Bank Lawyer's Blog

Turban Durbin's Big Bust

While money may or may not be the root of all evil, it's certainly the root of much snark. Last week three big trade associations for retailers sued the Federal Reserve Board (paid subscription required) for allowing it to be influenced by the banks it regulates when it established that "reasonable" and "proportional" interchange fees were 21 cents instead of 12 cents (as originally proposed by the Fed). The retailers were flinging mud pies at the Fed and the banks it regulates.

"The Federal Reserve was required by law to come up with swipe fees that were 'reasonable' and 'proportional' but what we got were neither," Mallory Duncan, senior vice president of the National Retail Federation, said in a press release.

"Instead, the Fed allowed themselves to be influenced by the very banks they are supposed to regulate and raised the originally proposed cap to include expenses the law said were not allowed. In doing so, they literally gave away half the savings that could have been seen by merchants and their customers. We want them to go back and follow the law this time."

Firing back, a flack for the banks dripped sarcasm like acid over the retailers.

Trish Wexler, spokeswoman for the Electronic Payments Coalition, which represents financial institutions on the interchange fee issue, said in an email: "Apparently, retailers aren't happy with their $8 billion windfall - even though they're pocketing all of it, with no evidence of passing any of it back to their customers. And now they want even more?"

"We all know the truth — retailers won't truly be happy until they pay zero to accept cards," Wexler said. "They don't want to pay their fair share of this system that brings them more sales and increased security, and want customers to foot the bill instead. That's simply not fair."

As Clint Eastwood's character in Unforgiven told Gene Hackman's character, right before Eastwood shot Hackman in the face with a Spencer rifle, "Fair's got nothing to do with it."

Not if merchants are to be believed, it doesn't. The Wall Street Journal featured this delicious tidbit recently.

Business owners, who are receiving their first bills since the new rules took effect on Oct. 1, say in some cases they are now paying more than before—further reducing the already-slim chance that consumers would see lower prices as a result of the changes.

In some cases, companies that process transactions on behalf of merchants are raising select fees while refusing to pass on to merchants the lower rates now charged by banks, according to letters sent to business owners.

Separately, some merchants that process a large number of debit transactions for small purchases—for example, under $15 in some cases— are seeing those rates rise because Visa Inc. and MasterCard Inc. have eliminated discounts that they had previously offered.

"What's now becoming clear is that the winners are few and far between, as gains for some of even the very largest retailers seem illusive," says Tony Hayes, who specializes in the payments industry at consulting firm Oliver Wyman.

This was all completely foreseeable when the big box retailers bought the Durbin Amendment in 2009. If you take away income from one source, the payment processors and the issuing banks have to make up the lost income from other sources. Anyone with an ounce of common sense and an even rudimentary understanding of basic business principles would have figured out that this piece of federal government price fixing wasn't going to work as touted. Of course, that excludes most members of Congress, like Dick Durbin.

Speaking of whom, in yet another bit of irony: Citigroup, a large credit card issuer, is listed by OpenSecrets.org, as being Dick's third largest campaign contributor. Not getting what you pay for Citi? Please note, as well, all the law firms in Durbin's Top 20. including, in the top spot, one of the major class action law firms in the country. Big retailers, big banks, and big law firms: that about sums up who twists the tails of the spider monkeys howling in the halls of Congress these days, doesn't it?

If this keeps up, I might have to join an "Occupy" movement. Thus far, the only one that's interested me is "Occupy Jennifer Lopez," but my wife's not going to stand for that, so I'll keep looking.

A Tale Of Two Twits

No sooner do I take another pot shot at one of my favorite targets than he ups and annouces his retirement. Pure serendipity, but pleasurable, at least it was until Megan McArdle decided to not only rain on my parade, but to hose me down with cracked ice.

Guess which Democrat now becomes the ranking member on the financial services committee?  That's right, none other than our favorite batty aunt, Maxine Waters.  The woman who, during a major hearing with the cameras on her, asked the heads of Goldman Sachs and State Street bizarre questions about how they set the limits on their consumer credit cards*.  She asked Ken Lewis, the head of Bank of America, a question about "offshore loss mitigation caps" (a term of which I--and also, clearly, Ken Lewis--had never heard) that was so bizarre--and garbled--that he was flummoxed into silence; he sat there squirming like a third grader being picked on by the teacher.  

When he finally got the courage to ask what she meant, it became clear that Maxine Waters had no idea what she meant; I assume she'd either taken hasty and incomplete notes when her staffers briefed her about what to ask, or had flubbed reading the question, and couldn't bring herself to admit on C-SPAN that she hadn't really bothered preparing for the hearing to the extent, of, say, familiarizing herself with the institutions whose heads she was grilling, or actually bothering to understand the questions she was going to ask.  It was kind of hilarious, until you realized that this was her job, and that she voted on critical financial regulatory questions.

Nor is this an isolated pattern; every time I see Maxine Waters at a hearing I know that the questions are going to be bizarre, and that Congresswoman Waters will make them even stranger with garbled readings and off-topic follow-ups.

[...]

*  If I actually have to tell you this, these financial institutions do not really deal with consumers, much less their credit cards.  I'm not picking on you--you have an excuse.  You're not a member of the financial services committee.

Thanks, Megan. My contact high lasted exactly six hours today until you brought me back to Earth. Then again, I got a heck of a lot of really good work done while I was feeling so good.

There's a silver lining under this cloud, however. No matter how much damage Maxine Waters might do to the country if she eventually chairs the House Financial Services Committee, she will supply endless hours of blog fodder.

Swimming In Slime

Did you think that the recent collapse of the so-called "Supercommittee" that, along with a EU that appears to coming apart at the seams, helped send the stock market into a tailspin over the past week, was a "good thing"? Well Barney Frank does.

Rep. Barney Frank (D-Mass.) said the congressional supercommittee's failure Monday to come to an agreement on spending reforms was “good news” because it will help to end the Bush-era tax cuts and give Democrats more bargaining power in budget negotiations.

[...]

He said that Democrats should offer to extend the Bush tax cuts for the middle class and end them for the wealthy, counting that as savings against the automatic cuts.

“And if you don’t like it,” Frank said, “well, then we’ll just sit back, see sequestration and the taxes go up on everybody.”

Except "the wealthy" can afford the tax increases while it causes real pain for the rest of the 99%, hasn't that been your mantra, Barney?

At the other end of the spectrum, anti-tax fanatic Grover Norquist was just as happy about the failure.

"I think it worked out as well as one could expect it to," he said. "I think we [the Republicans] are in reasonably good shape. This is all in anticipation of the election."

So, the wing nuts on the left are happy because now they can run in 2012 against a do-nothing Congress whose malfunctioning can be laid at the feet of "Repthuglicans," and the right-wing nuts are pleased because higher taxes and a floundering economy over the next year increase the chances that Republicans can sweep the Senate, the House, and the White House. The fact that real people suffer in the interim and that we risk further serious economic damage is trumped by the will-to-power.

Throw the bums out.

Speaking of which, The Wall Street Journal reports that Wall Street bankers are pouring money into Scott Brown's campaign. The fact that he endorsed Richard Cordray to head the CFPB doesn't phase the fat cats because no matter Scott Brown might be, he's not Liz Warren.

Of the 20 companies that accounted for the most campaign donations to Mr. Brown, about half were prominent investment or securities firms like Morgan Stanley, Fidelity Investments and Bain Capital. His donors include such blue-chip names as Gary Cohn, the president of Goldman Sachs, and the hedge fund kings John Paulson and Kenneth Griffin.

[...]

“It’s not even about Scott Brown,” said one Wall Street executive, who asked for anonymity to discuss private discussions with his colleagues about the race. “It’s about: Do you want Elizabeth Warren in the Senate?”

Gosh, I guess Wall Street doesn't!

I suppose that more than one Massachusetts voter will, when the time comes to vote next fall, hold his or her nose and punch in Brown's name. However, my solidly Blue State relatives from the Bay State assure me that they won't be among them, and the fact that Brown is getting big bucks from Wall Street isn't adding to his Tea Party credentials as a "man of the people." That race is going to be a heck of a lot of fun to watch over the next year.

The Prez Says: I'm Thankful For Bankers

I wish all my readers, even those Bubbas out there in Bubbaland who are about to commit the mortal sin of deep frying a turkey, a Happy Thanksgiving. And if, over the holiday, you can't be with the one you love, love the one you're with.

And since I'm in the holiday spirit, I'd like to leave you with the following news report, which demonstrates once again that when any public figure needs a ratings boost, all he or she has to do is kick a banker in the teeth. It never fails.

President's Approval Rating Soars After Punching Wall Street Banker in Face

Drawing Lines In The Sand

HR 1723 was shot down last week. While I didn't talk to any of the bill's sponsors about it, I honestly don't think any of them thought that the bill stood a chance of passing. I think it was another case of community bankers, and those federal legislators who support them, laying down markers to build momentum for future legislative efforts following the 2012 elections, and to send messages to the federal banking regulators about hot button aspects of overly restrictive regulation that, community bankers contend, is choking off their ability to lend and, in some cases, to survive.

The American Bankers Association, which community bankers understand speaks for the largest, publicly traded banks, hamstrung the efforts of the bill's proponents by publicly opposing the bill on the grounds that it would cause uncertainty among investors about the validity of banks' financial statements. The fact that regulatory/GAP accounting differences could have been handled by detailed disclosures in the financial statements undercuts this argument, but, then, the ABA has seldom been a friend of the small banks. That's the job of the ICBA.

The federal regulators, of course, also opposed HR 1723. They despise any effort to tamper with GAAP principles in a manner that might preserve any too-small-to-save community banks, albeit this love affair with GAAP was actually an arranged marriage, forced down the regulators' throats in 1989 by Congress. In the good old days prior to the enactment of FIRREA, regulatory accounting principles were a favorite tool of federal regulators to try to preserve financial institutions during times of economic duress. While some argue that such accounting exceptions only compounded the agony, the experience of the agricultural bank rescue program in the 1980s, when extended loan loss amortization forbearance saved many agricultural banks, contradicts this shibboleth. Of course, these programs involve some risk, taking risk requires courage, and that's in short supply in the 21st century in D.C.  These days, the only "institutions" that seem to be within the regulators' cone of compassion are themselves and the too-big-to-fail banks. As to the rest, it's easier to just say "no" and let them eat cake.

HR 1723 is only one a number of bills that have been and will be introduced to try to regulate the regulators. It's going to be a long, hard slog.

Las Vegas: Breaking Its Own Bank

A couple of weeks ago, I discussed a proposed city ordinance in Las Vegas, Nevada that would purport to make lenders responsible for the condition of property that secured their mortgage loans, even though the lender hadn't foreclosed on the property and taken title to it. As I said at that time, in noting that the bill was coming up for a vote on November 15th, I hoped that sanity would prevail. Well the vote was taken last Tuesday and it appears that the squirrels are still roaming around the Las Vegas City Council chambers, gathering the nuts and making them members of the council.

A proposed Las Vegas ordinance that would make lenders maintain vacant properties in default or foreclosure will go up for vote as soon as Dec. 7.

The city's Recommending Committee approved the bill Tuesday, sending it up to the city council. The 7-member council will hear arguments and other public testimony on the bill at its meeting next month.

The council could bring the bill to a vote, make further changes, table it or kill it.

Or, they could enact it and waste a lot of their citizen's money fighting to defend the indefensible. As one in-house lawyer high up within a large loan servicer told me after I first posted about this bill, the lenders have overturned this type of ordinance wherever they've chosen to fights it, and they've only chosen to forgo a fight in locales where they don't own or service enough loans to make paying the cost of legal counsel and court fees worthwhile. Such laws violate the equal protection provisions of the 14th Amendment and the courts make short work of them.

As I've said previously, politicians who promote these types of laws are either dumber than Rick Perry after a dozen jello shots or contemptible cynics, creating a public stunt in an attempt to distract voters from focusing on the fact that they're as intellectually bankrupt as they are morally corrupt. Either way, they're missing the point in Sin City, which is that the peerless leaders of that city built a huge, sprawling metropolis in (hold your breath and wait for it): THE MIDDLE OF A DESERT! SEE THAT? IT'S CALLED SAND! NOTHING GROWS IN SAND EXCEPT SCORPIONS! YOUR ENTIRE ECONOMY IS BUILT AROUND PEOPLE HAVING ENOUGH MONEY TO TRAVEL TO YOUR CITY AND BLOW IT ALL ON ENTERTAINMENT! THEY DON'T HAVE THAT MONEY BECAUSE (IN CASE YOU HAVEN'T NOTICED) THEY... DON'T... HAVE... JOBS!

Man up, Vegas. It's going to be a bumpy ride until the nation's economy recovers, but you're not making it any smoother by passing useless legislation that's bound to be thrown out of court faster than Lilo was thrown out jail.   

Nevada Pursues (Alleged) Perjurers

When bankers get bashed in court, I'm often rushing to their defense, if not because I actually care, then at least because I'm paid to fake it. However, as I made clear in an extended rant this past March, I've got no sympathy for aspects of the robo-signing scandal that involve perjury. As I said six months ago, "[i]f robo-signers and their enablers (because it's important to cast a wide net in order to catch the big fish) get some serious time in the cooler for having perjured themselves or abetted the practice of perjury by others, then maybe we'll have stuck a small trowel of mortar into the cracks of the crumbling wall of Western civilization."

It appears that Nevada, of all places, is leading the charge to fill in those cracks.

Two employees of Lender Processing Services were indicted in Nevada on alleged robo-signing charges connected to foreclosure filings, according to the Office of the Nevada Attorney General.

Gary Trafford and Gerri Sheppard, both California residents described as title officers, were indicted on a total of 606 counts by a Clark County grand jury.

Charges include allegations of offering false instruments for recording and false certification on certain instruments, both felonies, at the Clark County Recorder's Office between 2005 and 2008. The two were also charged with notarization of the signature of a person not in the presence of a notary public, a misdemeanor.

The documents, notices of default, were used to initiate foreclosures, according to the attorney general's office. Trafford and Sheppard allegedly told employees to forge their names and notarize the signatures.

Apparently, the company is not the target of the prosecutors. LPS also issued a statement that claimed that it had performed a thorough review of foreclosure document signing and notarizing procedures.

"Based on the company's reviews, LPS acknowledges the signing procedures on some of these documents were flawed; however, the company also believes these documents were properly authorized and their recording did not result in a wrongful foreclosure," the company said in a statement.

"I am deeply committed to ensuring that LPS meets rigorous standards of professional conduct and operating excellence," said newly appointed LPS President and CEO Hugh Harris.

For the time being, we'll buy the company's story that the two indicted employees were operating as rogues. However, the robo-signing scandal was so widespread, across so many entities, that it's difficult to swallow that there weren't more folks in each loan servicing entity where robo-signing occurred than just a couple of fall guys who had a clue to what was going on.

Time will tell. We'll be waiting for more shoes to drop.

It's interesting that for once in Sin City, what happened there didn't stay there.

Brown Not Odd, Only Cynical

Housing Wire's Kerri Panchuk isn't very happy about Senator Scott Brown's endorsement of Richard Cordray to be head of the CFPB. In making the endorsement, Brown's bucking the rest of his party. However, he's running for re-election against Liz Warren, the woman who hatched the idea for the CFPB like Athena from the head of Zeus, and Massachusetts is so blue that it's considering changing its official state slogan to "The Smurf State." Thus, Brown has to tilt to port unless he wants to be known as "the former Senator from Massachusetts." A recent poll found the two almost even (although Brown has a wide lead among independents).

As Panchuk rightly observes, Republicans in the Senate have no intention of confirming Cordray or any other nominee to head the CFPB until "structural changes" to the CFPB are made. That phrase is code for "gutted like a fish." So, Panchuk thinks Brown's actions are "odd."

Brown's move is an odd one indeed. While Warren is his opponent, supporting Cordray — whether it's to spite his opponent or not — is inconsistent with the general argument of CFPB critics. The popularity contest of who leads the agency was never the issue. Should it be led by one person or a commission? Or is it needed at all?

The idea that the Cordray nomination somehow fixes what many considered structural flaws is sketchy at best. It only goes to show the real issues facing the housing industry are buried in the details. Meanwhile, politicians play on the surface of things, changing hats to win votes.

What does Kerri expect: that politicians are going to stand on principle?

Wall Street Unoccupied

While some of the die-hard (with a vengeance) leaders of the Occupy Wall Street "movement" vowed today to retake Zuccotti Park after cranky, old Mike Bloomberg kicked them out for peeing on the pansies and pooping on the peonies, more serious trouble was averted when Wall Street banker Hank Billings simply co-opted most of the protesters by hiring them (at least, that's what The Onion reported).

Saying the recently arrested protesters had just the right kind of tenacity and pluck needed to shake up the financial services industry, magnanimous and benevolent Morgan Stanley banker Hank Billings approached members of the Occupy Wall Street movement Tuesday morning and hired each and every one of them on the spot.

In addition to admiring their grit, Billings accurately observed "that a personal history of lawbreaking had never hindered anyone's career on Wall Street."

Reports from down south indicate that the "Occupy Miami" takeover ended somewhat more tensely when there was a confrontation involving someone's "little friend."

What's In A (Domain) Name?

For those bankers who have awakened in a cold sweat this month and realized that they might have neglected to seize the high ground prior to the October 28, 2011 deadline by blocking pirates and porn stars from grabbing the domain name "mycommunitybank.xxx," a recent client update from Debovoise & Plimpton may permit you to rest easy. According to D&P, spending $200 to $300 to block names is a waste of money that could be better spent on more useful endeavors, like a case of Courvoisier or playing the daily double at Santa Anita Park.

As D&P rightly observes, domain name blocking is an imperfect solution. A XXX-rated business that wants to trade off your goodwill will pull a "GoldmenSex" on you and just add or alter a few words. Also, not every bank name is likely to be exploited by the sex trade. For example, anything with the word "fidelity" in it is likely to be a real downer to the legions of married men that the porn businesses is trying attract. I mean, reminding guys that they're engaging in emotional cheating in abrogation of their marriage vows is not the best way for a pornographer to put prospective clients "in the mood." On the other hand, Korea's Cho Hung Bank might give the matter a second glance.

Finally, domain name blocking isn't the only way to "skin" the cat. There are always ICANN's dispute resolution procedures to which a bank can turn, which are relatively inexpensive. For those banks who prefer to go first class, you can always unholster the big guns like D&P and sue the usurpers until they cry "Uncle!"That's the solution bank litigators would prefer.

Whatever course a bank decides to take to lessen the risk from the XXX crowd, D&P seems to think that bankers shouldn't lose any sleep over it. They're likely to remain masters of their domain.