Bank Lawyer's Blog

You Have Nothing To Lose But Your Chains

The latest edition of Ballard Spahr's "CFPB Monitor" starts off with an article by Barbara Mishkin about how CFPB employees have voted to unionize. Apparently, getting starting salaries of $173,000, plus tuition for courses in basic banking law, are not enough for the employees of the most powerful, poorly regulated federal government agency created since Joe Stalin went to (not) meet his (nonexistent) maker. No, their backsides are severely chapped over heinous office accommodations. It seems that the CFPB is in the process of renovating its Intergalactic Headquarters, aka, "The Death Star," and while that renovation is taking place, the "proles" are being asked to place their posteriors in...<gasp>...Dilbert-like "open space." Their current office space is sufficiently annoying, since more than one person has to share a private office, but cubicles???? Them's fightin' words, Pilgrims!

One "source" claimed that CFPB employees are worried about noise levels. Heck, they carry a pretty big stick, so why don't they learn to talk (and walk) softly?

Look, I understand that when you're threatening to lock and load on some beat-down community bank that issued a disclosure statement that said "may" instead of "will," and, therefore, was massively "deceptive," or you're telling an auto loan lender that if a dealer from which it buys paper ever causes emotional pain to a buyer's pet parakeet, the lender is on the hook for the vet's bill, you would be sensitive about cross-talk. Obviously, you need to keep the brow beating appropriately segmented. I mean, look what happened when Bugs Moran encroached on Al Capione's space. It wasn't pretty, and those guys were mere amateurs when it comes to wielding a Tommy Gun.

Now that the CFPB employees are represented by a union, though, I'm certain that office space is only the tip of the iceberg when it comes to workers' demands.

The union’s president is reported as having said that, in addition to workspace concerns, CFPB employees are concerned about travel policies and benefits, work schedules, reviews, promotions and alternative work schedules.  The report describes CFPB staffers as having “grown frustrated in recent months after putting in grueling hours as they raced to meet statutory deadlines” under Dodd-Frank.

I can imagine that working until 5:30 and even 6:00 pm can be wearisome if you have to do it day-after-day-after-day-my-god-will-this-never-freakin'-end!It wwould be suicide-induing if you had to grind it out in open space.

In the words of the last person to make the absolute best use of every second of every working day (and, especially, of every night) he spent in D.C, once intoned, "I feel your pain."

Some Grim News Just Got Grimmer

As regular readers know, I have been on a mission over the past several years to encourage would-be law students to consider equally enjoyable employment prospects, such as being screamed at by that Hell's Kitchen buffoon for splattering a souffle, or acting as a lifestyle adviser and match-maker for Kim Jong-un, or even being a dance instructor for the trifecta of Wynonna Judd, Kirstie Alley, and Mark Cuban. Even a pessimist like myself didn't realize how bad things have become for law students, though.

Excluding jobs funded by law schools, only 55.1 percent of all 2012 law school graduates were employed in full-time, long-term lawyer jobs on Feb .15, according to the analysis by the law school reform group Law School Transparency.

That's 1.1 percentage points lower than the 56.2 percent figure cited by the ABA, which includes school-funded positions in the number of graduates holding full-time, long-term lawyer jobs, according to the analysis.

Moreover, a "devastating" 27.7 percent of 2012 graduates were either underemployed, meaning they were working in short-term, part-time or nonprofessional jobs, or not employed, meaning they were either unemployed or pursuing an additional degree, according to Law School Transparency's analysis.

The ABA data showed that 10.6 percent of last year's graduates were unemployed and seeking work, but didn't total up the number of graduates who were unemployed and underemployed.

The group's analysis of the data also shows that fewer than half of the graduates at 66 schools—one-third of all ABA-accredited schools—were working in full-time, long-term legal jobs; less than a third of the graduates of 11 schools, or 5.5 percent of total, were so employed.

Law School Transparency's Executive Director had some sound advice for lawyers to be.

"Law school is too expensive relative to job outcomes," he said. "If you plan to debt-finance your education or use hard-earned savings, seriously think twice about attending a law school without a steep discount. For the vast majority of prospective law students who have not received a sizable scholarship, it makes sense to wait for prices to drop."

Or it makes sense to think about medical school. Or, save the costs of post-graduate education altogether and latch on to one the fastest growing job segments in the country: "cost estimator." If graduating law school students had devoted more time to cost estimation (and benefits) before they borrowed money to go to law school, many of them would not be facing the bleak prospects currently staring them in the face.

Disparate Impact On Ex-Cons A No-No

Credit Union consultant and pundit Marvin Umholz has been hammering on the Obama administration's use of "disparate impact" theory in not only the fair lending context, but in the equal opportunity employment context, as well (previously discussed here). In his latest email newsletter "CU Strategic Hot Topics" (you can email Marvin at marvin.umholtz@comcast.net to be added to the circulation list), Marvin discusses the use of disparate impact to undermine the use of by financial institutions of background checks on prospective employees. The following is the section of the newsletter that focuses on this problem.

The new U.S. Department of Housing and Urban Development (HUD) rule entitled, “Implementation of the Fair Housing Act – Disparate Impact Rule (FR 5508) was posted in the Federal Register February 15^th www.federalregister.gov/articles/2013/02/15/2013-03375/implementation-of-the-fair-housing-acts-discriminatory-effects-standard?utm_medium=section_news&utm_source=homepage.  However, HUD’s use of the disparate impact doctrine to statistically prove discrimination regardless of intent represents just the latest in the executive branch’s efforts to utilize the controversial effects test to enforce the Fair Housing Act, the Equal Credit Opportunity Act (ECOA), and other laws.  In addition to HUD, the CFPB, the U.S. Department of Justice www.justice.gov, and the Equal Employment Opportunity Commission (EEOC) http://www1.eeoc.gov//eeoc/newsroom/wysk/arrest_conviction_records.cfm are using the statistical disparate impact discrimination effects test in their regulatory enforcement actions.

A February 15^th opinion essay in The Wall Street Journal reminded this correspondent that the EEOC

http://online.wsj.com/article/SB10001424127887323701904578276491630786614.html?KEYWORDS=perform+criminal+background+checks+at+your+peril is also a disparate impact activist in the extreme.  The op-ed began, “Should it be a federal crime for businesses to refuse to hire ex-convicts?  Yes, according to the Equal Credit Opportunity Commission, which recently released 20,000 convoluted words of regulatory ‘guidance’ to direct businesses to hire more felons and other ex-offenders…Last April, the agency unveiled its ‘Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions,’ declaring that ‘criminal record exclusions have a disparate impact based on race and national origin’…These statistical disparities inspired the EEOC to rewrite the corporate hiring handbook to level the playing field between ‘protected groups’ and the rest of the workforce…Most businesses perform criminal background checks on job applicants, but the EEOC guidance frowns on such checks and creates new legal tripwires that could spark federal lawsuits…If a background check discloses a criminal offense, the EEOC expects a company to do an intricate ‘individualized assessment’ that will somehow prove that it has a ‘business necessity’ not to hire the ex-offender (or that his offense disqualifies him for a specific job).”  Ex-offenders were disproportionately represented in the “protected groups” setting the stage for the EEOC’s statistical disparate impact effects test to the hiring process.

The op-ed continued, “Former EEOC General Counsel Donald Livingston, in testimony in December to the U.S. Commission on Civil Rights, warned that employers could be considered guilty of ‘race discrimination if they choose law abiding applicants over applicants with criminal convictions’ unless they conduct a comprehensive analysis of the ex-offender’s recent life history.  It is difficult to overstate the EEOC’s zealotry on this issue.  The agency is demanding that one of Mr. Livingston’s clients – the Freeman Companies, a convention and corporate events planner – pay compensation to rejected job applicants who lied about their criminal records…The EEOC is confident that its guidance will boost minority hiring, but studies published in the University of Chicago Legal Forum and the Journal of Law and Economics have found that businesses are much less likely to hire minority applicants when background checks are banned.  As the majority of black and Hispanic job applicants have clean legal records, the new EEOC mandate may harm the very groups it purports to help…The EEOC’s new regulatory regime is likely to chill hiring across the board and decrease opportunities for minority applicants.”  Did the EEOC run a cost-benefit analysis on this dangerous legal contortionism before it dove into these ideologically-questionable waters?  Does the EEOC consider its mission as being to inhibit job creation by exacerbating workplace uncertainty?

As recently as February 20^th CFPB Director Richard Cordray reminded everyone that the CFPB is committed to the disparate impact doctrine in executing its rulemaking and enforcement mission www.consumerfinance.gov/speeches/prepared-remarks-by-richard-cordray-at-a-consumer-advisory-board-meeting.  In his prepared remarks for delivery to the CFPB’s Consumer Advisory Board, Director Cordray said, “A final and consistent problem that can hijack consumers on the pathway to opportunity is the evil of discrimination.  For some people, the greatest challenges they face do not come from deceptive materials, debt traps, or market structures, but rather are rooted in something much more basic – unequal, invidious treatment based on characteristics such as race or gender or other bases prohibited by law.  The statistics show very clearly that communities of color were hit especially hard during the financial crisis.  All Americans saw drops in their household wealth, but African-Americans and Hispanics experienced the steepest drops.  This inequity is compounded by unequal access to responsible credit, which makes it difficult or even impossible to achieve their financial goals…We made it clear last year that – like other banking regulators and the Justice Department – we will pursue discrimination in consumer financial markets based on disparate impact as well as on intentional violations.  From the perspective of a consumer disadvantaged by policies that have a discriminatory effect, it makes no practical difference whether a lender consciously intended to discriminate.  Every consumer, regardless of race, gender, or other characteristics protected by federal law, should have equal access to credit and an equal chance to pursue the pathway to opportunity.”  The disparate impact doctrine is unconstitutional at best and a collection of counter-productive left-wing class warfare victimization claptrap at worst.

It was quite obvious from his remarks that CFPB Director Cordray believed that the United States was a nation statistically overflowing with victims and some were more victimized than others.  That is a distorted concept of what a level playing field should be.  The zealous application of the disparate impact effects test is unlikely to assure anyone access to increased prosperity and instead could bring the financial services marketplace to a screeching halt – and subsequently trigger widespread non-discriminatory austerity as a result.  Would that be consistent with the disparate impact doctrine?  Talk of social responsibility needs to be realistic.  It is more dangerous to promise too much than too little.  Despite the real social and economic advancement that has been made by ethnic minorities and other “protected groups” in this country, the federal government is still stuck in the 1960s.  Hopefully contemporary Americans believe in equal opportunity, not statistically-driven equality-mongering.  When it comes to the disparate impact doctrine, one can certainly hope that the U.S. Supreme Court Justices are true believers in equal opportunity rather than statistical quotas.

This is scary stuff. A number of my financial institution clients deem it a matter of safety and soundness to include within their contracts with vendors a provision that requires the vendor to perform background checks on employees who will perform services for the institution, especially if the employees will be involved in the handling of funds or sensitive information. Does that contractual requirement provide the vendor a legitimate business reason for performing the checks notwithstanding the potential disparate impact upon members of a protected class that contains a high number of ex-cons? On the other hand, is the financial institution subjecting itself to potential liability by imposing such a requirement and, if so, is it inserting itself between the rock of disparate impact and the hard place of unsafe and unsound practices?

The ideologues that are running the funny farm are forcing all of us to jump through the looking glass, head first.

Taking Social Media Access "Personally"

Professor Eric Goldman is an astute observer of the legal risks of both using social media and of trying to regulate its use. One of his most recent commentaries in Forbes concerns a new California law that restricts an employer's right to access an employee's "personal social media accounts." Professor Goldman thinks that, while the impetus for the legislation may be admirable, the execution is a pile of bat guano.

Superficially, both laws sound like a good idea.  It’s ridiculous to force people to disclose social media content if they don’t want to do so; not only can that violate the accountholder’s privacy, but it can violate the privacy rights of innocent third parties.  Demanding access to a social media account can be just as invasive as demanding access to an email account, something we all already knows is off-limits.

Still, new legislation is a blunt tool, and it’s not the right solution to every problem.  In this situation, California’s new laws create two problems, one big and the other bigger.

The "big problem" is that the law too broadly defines "social media." Here's the definition:

“social media” means an electronic service or account, or electronic content, including, but not limited to, videos, still photographs, blogs, video blogs, podcasts, instant and text messages, email, online services or accounts, or Internet Web site profiles or locations.

To say that definition is "overly broad" is a gross understatement. As Goldman observes, that breadth is sure to have "unintended consequences."

In other words, the law governs effectively all digital content and activity, both on the Internet and stored in local storage devices, not just social media.  After all, what digital resource isn’t “an electronic service or account, or electronic content”? 

Here's the "bigger problem": the law restricts an employer's access to "personal" social media, but doesn't define "personal."

Thus, the law assumes that social media accounts have only two states: personal or not-personal. Sadly, that’s completely contrary to the cases I’m seeing in court right now. Instead, social media accounts fit along a continuum where the endpoints are (1) completely personal, and (2) completely business-related–but many employees’ social media accounts (narrowly construed, ignoring the statutory overbreadth problem) fit somewhere in between those two endpoints. Indeed, employers and employees routinely disagree about whether or not a social media account was personal or business-related.

So, while it's advisable, even imperative, that an employee "cough up" his access information for business-related social media accounts, the employer may be unintentionally violating state law if it asks for those credentials and the employee can make a case that the account is "personal." Goldman cites several cases where employer and employee are slugging it out in court right now over the business/personal dichotomy. While trial lawyers might regard this ambiguity as a good thing, the rest of us consider it a pain in the "personal" nether regions.

Goldman asserts that this confused state of affairs is par for the course.

Speaking for myself, I always assume that a state legislature trying to “fix an Internet problem” will botch the job. After all, state legislatures have a virtually unbroken history of poorly designed Internet regulations.

Change "state" to "federal" and "Internet" to "financial institution" and you have Dodd-Frank.

Those of us who do not live in California might chalk this up to the typical dysfunctionality of life in the land of fruits and nuts. Unfortunately, other states are adopting similar laws. Legislators can't help themselves. Screwing up the lives of their citizens, and especially those ctizens who attempt to conduct business, is what they do. It's embedded in their DNA. As in many areas, The Golden State sheds a light on America's future.

Thank God for Shiner Bock...

Schooling The Novices

Several blog readers have "bugged" me about the recent articles concerning the eyebrow-raising expenditures of the CFPB that were recently lambasted by the conservative watchdog group Judicial Watch. MarketWatch ran a story last week on the group's findings and CNNMoney (and some of the trade press) picked up on the kerfuffle this week. When I say "bugged," I mean asked me to engage in grave and heinous snarkbaggery on the CFPB, in a fashion they've come to expect. However, after carefully considering the matter and giving the CFPB the benefit of the doubt, I've decided to be not only judicious in my comments, but generous, as well.

Who am I kidding?

Among the more amusing findings was the expenditure by the CFPB of $4,500 in tuition to send six CFPB lawyers to a basic banking law class. While the CFPB claimed that these expenses were merely to pay for ongoing continuing legal education requirements imposed by the various state (and DC) bars in order to retain a license to practice law, the choice of the basic course overflows with irony.

In pursuing the invitation to enroll, Enforcement Attorney Christina Coll emailed Acting Litigation Deputy Deborah Morris on May 4, 2011, saying: "This looks like an awesome agenda for a banking world novice like me." While Ms. Coll's salary is unknown, according to records previously uncovered by Judicial Watch, other Enforcement Attorneys received starting salaries as high as $173,000 per year.

The fact that CFPB paid to train its attorneys in banking law fundamentals at taxpayer expense appears to contradict congressional testimony from then-interim CFPB head, and current Massachusetts Senate candidate, Elizabeth Warren in 2011 regarding the experience level of the agency's highly paid attorneys.

During a May 24, 2011 hearing, U.S. Rep. Ann Marie Buerkle asked why starting salaries at the agency exceeded Office of Personnel Management (OPM) standards by up to 90%: "How do you justify that kind of a disparity in salaries between a government worker and the folks that are going to be hired by your regulatory agency?" asked Rep. Buerkle. Warren defended the salaries, saying the consumer bureau is competing with the financial services industry for talent and "we'll never be able to pay like the financial services industry pays."

I, too, have to obtain CLE credits each year. I do so by teaching, writing, and speaking on an area of the law related to "banking." That's one of the reasons that this blog title contains the words "bank lawyer." I'm living proof of the theory that if you sit a monkey at a typewriter for decades, he'll eventually bang out something readable. On the other hand, to claim that you need to pay high salaries to attract hired guns with the necessary banking law expertise who then need to attend a basic course on banking law that's taught buy outside "experts" because the hired guns are "novices" on the law of the industry they're supposed to be experts on, strikes some as odd, others as downright laughable.

Warren might have a point regarding the private sector salaries if we were discussing people possessed of the degree of expertise that Ms. Warren implied the Bureau was seeking. If you're hiring a banking novice for $173,000 a year, you're overpaying, whether you're comparing the CFPB to the private sector or to a government agency. Moreover, twenty-one starting salaries of $225,000 and more does seem a bit steep, even for the most powerful, lightly supervised federal bureaucracy ever created.

The criticism of $465,000 in expenditures for sign language services might have an explanation. I expect that this contract originated when Cherokee Princess Liz ("Fauxcahontas") Warren was expected to lead the charge. She likely wanted to ensure that she could fully protect her "peeps" from the depredations of predatory lenders and the lawyers who love them. I get that. In addition, the CFPB has only used $54,000 of the $465,000 thus far. Unfortunately, an anonymous source claims that this amount was not used to assist an actual person with disabilities, but to train the CFPB's pet orangutan Koko to sign "I Love Liz," "Banks Are Bad," and "Workers Of The World Unite! You Have Nothing To Lose But Your Chains!" Unfortunately, I cannot verify that claim.

One of my correspondents claimed that their favorite part of the CNNMoney article was the "clarification" at the end.

Clarification: While Judicial Watch criticized the CFPB for using taxpayer dollars on these expenses, the CFPB says it does not use taxpayer money since it is funded by the Federal Reserve.

Yes, the CFPB is funded by the Federal Reserve, which is required by law to turn over its annual net income, after paying dividends to its member banks and making certain other deductions, to the US Treasury. Therefore, every dollar wasted by the CFPB is one less dollar saved for the US taxpayer. That makes the "clarification" contention by the CFPB disingenuous, at best. However, let's give the CFPB the benefit of the doubt. They wouldn't know that the Federal Reserve pays tens of billions of dollars a year into the US Treasury unless they had a basic understanding of the way the US banking system works, and, as we've seen, their employees are "novices" when it comes to such matters.

CFPB delenda est!

Another Whistleblower Bites B of A

We don't mean to harp on the subject of what a lousy acquisition Countrywide was for Bank of America...ok, that was lie...we do intend to harp on it. A few days ago, Reuters ran a story of yet another example of how B of A shareholders are taking another blow to the solar plexus because of allegedly nefarious activities of Countrywide affiliates. This story dealt with an honest appraiser (no, that's not an oxymoron, although "honest lawyer" might be), Kyle Lagow, who was "coincidentally" fired by Countrywide not too long after he complained internally that a Countrywide affiliate was committing appraisal fraud. Oh, yeah: he was also fired while undergoing treatment for thyroid cancer, to add to the despicability factor of Countrywide's conduct.

What Lagow learned was that Countrywide wanted to make loans whatever the collateral was worth. LandSafe executives routinely pressed staff appraisers and independent appraisers to boost home values to ensure sales went through, according to a suit he filed in 2009.

Lagow also spotted trouble with a joint venture Countrywide had with homebuilder KB Home, according to his suit. The builder would only work with select appraisers, who were inflating home values to make sure sales went through, according to his suit. KB Home declined to comment.

[...]

In January 2008, after supervisors had repeatedly ignored his warnings, Lagow sent an email to Countrywide Chief Executive Officer Angelo Mozilo, according to the complaint. Mozilo responded that someone from his staff would get in touch, and Lagow later talked with Countrywide's chief operations officer, Jack Schakett, and its chief compliance officer, Richard Wentz.

Two weeks later, Lagow received an email from Wentz stating that his complaints had been investigated and there were no issues that needed to be addressed, according to the complaint.

[...]

In January 2008, Bank of America agreed to buy Countrywide as it verged on collapse. That November, Lagow was fired. At the time, he was undergoing treatment for thyroid cancer; he has since recovered.

Bank of America declined to comment on Lagow's case. "We have a strategy to put Countrywide and other legacy issues behind us as quickly as we can," bank spokesman Rick Simon said.

Putting a $40 billion "legacy issue" behind you is like Kim Kardashian putting on a skin-tight dress. There's absolutely no doubt that no matter how hard you try to cover it up, you've got a whale-load of junk in the trunk. Nice try by B of A's PR flacks, though.

Kyle later filed a whistle-blower lawsuit, but had to keep mum about it for three years, even from his family, so as not to impede ongoing government criminal and civil investigations of the "legacy issues" presented by Countrywide's pristine behavior in residential lending. Eventually, his suit was wrapped up in the global settlement with B of A and other large lenders and when the dust settled, Kyle walked off with $14.5 million. That almost makes up for the four years of emotional distress inflicted on him because...GASP...he tried to do the right thing.

He has bought a new home and has treated his family to a trip to Disney World, but he plans to leave most of the award to his kids.

"They are the ones," he said, "who suffered through this."

While some, like Kyle and his family, have "suffered through this" to a greater extent than other folks, the pain and misery of the most recent meltdown have been fairly widespread. Unless, of course, your name's Mazilo. That particular apex to a pyramid of greed walked away with a slap on the wrist of $47.5 million out-of-pocket out of over a half-billion dollars in income received from 2000 to 2008. Or, for that matter, unless you were a friend of Mazilio's and a member of the US House or Senate, in which case absolutely nothing bad will happen to you at all.

 

Law Firms Hanging Out The "No Openings" Sign

Evidence supporting the contention of critics that law school has become a "shell game" in which law school students are the "marks" continues to pour in. One of the latest pieces is the news that only 49.5% of of the class of 2001 have found jobs in private practice, the lowest level since 1994.

In most of the 38 years for which NALP has collected employment information, the percentage of jobs in law firms has been in the 55 percent to 58 percent range and has been below 50 percent only once before 2011.

The overall employment rate for new law school graduates is 85.6 percent, the lowest it has been since 1994, when the rate stood at 84.7 percent.

There's no question that the economic downturn since 2008 has been the worst that most of us alive today have ever seen. In addition, entering law school in the fall of 2008, right as Lehman Brothers collapsed and the world's economy went down the circular porcelain facility, was timing best described as "unfortunate." Nevertheless, with so many lawyers already making this country one overrun  by sharks and sharkettes, you have to ask yourself why anyone in their right mind would voluntarily choose to enter this field.

Being a Pollyanna, I did find the gold nugget in this pan of pebbles and river mud.

For the class of 2011, employment in business was 18.1 percent, the highest that NALP has measured.

There you go: the law practice's loss is the business world's gain. Or not, depending on where you stand on the question of lawyers and the right to exist.

Making Law School Education More "Versatile"

What is it about law school that induces a delusional thought process? Notwithstanding solid projections that law schools are grinding out way too many lawyers for all to find gainful employment, we have some law school professors suggesting that--damn the facts--we have too few new lawyers graduating, not too many. You have to wonder what's in the water they're drinking. Whatever it is, occasionally I could use a liter when I want to take a trip to Tibet without actually boarding an airplane.

The latest bit of lunacy comes via Indiana University law professor William Henderson, who admits that there are too many law students, but offers three ways to address the oversupply problem.

The U.S. Department of Education could curtail funding for law student loans. Some schools could go into a “death spiral” because of new ABA transparency requirements. And law schools could make their degrees “more versatile and valuable so graduates become more competitive for professional jobs outside traditional legal services.”

“Call me crazy,” Henderson writes, “but I think No. 3 is actually a huge opportunity for a law school with the right leadership and the right mix of faculty. I am currently in the process of sketching out a blueprint anyone will be free to use or make fun of."

OK, professor, you asked for it: I'm calling you not merely crazy, but bat-s**t crazy. I've never met you, but I'd hazard a guess that you, like Nancy Pelosi, sleep upside down hanging from a barn rafter.

My late father (God rest his Irish soul) convinced me to go to law school with the argument that with a law degree, I could do a variety of things in life other than practice law. He assured me that the CEO of his extremely large pharmaceutical firm was a lawyer, and that the sheepskin was a great way to grease the path to the corner office in corporate America.

Kids: never...and I mean NEVER...listen to your parents.

Eschewing the need for educational "versatility, a commenter named "Helen C" offers her own suggestion to addressing the oversupply of young lawyers.

You know, I think we all owe it to the next generation to bow out gracefully and retire.

Helen: You know, I think YOU owe it to the next generation to retire. I intend to retire only when my cataracts so inhibit my aim that I'm no longer able to accurately put four out of six rounds from my Glock into the torso of the next Gen X or Y flambueau who makes a legal argument I thought was mundane back in 1977 and acts like he just discovered fire. Until then, I'm going to clog the law employment pipeline and require an industrial strength Roto-Rooter job to dislodge me.

Sorry kids. Just because I feel your pain doesn't mean I've suddenly grown a actual beating heart.

Examiners Second-Guessing Community Banks On Executive Compensation?

A recent article in Bank Safety & Soundness Reporter (paid subscription required) claims that while Dodd-Frank focused federal bank regulators on incentive-based compensation at the largest banks, bank examiners "are using safety and soundness criticism and the threat of formal action to micromanage not only the incentive plans, but also the base salaries of bank executives and directors." And they're targeting banks of all sizes, not merely the biggest.

"We are seeing increasing scrutiny by the regulators on senior management compensation," says Thomas Bieging, a partner with Bieging, Shapiro & Barber, LLP, Denver, Colo. "The issue is not just incentive compensation, which has been addressed in Dodd-Frank, but rather base or salary levels.  The attitude seems to be that if the bank declined under the existing senior management’s watch, then their core compensation should be adjusted downward or increases severely limited."

"Examiners will continue to pressure bank boards to take action – to reduce or limit core compensation – even when presented with a compensation study from a third party showing compensation levels to be within the median range for the bank’s peer group," he adds.

Your managers may have held the bank together during tough economic times. Your board may want to recognize that effort and managerial skill. It doesn’t seem to matter, Bieging says, since examiners "attribute little or no value to the fact that senior management kept the bank afloat during turbulent times."

[Full Disclosure Alert: Tom Bieging is a partner in the law firm with which I have an "Of Counsel" relationship.]

According to Bieging, boards who appear to be ignoring the examiners on this issue are being threatened with being cited for engaging in an "unsafe and unsound banking practice."

Former FDIC lawyer Jeff Gerrish states that he's seeing even small banks being pummeled over base compensation.

"We have one client at a bank around $300 million who is making around $600,000. The regulators decided that this was excessive."

It’s not an easy case to justify salaries like this to examiners who, as a practical matter, make a lot less than that, Gerrish adds.

"If a bank officer makes $300,000-to-$500,000 and the bank examiner makes $80,000 per year, that’s a problem right there."

[Must restrain fist of snark! Must restrain fist of snark!}

Man, that was painful.

Let's just say that comparing the CEO of a bank to a bank examiner for salary purposes is--to steal a phrase from Irina Dunn--comparing a fish to a bicycle.

In this area, it appears that national banks may be in a comp/clamp-free zone.

OCC examiners have shown little interest in second-guessing board decisions about salary, says Peter Weinstock, a partner with Hunton & Williams LLP, Dallas, Texas. That has not been the case with their colleagues in the FDIC and Federal Reserve, he adds.

"For over twenty years, the OCC has been principles-based [in regards to salary]," he says. "If the board is doing what they’re supposed to do, and they’re free of self interest, the OCC will tend to defer to the board. They’re least interested in micromanaging salary. The Federal Reserve and the FDIC are much more interested in evaluating performance and comparing performance against what the compensation is relative to the rest of the industry."

The problem is that if the bank's ratings fall, scrutiny on all areas of the bank increases, and executive compensation is apparently one of the hot buttons. Micro-managing percentage increases in base compensation and appropriate percentages of incentive compensation seems to be part of pain that a bank should expect to experience. However, even for "good banks," Bieging sees a need for more "backup."

"We’re seeing banks that aren’t in this situation setting up compensation committees and looking for more data to support their conclusions at the board level," Bieging says. "They’re looking at various surveys out there to see where they stand, on a regional and national basis. It’s an appropriate thing to be doing and it’s becoming a more common practice."

As in so many areas of the banking business these days, killing scores of trees so you can leave a paper trail is not an option but a necessity. 

In This Foreclosure Fracas, There Are No Winners

In 2009, the state of Nevada passed a law that requires lenders to go through mediation with delinquent borrowers before they can foreclose. As often occurs with such well-intentioned but half-baked pieces of sausage, the law left a number of questions unanswered. It's taken two Nevada Supreme Court decisions to put some meat on the legislative bones. In the most recent decision, the Supreme Court found that HSBC Bank had not negotiated in good faith with the borrower to modify his loan.

The spin put on the results of that decision by the Las Vegas Review-Journal labels the appellate court's ruling "hollow" because when the case was sent back to the trial court, the judge only sanctioned HSBC $2500 plus the costs of the mediation proceeding. The borrower's attorney thinks that's highly unusual, that the penalty should have been much higher, and that -- most important to a lawyer -- the court should have forced HSBC to pay the borrower's attorneys fees. According to the story, the borrower, who lost his job a few years ago and now works as a part-time pastor, still owes his lawyer half of the $6,000 in legal fees incurred through the appeal.

[As a side note, $6,000 in legal fees for that kind of representation is a bargain, in my humble opinion. You couldn't get a major law firm to do more than look at the complaint and yawn for that fee.]

There are a few more additional twists and turns in this story. First, the lender told the borrower that in order to qualify for the loan modification program, he needed to be delinquent, and that is why the borrower claims he stopped making his loan payments. While that sounds dysfunctional, that's because that's how these programs have been set up. No one gets a break unless they're a dead beat. Moreover, as a result of the litigation, the borrower and his family have lived rent free for the last three years. A sweet deal, until you consider that he's wrecked his credit for awhile, he's out $6 grand in legal fees, and, worse, he still owes the lender the loan, which, with late fees and penalties, has ballooned from $340,000 to over $450,000.

While partisans on both sides (and the comments to the artcile are hardly borrower-centric) can blame borrower or lender in the usual manner, the starting point for this little slice of Americana was the loss of a job because of an economic collapse. Cutting to the quick, and echoing the 1992 Clinton campaign, "It's the economy, stupid."