacking online brokerage accounts by using spyware and operating from remote locations, sometimes in Eastern Europe, U.S. market regulators said on Friday.

The "computer incursions" are a growing problem, said Walter Ricciardi, deputy enforcement director at the U.S. Securities and Exchange Commission.

"It's something we're very concerned about," he said in remarks at a legal conference in Washington.

Notice that the crooks are coming from Eastern Europe. As BLB has repeatedly warned, the kleptocracies of the former Soviet Empire are hotbeds for organized cybercrime that will continue to plague financial institutions. It's all-out warfare, and the crooks appear to be one step ahead of the good guys at this point.

Crooks will load a victim's computer or a public PC with a spy program to monitor a user's activities and capture vital information, such as account numbers and passwords.

The program then e-mails the stolen information back to the thief, who can use it to open the victim's accounts.

Once inside, the thief may sell off an account's portfolio and take the proceeds. Or electronically hijacked accounts may be used for "pump-and-dump" schemes to manipulate stock prices for profit, Ricciardi said.

Public computers in such places as Internet cafes and hotel rooms are especially vulnerable to incursions. But home computers may also be hit as spyware can be imported simply by opening an e-mail attachment, said John Stark, chief of the SEC's Office of Internet Enforcement.

[...]

The SEC is working to track down the hackers and to educate online investors, he said.

Steps to fight incursions include securing an online account by changing passwords frequently and never using an unfamiliar computer to enter an account number or password.

To fight a similar problem, U.S. banks are exploring new online banking security technologies since a study showed identity theft via online banking is a fast-growing crime.

"Educating online investors." Is that the solution? In an earlier CNet/News.com article, one educator says that educating consumers is a waste of time. They're impervious to learning to be safe in cyberspace.

Users are often called the weakest link in computer security. They can't select secure passwords, and they write down passwords and give them out to strangers in exchange for treats. They use old or outdated security software, can't spell the word "phising"," and click on all links that arrive in e-mail or instant messages, and all that appear on the Web.

That's the reality, Stefan Gorling, a doctoral student at the Royal Institute of Technology in Stockholm, Sweden, said...

[...]

"Might it be so that we use the term and concept of user education as a way to cover up our failure?" he asked a crowd of security professionals. "Is it not somewhat telling them to do our job? To make them be a part of the IT organization and do the things that we are bound to do as a specialized organization?"

In Gorling's view, the answer to those questions is yes. In corporations in particular the security task belongs with IT departments, not users, he argued. Just as accounting departments deal with financial statements and expense reports, IT departments deal with computer security, he said. Users should worry about their jobs, not security, he said.

It isn't productive, for example, to ask users to detect e-mails that seek to con them into giving up personal e-mail, he said. "Phishing is too hard to detect, even for experts."

And even if people can be trained, they can't be trusted to be on guard all the time, he said.

"I don't believe user education will solve problems with security because security will always be a secondary goal for users," Gorling said. "In order for security to work, it must be embedded in the process. It must be designed so that it does not conflict with the users' primary goal. It can't work if it interferes."

Gorling appears to be sailing on the same boat as University of Indiana Law Professor Fred Cate. In an earlier post, I discussed Cate's belief that consumers are the "worst actors" to protect their own financial information from theft and misuse. According to Cate, the emphasis of banks and other businesses has to be on the prevention of the use of the information by unauthorized persons, rather than the acquisition of it by crooks. IT professionals are the most skilled "actors" in this regard and the burden will fall upon them.

While "education" of consumers about the need for them to act wisely in protecting their private information is still something that is not a totally useless exercise, it's not going to thwart cybercrooks. Rather, more robust security and authentication measures are required, and the educational challenge for banks will be to educate (and "sell") their customers on why these sometimes burdensome processes and procedures are necessary. To me, that's the marketing challenge, but one that if successfully met, could give the banks who meet it a competitive advantage.

The World's Best Law Firm Web Site

Due to the ever-vigilant eyes of my friend and former partner, Tom Bieging, I am proud to have discovered the winner of the world's best law firm site, that of Anonymous Law Firm. Some suspect that it is merely a PR stunt to promote Jeremy Blachman's hilarious blog and new book, both called "Anonymous Lawyer." That would be the easy way out. Inasmuch as Bank Lawyer's Blog takes only the stony, crater-filled path to the truth, we will delude ourselves a bit longer while we savor the site's exquisite prose, such as this quote from Anonymous Law Firm "Junior Associate" Terri S. of the firm's New Orleans office:

"I was never prouder to be a member of the Firm than I was after the Hurricane Katrina disaster. While many companies neglected their workers in the region, I was immediately airlifted to the Los Angeles office so I could continue my work without missing a beat. And it only took a week to track down the rest of my family and make sure they were okay."

Or this pearl plucked from the oyster of the firm's "Meaning of Life" page:

Our study has revealed, among other findings, that the meaning of life is hard work, performed without rest and without complaint, for purposes often vague and unclear, in concert with people you neither trust nor respect. And that those who seek meaning elsewhere are simply misguided, and in line for a life of failure and disappointment.

Or this killer from the firm's Mission Statement:

Great client service requires keen insight, instant response, and the utmost integrity. Good client service requires only some of those elements, and it’s good client service that we almost always strive to achieve. A lot of firms spend their energy trying to understand each client’s business and figure out how to help them reach their goals. We don’t waste time on those sorts of unnecessary frills. We simply come in, do a job, and leave before you even realize the size and scope of our impact. That’s how we operate, and that’s what our clients come to expect. Whether it’s structuring a deal, winning a trial, or merely spending time spinning our wheels, you can trust that we have our best interests in mind, and will act accordingly. That’s not merely a promise. It’s a guarantee.

Only a fool would fail to find profound truths on these pages. I urge all of you lawyers (banked and unbanked) to ponder this wisdom as you drink yourselves to sleep tonight.