Bank Lawyer's Blog

Cheech and Chong Join The FDIC

There was some rather surprising news this week via the American Banker (paid subscription required) regarding banking: the FDIC is following FinCEN's lead in telling banks in Colorado (and elsewhere) to "smoke 'em if you've got 'em."

The Federal Deposit Insurance Corp. has quietly aligned itself with guidelines from the Financial Crimes Enforcement Network that are meant to assuage bankers' fears about the burgeoning marijuana industry, American Banker has learned.

[...]

Back in February, when Fincen released its guidance, the FDIC declined to comment on the document. But on Monday, FDIC spokesman Greg Hernandez confirmed that the agency is currently using the Fincen guidance.

The FDIC's decision to use the guidance is significant because federal banking agencies had previously refused to say whether they'd align themselves with the document, which is part of a broader Obama administration push to foster state-level experiments with marijuana legalization.

[...]

During one recent bank examination, an FDIC official told the bank's directors that the agency is in alignment with Fincen's marijuana guidance, according to Lance Ott, a consultant to the bank who heard the discussion. At the same time, the FDIC employee made clear that the agency is neither encouraging nor discouraging banks from serving pot merchants, Ott said.

The FDIC official told the bank that marijuana is a higher-risk business because of its dependence on cash and the increased chance of robbery, but that pot businesses do not hold a reputational risk for banks in states such as Colorado and Washington that have legalized the drug, Ott recalled.

One commenter to that article put one ironic aspect of this recent news very well.

Lemme see if I understand this. Two federal agencies, the FDIC and FinCEN, are knocking themselves out to have banks provide services to pot businesses which are legal in only a handful of states, while being illegal under federal law. Yet the FDIC, until just recently, actively participated in overt (Operation Chokepoint) and still participates in covert efforts to pressure banks to discontinue providing services to so-called alternative financial service providers, such as check cashers, money remitters and payday advance companies, that are legal in most states and are registered (legal) with FinCEN as Money Service Businesses. Where is the logic??

Logic? You want logic? Silly boy!

At the same time that the FDIC is inhaling deeply, its counterpart in the credit union arena is apparently blowing cold.

A New Mexico credit union closed its marijuana business accounts after a negative reaction by a NCUA field examiner, according to Paul Stull, president/CEO of the Credit Union Association of New Mexico in Albuquerque.

“From what I was told, the field examiner's reaction was quite over the top,” said Stull, who declined to name the specific credit union involved in the alleged incident. “The examiner said there was no way this could be done legally.”

The credit union closed the accounts after an examiner threatened to issue a letter of understanding and agreement if it didn't do so, Stull said. To his knowledge, there are no credit unions currently offering banking services to New Mexico's licensed medical marijuana businesses.

I spoke with the chief compliance officer of a Colorado Fed-member state bank that a Federal Reserve examiner made comments to her bank to the effect "You know, other banks in Colorado are banking marijuana businesses," but when she tasked if that meant that the Fed was taking the position that as long as the bank complied with the FinCEN guidance, the Fed would not object, the examiner backed off and said that he didn't mean to imply that such activity was OK or not OK, but that each bank needed to make an individual risk decision. Whatever the hell that means.

In other words, the federal regulators are all over the board on this issue.

The head of the Washington Bankers Association spoke for all but a tiny minority of banks in both Colorado and Washington (and elsewhere).

James Pishue, president of the Washington Bankers Association, said that the vast majority of banks are still staying away from marijuana because the drug remains illegal under federal law. "There really needs to be a federal solution to this," he said.

Yes, here's the basic risk for a bank that knowingly provides banking services to a marijuana business: The...Bank...Is...Violating...Federal...Criminal...Laws. The bank has to depend on the forbearance of federal government regulators and prosecutors to continue to get away with that law-breaking activity. If that's how you want to roll, go for it. You'll look great in pinstripes once John Ashcroft's doppelganger takes over as Attorney General in January 2017.

On the other hand, you are going to need to smoke dope to comprehend the current regulatory landscape of banking dope.

Redirecting The Potshots

Jim Nussle, CEO of the Credit Union National Association wrote an opinion piece in The American Banker (paid subscription required) that rang a bell with this bank lawyer. As I've been urging for some time, Jim thinks it would be a good idea if community bankers and credit union officials could stop sniping at each other long enough join hands against a common enemy: the crushing burden of regulations.

I believe credit unions can work with small banks to create momentum and put pressure on both legislators and regulators to reduce unnecessary and cumbersome regulations. This could be a surprise for us to deliver to Congress. We can create a shared agenda and build momentum in a bipartisan way to help reduce the regulatory burden that small banks and credit unions face.

Let us try something new: Credit unions and small banks working together to reduce the crushing regulatory burden.

As I said nearly eight years ago when discussing this same topic, "the enemy of my enemy is my friend." in the interim, the common enemy has only grown bigger and stronger. Relief will come principally from Congress (I think), and that will occur only as the result of a concerted lobbying effort by all financial institutions who are being beaten down, regardless of charter type. As Jim Nussle states, the time has come to turn our fire away from one another and onto the common enemy, at least until all affected institutions can get some relief. Then, they can all go back to bashing each other with the same old animosity that we've all come to know and (not) love.

"the enemy of my enemy is my friend,"

The FDIC's Left Hand Slaps Its Right Hand

I'm on vacation for a week, so y'all will be spared further abuse until at least the 29th. Before I bow out, however, I'd like to give a hat tip to the FDIC for its exercise of pure chutzpa and sublime soft-shoe-shuffling in attempting to dance away from a letter from one its officials that flat-out told a bank that the entire payday lending biz is problematic (paid subscription required).

The Federal Deposit Insurance Corp. told an Ohio bank early last year that doing business with payday lenders is generally unacceptable, according to a letter released Friday by House Republicans.

[...]

The newly released FDIC letter was written in February 2013, before the agency's actions had become the focus of public controversy. It was sent to the bank's board of directors, and signed by M. Anthony Lowe, the FDIC's Chicago regional director. The name of the Ohio bank that received the letter is blacked out in the version that was released publicly.

"It is our view that payday loans are costly, and offer limited utility for consumers, as compared to traditional loan products," the letter states.

The letter expresses concern about the bank's processing of transactions on behalf of one particular payday lender – the name of that company is also blacked out. It states that the bank's relationship with this payday lender "carries a high degree of risk to the institution, including third-party, reputational, compliance and legal risk, which may expose the bank to individual and class actions by borrowers and local regulatory authorities."

"Consequently, we have generally found that activities related to payday lending are unacceptable for an insured depository institution," the letter states.

Sounds like the critics of Operation Choke Point have a point, doesn't it? Not so fast.

The FDIC responded to the release of the letter by throwing Mr. Lowe under a bus.

The February 2013 letter is not reflective of FDIC policy," Barr said. "Because we have been asked many questions, the FDIC issued guidance in September 2013 making clear that financial institutions operating with the appropriate systems and controls are neither prohibited nor discouraged from providing services to customers complying with applicable federal and state laws."

"We have made this policy clear to our bank supervision managers and examiners, and worked hard to make sure that the policy is being followed," he continued. "We have asked banks to report any communications they've received that do not appear to be consistent with our guidance to the FDIC's management, ombudsman or inspector general."

Those banks who send such reports to the FDIC can expect nothing but the most lax examinations and favorable regulatory treatment on a go-forward basis. At least, they can until every member of the board and senior management is mysteriously felled by attacks by rabid Snow Monkeys imported from Sierra Leone.

 So, according to the FDIC, Lowe was an outlier who didn't understand the actual policy, which had not yet been written, although he should have known the content of the then non-existent policy because, after all...well...ummm...Shut Up! Shut Up! Shut Up!

Just another day in Wonderland.

And people actually make this a conscious career choice?

Coakley's Special Friend

Massachusetts Attorney General and wanna-be governator, Martha Coakley, has tried to make political capital out of her lawsuit against the FHFA and its wards, Fannie Mae and Freddie Mac, over their policy of refusing to permit the sale of houses to non-profit organizations who intend to resell the home to the borrowers who have defaulted on the loan secured by a loan that is owned by Aunt Fannie or Uncle Freddie. We last discussed the lawsuit in June.

While Martha has publicly trotted out one of the nonprofits involved in this scheme as a paragon of virtue and the Plantonic ideal form of nonprofit rectitude compared to which all other nonprofits are merely a pale reflection, some investigative reporting has uncovered the fact that the CEO of said nonprofit is a campaign contributoer to Ms. Coakley.

Massachusetts Attorney General Martha Coakley stands accused of failing to disclose close ties between her gubernatorial campaign and a nonprofit that’s at the center of the State of Massachusetts’ lawsuit against the Federal Housing Finance Agency, Fannie Mae and Freddie Mac over buyback programs.

According to a new report in The Boston Globe, Elyse Cherry, the CEO of Boston Community Capital, is the co-chair of Coakley’s campaign finance committee.

Cherry’s Boston Community Capital is also the focus of a lawsuit filed by Coakley against the FHFA, Fannie and Freddie, which alleges that Fannie and Freddie, currently under FHFA conservatorship, are refusing to comply with the Massachusetts law called “An Act to Prevent Unnecessary and Unreasonable Foreclosures.”

One of the provisions of the law, which was passed in August 2012, prohibits creditors from blocking home sales to non-profits simply because the non-profit intends to resell the property back to the former homeowner.

In the lawsuit, filed in June, Coakley said that these foreclosure buybacks are exactly what the GSEs are preventing by refusing to engage in the buyback program.

When Coakley filed the lawsuit in June on behalf of the State of Massachusetts, she specifically cited Boston Community Capital’s Stabilizing Urban Neighborhoods Initiative as an example of how the Massachusetts buyback program can work.

[...]

But according to the Globe report, Cherry hosted a Coakley fund-raiser mere days before the lawsuit was filed.

From the Globe report:

Though Cherry’s work has drawn high-profile supporters, Coakley’s lawsuit is drawing criticism from a prominent affordable housing advocate who opposes Cherry’s approach and a government ethics champion who says Coakley should have disclosed her ties to Cherry to avoid the appearance she’s doing favors for insiders.

“It’s important that the public knows about private dealings that could potentially affect government action,” said Pam Wilmot, executive director of Common Cause, a nonprofit group that promotes transparency in government.

Coakley said there was no need to file a public disclosure with the State Ethics Commission since Cherry’s $3,250 in state donations to Coakley since 2005, the $1,500 she gave to Coakley’s failed US Senate bid in 2010, and the $5,000 she donated to the Democratic State Committee in September are already matters of public record.

One of the interesting aspects of the criticism of the Cherry-Coak(ley) connection is that much of it is coming not from the Titans of Wall Street, The Top 1%, or Darth Vader, but from folks who you would think would be rising to Coakley's defense. Among these critics is a guy who usually considers no bar is too low to limbo under, as long as the result of dancing under it is the infliction of pain on a lending institution.

Bruce Marks, a longtime housing advocate and chief executive of the Neighborhood Assistance Corporation for America in Jamaica Plain, saidthat Cherry’s buyback program is flawed because Boston Community Capital buys foreclosed-upon homes at a discount from lenders, but doesn’t pass along all the savings to families that were foreclosed upon. Instead, her group typically boosts the resale price by at least 25 percent, Boston-area property records show.

Marks cites Coakley’s yearly salary, $590,000 in 2013, as evidence that she “paints herself as this advocate for the consumer, and it’s the opposite.”

Marks also said that BCC makes money on each home refinance it conducts because BCC marks up the home by 25% above the price it paid to the lender when BCC resells it to the homeowner. According to Marks, borrowers must also bring approximately $5,000 in fees to the closing.

Marks said that BCC charges an interest rate 6.375% for the loans it gives to the previously distressed borrower, which is two percentage points more than what BCC pays for the money it borrows to make the loans.

“If a bank was doing that, you’d charge them with predatory lending,” said Marks, who said his group collects a small fee from banks to help homeowners negotiate a reduced mortgage payment with their lenders.

A two percent spread is predatory lending? C'mon Bruce! Even your running buddies in Havana wouldn't drink that vat of Kool-Aid.

While I doubt that in the Peoples Commonwealth of Massachusetts this particular kerfuffle, standing alone, will cost Martha the governor's crown, the race against Charlie Baker is currently neck-and-neck. When your opponents and a good portion of your supporters gang up to publicly question your conduct on ethical grounds shortly before early voting starts, you're not doing yourself, or the lawsuit that you're waging as much through press releases as through motions and briefs, any favors.

COMMUNITY BANKING IN THE 21ST CENTURY: THE REALITY

Here's another guest post from my friend, former community banker Pat Dalrymple, that, while not technically about bank law, is definitely about banks. Plus, I'm on the road, so Pat is taking a load off.

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The demise of community banking has been predicted for the last five years or so.  Despite certain significant advantages enjoyed by this group, primarily their market position,  and advertising muscle, the prophecy is become more likely, especially for the smallest institutions struggling for profitability.

The challenge to many $200 million asset and under  banks is, quite simply, putting on acceptable loan assets:  the post meltdown regulatory environment precludes many loans that made up much of the portfolios of small community banks.

Profits are anemic, or non-existent, in a plethora of institutions across the country, compelling management and directors to reassess the very viability of the traditional banking business model.

Many industry practitioners, particularly i small market operations, have lost sight of what banking really is, simply stated:  making a profit on the movement of money.  It matters not whether it’s Chase or the 2^nd National Bank of River City, or how the money moves or, indeed, who moves it.  The business of banking is raking in revenue as the commodity circulates.

Unfortunately, a lot of community banks, especially the smaller ones, aren’t doing this well at all.  Business customers, turned down for loans, are flocking to so-called “Shadow Lenders”, non-bank

Corporations that are rapidly stepping in where banks fear to tread, often as a result of regulatory mandates. Many commercial customers can qualify for SBA financing, but too few small banks facilitate these programs.

Senior depositors make up a disproportionately larger share of community bank customers, as compared to the big league institutions, but small depositories are doing nothing at all in the area of reverse mortgages.

And then there’s the most egregious failing of all:  few banks under, say, $100 million are making residential mortgages available in their markets. On all of these activities, banks aren’t earning a nickel, when nickels are sorely needed, what with loan to deposit ratios at 50 or 60%.  But somebody is counting up those nickels, and it comes to lots of nickels.

What should they do?  Here are some thoughts:              

BUSINESS LENDING:

 This is a category that sees the majority of rejections at insured financial institutions.  Many would have qualified pre-recession, some would not have.  All are bank customers, in one way or another, most are viable borrowers for some capital source, somewhere, and all represent an opportunity for revenue.

Large non-institutional lenders, those specializing in loans for operating capital, lines of credit, and financing for short term emergencies, to name just a few, pay well for referrals.  If a bank can’t make a requested loan, the customer is shown the door, and ends up at a shadow bank anyway, often paying an additional fee to a loan broker.  Why not guide this borrower, preserve the customer relationship, and get paid for it at the same time?

SBA LENDING:

Too few small banks use this resource.  It’s another ignored profit center.  If a bank doesn’t want to put any portion of the deal into portfolio, there are plenty of capital sources that will take the loans off its hands.  And, if the bank doesn’t want the processing hassle, then there are SBA lenders that pay for a simple referral.

HECM LOANS:

Reverse mortgages are one of those product categories that community banks haven’t even thought about.  This is a bit odd, considering that there are a lot of senior customers at small banks.  There’s a pervasive lack of knowledge and a body of misconceptions about this lending product, with banks probably being even more ignorant than their customers.

The HECM concept can be an exceptional program for certain senior borrowers, and bankers need to know more about it.  Reverse mortgage wholesale lenders have partnership models that can take all of the risk, compliance and otherwise, out of originating these loans, and most of the work.  A robust reverse mortgage origination campaign could be mounted by a bank with virtually no additional expense except that for marketing.

RESIDENTIAL MORTGAGE LENDING:

 The refusal to ramp up mortgage lending is a glaring abdication of community responsibility by small banks, and an incomprehensible rejection of a profit opportunity.

Every community bank should be the pre-eminent mortgage originator in its market, but virtually none are.  Rather, small institution customers get their home loans through mortgage brokers, correspondent mortgage companies, and the mortgage divisions of larger banks.

Banks can profitably originate mortgages with almost no risk if they use the large wholesale lenders that are eager to sign banks up as production partners.   The bank needn’t use its own money to fund the loans, and most, if not all of the compliance risk is taken on by the wholesale partner.

There’s a simple way to determine the amount of revenue that a community bank might be leaving on the take:  take a given 12 month period, and determine how many bank customers secured a mortgage, either to purchase refinance, through another source.  Since small bank customers are among the most loyal consumers on earth, assume that a healthy percentage of those loans would have been initiated and facilitated by the bank, and then multiply the aggregate dollar amount by the “Lender Paid Compensation” offered by the wholesale lender.  The amount of foregone revenue is often shocking.

One final suggestion:

Market these services!  Someone once looked at the rapidly changing face of banking, especially as it relates to the little guys, and opined, “Bankers are like dinosaurs, standing in the swamp, waiting for the weather to change”.

Don’t wait.   Don’t let everybody else make that profit on money movement to your bank customers.

Undue Process

For Patrick Adams, justice has been both delayed and, now, denied.

Regular readers of this blog are familiar with Mr. Adams protracted fight with the OCC, and I won't regurgitate the history of the conflict. In my most recent post, I criticized the repeated failure of the Comptroller of the Currency to render a timely decision in the OCC's enforcement action against Mr. Adams as required by applicable law. An administrative law judge had determined that the OCC's enforcement action against Mr. Adams was not supportable on the basis of applicable law and the factual record, and the OCC had appealed the ALJ's decision to the Comptroller, who repeatedly extended the deadline for his rendering of a final decision, notwithstanding the fact that the applicable statute does not provide for such extensions.

On September 30th, the Comptroller rendered a decision in which he determined that the ALJ was completely wrong on the law and that even though the ALJ's finding of fact were "inadequate" for the Comptroller to be able to reach a "final findings of fact," they were sufficiently adequate for the Comptroller to allege (as he does on page 67) that a trier of fact could have determined that Mr. Adams should be sanctioned with civil money penalties. After spending 67 pages rejecting the exoneration of Mr. Adams by an independent trier of law and fact, the Comptroller then concludes that it is not going to send the matter back down to the ALJ in order to determine an "adequate basis" for a final finding of facts. Instead, the Comptroller dismissed the charges and sanctions against Mr. Adams in the exercise of his "plenary authority over remedies."

In other words, the ALJ was flat wrong and the defendant is guilty as initially charged, but what the heck: we made him spend hundreds of thousands of dollars to defend himself against charges that we weren't able to prove before an independent judge, he's been de facto ostracized from the banking business anyway, and we'd likely lose before an objective federal district court judge if we sanctioned him in final agency action, so why give him a reason to appeal?

Some former federal bank regulatory counsel have suggested to me that the OCC is twisting and spinning the official record in a CYA effort to impede a claim by Mr. Adams for his attorneys fees and costs as a "prevailing party" under the Equal Access to Justice Act. That may or may not be the case. What is clear is that there's an inherent flaw in a system that purports to afford due process to defendants but in which the prosecutor and judge are the same person. In such a system, the fairness of the outcome depends entirely on the personal and professional integrity of the ultimate decision-maker.

If this case proves anything, it proves that the system needs some serious legislative refinements.

Uncollaring The Porn Biz

Any banking regulator who thought that the porn business was going to take auto-erotic asphyxiation lying down (or kneeling, or bending over an ottoman, or suspended upside down from various Cirque du Soleil circus apparati) now knows better. In yet another litigious response to Operation Choke Point (paid subscription required), a trade group for payment processors sued a federal banking regulator for pressuring banks that "serviced" purveyors of pornography to "choke the chicken" (that laid the golden eggs).

In a court filing Thursday, the Third Party Payment Processors Association alleged that FDIC examiners coerced and intimidated banks to end their relationships with companies that processed payments for porn businesses.

The examiners' push happened shortly after the FDIC's release in 2011 of a list of industries that it said warranted heightened attention by banks, according to the court papers. The list of industries included pornography, ammunition sales, payday lending, purveyors of racist materials, dating services, Ponzi schemes and coin dealers.

[...]

"FDIC examiners' targeted enforcement against the pornography industry was the advent of its improper practice of moralistic regulation over the banking industry," the filing argues. "Regulators did not target the pornography industry because there was evidence of fraud relative to that industry."

On the record, the FDIC refused to comment. Our usually unreliable inside sources, however, have speculated that if certain bionically-augmented female porn stars had merely agreed to accompany highly-placed FDIC officials on a whirlwind "Around The World In 80 Minutes" tour, all this "choking" might have by-passed the bottleneck of the porn business. Apparently, when certain "professional escorts" claim in their online ads that they are "classy," they mean that even they can only limbo so low.

As we discussed a couple of months ago, the FDIC has taken the position that it never intended to warn banks away from certain lines of business, and that any bank that thought so was "misinterpreting" the FDIC's original guidance that listed certain lines of business as being high risk. Any dummie should have understood that merely classifying a line of business as being "high risk" doesn't mean that a bank shouldn't bank that line of business, but should merely be prepared to justify, during subsequent examinations, exactly why the bank decided to jump into bed with pox-ridden harlots and to sell its soul to the Prince of Darkness. No worries, mate!

As the American Banker's Kevin Wack also notes, the FDIC has contended that any bank that choked a porn business (or spanked a porn monkey) did so solely as an independent business decision, with no pressure or influence at all from the FDIC. Any rumors to the contrary are vile calumny that will be met with an icy stare, followed by carpet napalm bombing via the FDIC's reserve force of Vietnam War-era B-52s.

So, for the porn business, according the FDIC, the banking choke collar is off. Unless, of course, the porn is for a BDSM audience. Then collars will be perfectly appropriate attire.

CFPB Cracks Down On "Marketing Services Agreements"

One of the first posts I inflicted on an unspecting public, way back in 2004, when "W" was King and the bubble had not yet burst, was a rant about bogus referral arrangements that violated the anti-kickback provisions of Section 8 of RESPA. And although HUD itself once stubbed its toe over Section 8's threshold, both HUD and state regulators have been all over various schemes that attempt an end-run around RESPA's prohibition on referral fees.

With the late-night creation of Franken-Dodd, we now have the gentle ministrations of everyone's favorite benign Grandpa of a federal regulator, the CFPB, applied to Section 8, and as a recent MoFo alert advises, CFPB promises to be (in the lyrics of Jimmy Webb) a "harsh mistress."

 The CFPB entered into a Consent Order with a title company (Lighthouse) on the basis that "marketing service agreements" for "advertising" with real estate companies were, in reality, disguised referral fee arrangements. Lenders who attempt similar arrangements with real estate-related businesses, in which compensation can be related to the volume of loan business referred to the lender should take a lesson.

As evidence of the violations, the CFPB cited the following:

• Lighthouse failed to determine, or document a method for a determination of, the fair market value of the services it received under the MSAs.
• Lighthouse determined the fees it paid under the MSA, in part, based on the number and value of referrals received by the related counterparty.
• Lighthouse did not monitor whether it was receiving the services for which it contracted.
• The number of referrals provided to Lighthouse by counterparties was significantly greater if Lighthouse had entered into an MSA with the counterparty.

In sum, the CFPB asserted that Lighthouse was unable to provide a legitimate fair market basis for its pricing under the MSAs and believed that there was a strong correlation between the pricing for each counterparty and the number of referrals Lighthouse received per the subject MSA’s.

Lighthouse paid a $200,000 penalty and the CFPB imposed a $5.00 cap on the value of any consideration that the title company to "referral sources." A fiver isn't likely going to generate beaucoup business for Lighthouse, is my completely obvious conclusion.

MoFo's "takeaways" are insightful.

• As expected, the CFPB will look beyond the face of an MSA and consider the facts behind implementation, performance, and payments as between the settlement service provider and the referring party.
• The CFPB in the Consent Order created a broad definition of “marketing services agreement,” a term that is not defined in RESPA.
• The CFPB emphasized that an objective determination of “fair market value” of marketing services to be rendered must be performed with written documentation of the determination that is retained and available for review.
• In the fair market value analysis, the CFPB frowned on the settlement service provider’s consideration of what other title companies in the market were willing to pay to referral sources for marketing services.
• The necessity of monitoring MSA performance to ensure that services contracted for are actually delivered.
• MSAs that result in more business being referred to the settlement service provider than is referred by the same referral sources not pursuant to MSAs provides evidence of a violation of RESPA §8(a). How the CFPB determined these differences is not clear from the Consent Order.

Any real estate services businesses that are starting to realize that when the CFPB is on the case, there will likely be no way to ever run this dodge again get a gold star for "perception." The last takeaway asks how the CFPB could have determined how much business is referred by the same source with a "marketing services agreement" and without such an agreement. I assume the authors of the alert are displaying a dry sense of humor. As everyone knows, with the CFPB being such a self-professed "data-driven" regulator, they'll always be able to find pertinent data, even if the hiding place is an orifice on their own body.

I don't think this is the beginning of the end of these types of arrangements. I think this the end. Period.

The again, there are always those living in caves who always are the last to hear. Thus, there may be a few more Consent Orders before "marketing services agreement" as ingenuously disguised referral arrangements finally become extinct.

Wal-Mart Is Go-Go On GoBank

Not satisfied with prepaid cards from Green Dot or Bluebird Accounts via American Express, Wal-Mart's march into the banking business is now all the way into checking account territory.

Walmart, the nation’s largest retailer, is teaming up with Green Dot, known for its prepaid payment cards, to supply checking accounts to almost anyone over 18 who passes an ID check.

Daniel Eckert, senior vice president at Walmart, said on Tuesday that the accounts would be available nationwide by the end of October. The accounts are intended to be low-cost alternatives to traditional bank checking accounts, with no fees for overdrafts or bounced checks and no minimum account balance.

In comparison, a basic checking account at Citibank charges $12 if a check is returned and $34 for overdrafts.

The new accounts from Green Dot, called GoBank, will cost $8.95 a month if they have direct deposits totaling less than $500 a month. Mr. Eckert said that most people on Social Security or fixed pensions would qualify.

GoBank, as the service is known, is part of Walmart’s long-running push into financial services for people with little or no access to traditional banking.

[...]

Walmart has been eyeing financial services for some time. Two years ago, the company announced a partnership with American Express to offer a prepaid card and debit accounts. Retailers like Target and 7-Eleven also offer prepaid cards.

But the new Walmart initiative will be the first full-blown, off-the-shelf checking account. To help attract customers, Walmart and Green Dot will forgo a screening system many banks use to vet potential customers and rely instead on a proprietary system. The model is expected to allow almost any consumer who passes an identification check to open an account in minutes, according to Green Dot.

In the past, Walmart has tried to secure a federal bank charter to become a deposit-taking bank, but abandoned that effort in 2007 in the face of opposition from the banking industry. Since then, the retailer has assembled an array of services that could be offered without a charter, as well as partnerships with financial service companies like Green Dot.

Five years ago, we discussed how well Wal-Mart was adapting to the stonewalling by the FDIC of its attempt to start or buy an industrial bank. One benefit was that Franken-Dodd's "study of the need for industrial bank charter" may have presaged the demise of that particular charter, making Wal-Mart sorry that it got what it wished for. But there was more to it than merely the form of the charter that it was denied.

It's interesting that Wal-Mart, by not being in the banking business, is side-stepping the public relations backlash that is tainting other bankers who had nothing to do with the causes of the current crisis, such as community banks that are dropping like lawyers on a dove hunt with Dick Cheney. Instead, Wal-Mart is using the avenue open to it (not ideal, but workable) to cement its relationship as a low-cost provider of financial services to working class Americans. The Beast of Bentonville refuses to be tamed.

Wal-Mart didn't get to be a retail "beast" by backing down when confronted. When denied entry through one door, it has relentlessly worked on finding other doors, and then opening them wide. I simply don't see them stopping. As a consequence, of course, lower income citizens who form Wal-Mart's core customer base and who have traditionally had less access to traditional banking services are being "served," but in a beneficial way. Therefore, whether or not bankers are thrilled, the same FDIC that once effectively barred Wal-Mart from the banking business ought to be standing and applauding these latest efforts. Or, at the very least, a squatting ovation seems in order.