Bank Lawyer's Blog

Luetkemeyer Launches Attacks On Choke Point

Although Missouri Congressman Blaine Luetkemeyer made some publicity hay out of the bill he introduced last week (the End Operation Choke Point Act of 2014), it really hasn't got a prayer of proceeding, much less passing. It would prevent federal bank and credit union regulators from prohibiting, restricting, or discouraging a bank or credit union from providing a product or service to any entity that meets one of three safe harbors: (1) is licensed and authorized to offer the product or service; (2) is a registered money services business; or (3) provides a "reasoned legal opinion that demonstrates the legality of the entity's business under applicable law." It's not merely that the definition of "reasoned legal opinion" raises enough questions to fuel a plethora of potential interpretative shenanigans by regulators who want to quash the business, it's the fact that legislative attempts to limit regulatory enforcement discretion always bring out the Chicken Littles among the regulatory bodies, who will warn that this is a giant leap off a cliff that leads straight into the abyss. They'll spin it as legislation in support of "bad guys," and they're often in effective in taking that approach. No pol wants to be on record as supporting businesses that later turn out to include a few crooks.

Nice try, though, Rep. Luetkemeyer. Banks appreciate the effort.

I did, however, appreciate the attempt to forbid the regulators from adopting "guidance" regarding the safe harbor. Instead, regulators would have to adopt regulations in accordance with the APA, and afford the opportunity for public comment. Slamming the door on subterranean regulations adopted as "guidance" is something that many banks would love to see extended beyond Operation Choke Point.

Another nice touch is the provision that attempts to restrict the ability of the federal government to use FIRREA's subpoena power to go on fishing expeditions. That one ought to be resurrected in other legislation if this bill (as I expect) goes nowhere.

Finally, the introduction of the legislation gave opponents of Operation Choke Point (whose motto is: "businesses with nothing to hide can always prove that they aren't engaged in criminal activity") another chance to fire a shot across the bow of the Department of Justice.

“In an effort to drive legally-operating, licensed and regulated companies out of business, federal banking regulators in cahoots with the Department of Justice (DOJ) are placing so much regulatory pressure on financial institutions that certain businesses not viewed favorably by the Attorney General and the Administration are eventually choked-off from the financial services they need to survive. That notion goes against the very nature of our free market system,” Luetkemeyer said. “It is time to stop these backdoor attempts by government bureaucrats to blackmail and threaten businesses simply because they morally object to entire sectors of our economy.”

Of more interest is Luetkemeyer's maneuver in late May to insert an amendment into the appropriations bill (see Section 554) that chokes off funds for Choke Point. It passed on a voice vote. While the Senate is controlled by Democrats, and it may not survive in the Senate, the prospect for another budget gridlock battle may, in fact, make that a more potentially lethal weapon for attacking Choke Point. It may boil down to a matter of what and who gets thrown under a bus in last-minute trade-offs to move the DOJ's appropriations legislation through both houses. It's not anything to count on, but in horse-trading, Choke Point may be regarded as a nag to sent to the glue factory so that someone's thoroughbred can survive. Sausage making is a messy business, so you just never know what might be ground up.

Due Process: Delayed And Denied?

In November of 2012, an administrative law judge recommended that all charges brought by the Comptroller of the Currency against Patrick Adams, the former CEO of Dallas-based T-Bank, be dismissed. As we noted at that time, the road to vindication for Mr. Adams was long, hard, and expensive. What's shocking to us is that the long road is still not finished for Mr. Adams, notwithstanding the fact that ALJ found against the OCC on every one of its allegations, and, more critically, that although 12 CFR 109.40 provides that the Comptroller "shall render a final decision within 90 days after notification of the parties that the case has been submitted for final decision" (final submission was in early April 2013), the Comptroller has failed to render such a decision. Instead, the Comptroller has extended the 90-day period four times, most recently in May of this year, despite, according to a former OCC Deputy General Counsel who helped draft the OCC's enforcement procedures, no apparent authority to do so.

The troublesome nature of this process was recently discussed by attorneys Jerry Buckley, Robert Serino and Ann Wiles in an article for Consumer Financial Services Law Report. As noted in the opening paragraph, "Mr. Serino was formerly deputy chief counsel of the Office of the Comptroller of the Currency and established that agency’s enforcement program." Thus, their comments are not merely the rantings of a man once described by a reporter for a trade press rag as "a Texas curmudgeon." They are expressions of concern by people with knowledge of the process, one of whom had a hand in crafting the process that's being abused.

While focusing on general concerns in addition to Mr. Adams' specific case, the authors spend time discussing Adams' situation because, as they put it, it highlights the need for "additional procedural protections" to protect an individual facing enforcement action by a federal banking agency. They do a good job of running through the sequence of events, and the various facts that concerned the ALJ prior to making his decision, so I won't reiterate all of them. You can (and I encourage you to) read them in the linked article. At this point, the most disconcerting injustice to me is the failure of the Comptroller to issue a final decision "despite a statutory requirement to do so within 90 days."

But others would argue that the case against Mr. Adams highlights a lack of procedural protections for individuals who may suffer significant reputational harm, damage to their careers, and significant expense in defending themselves, only for it to be ultimately found that an enforcement action was not warranted.

By "others," the authors can include me and other bank regulatory attorneys I've heard from on this matter, including other former federal bank regulatory agency attorneys who are now in private practice. They can also include Texas Representative Pete Sessions, Chairman of the US House of Representatives Rules Committee, who, on June 20, 2014, sent the Inspector General of the Treasury Department a letter that requests an investigation by the IG into the handling of Mr. Adams' case.

It's irrelevant what OCC supervisory and enforcement personnel think of Mr. Adams. What's critical to the functioning of a process that claims to be "due" and "fair" is that the rules be followed by the government. A regulatory body that seeks to enforce the law but fails to follow it lacks credibility. The members of that agency who fail to follow the law deserve an Inspector General's investigation and any consequences to them that result. If that view engenders more anonymous troll-like hate mail that threatens me with regulatory retaliation and violates federal law, as was the case the last time I criticized the OCC, then I'll risk it.

The ALJ determined that the charges should not have been brought. We all realize that the OCC likely doesn't agree with that determination, but the Comptroller could have issued a decision within 90 days that decided not to follow that ruling. Then, Mr. Adams could have appealed that decision and had a resolution. Instead, by failing to follow its own rules, the OCC keeps the man in limbo indefinitely. Under whose sense of fundamental fairness is this appropriate? Vladamir Putin's?

I'll close with the same paragraph I used in my November 2012 post on this subject, because I still wonder where the government's lawyers who are involved in this matter stand. Do they really think that this is the way to handle this? Do they really think that this is fair and reasonable?

As I've contended previously, with great power comes great responsibility. When you have the power to ruin an individual's life, you need to make damn sure that you're doing "the right thing" before you start down that road. I don't see any concern with that "aspirational goal" in this case.

On the other hand, I think it's always useful for both government attorneys and those who oppose them to keep in mind the following ethical consideration, which, though "aspirational" in nature and part of the since-replaced Model Code of Professional Responsibility, embodies what the legal profession has long held to be proper conduct by those lawyers who wield the power to wreak havoc on the lives of the regulated:

EC 7-14 A government lawyer who has discretionary power relative to litigation should refrain from instituting or continuing litigation that is obviously unfair. A government lawyer not having such discretionary power who believes there is lack of merit in a controversy submitted to him should so advise his superiors and recommend the avoidance of unfair litigation. A government lawyer in a civil action or administrative proceeding has the responsibility to seek justice and to develop a full and fair record, and he should not use his position or the economic power of the government to harass parties or to bring about unjust settlements or results.

Porn Stars Held To Be "Un-accountable"

Operation Choke Point, and the general attitude of the federal banking regulators toward businesses that they've picked (for reasons best known to themselves) as worthy of being branded with a Scarlet Letter, are causing cautious banks to drop customers who might be engaged in perfectly legal activities. Apparently, the latest victims are porn stars (paid subscription required).

A new war is brewing between banks and their customers, and the fight is going public.

PR black eyes of the past would have come from ATM surcharges or foreclosure injustices. Now, news reports are stacking up about angry customers — payday lenders, check cashers, telemarketers, gun dealers and even adult entertainers — who are complaining that their accounts have been, or could be, unfairly terminated.

[...]

The pornography sweep in particular only strengthens bankers' suspicions that regulators are forcing them to play the role of morality police. And it raises more practical questions for bankers: How do they balance public perception and compliance? What industry will they feel compelled to shut out next?

Look, porn stars ought to be banned from access to money due primarily to their utter lack of acting chops.

"Hi, I'm Eva. I'm from the maid service. I'm here to clean your house."

"Hey, Eva, would you start with cleaning...THIS?!?"

"Oh, baby! Yeah...yeah...oh...oh..uhh..uhhhh...OHHHHHHHHHHH!!!"

Yet, in this great country we call "The Land of the Free and the Home of the Horny," the "adult entertainment business" is legal. As is payday lending (in many states), check cashing, renting-to-own, deposit advances, tax anticipation refund lending, and being a "Pawn Star." However, all of those businesses have a "common taint": the DOJ and federal bank regulators don't like them. While the ostensible rationale for that dislike may be that they pose higher risks of money laundering or other illegal activities by some of their members than do other business (like insidre trading investment advisers to members of Congress), I've not seen the evidence that Teagen Presley is a crook, albeit you might argue, with some support, that she's a "bad actor."

Reporter Andy Peters points to a problematic FDIC report from 2011 that listed the current crop of the disfavored, and that may be a guide to "who's next."

Pornography is one of several potentially problematic industries listed in an FDIC report in June 2011 that warns banks about managing third-party payment processor relationships. Ties between banks and processors that handle transactions for the problematic industry sectors can expose banks to "greater strategic, credit, compliance, transaction, legal and reputation risk," the FDIC said.

[...]

In addition to pornography, the other high-risk industries the FDIC identified included ammunition and firearms sales, credit-repair services, drug paraphernalia, fireworks sales, dating services, racist materials and tobacco sales.

Dating services?

Peters quotes Bill Isaacs, the former FDIC Chairman who's been a fierce critic of Operation Choke Point: "Banks are left to guess who deserves access to the banking system and who doesn’t."

I'd say "deserve" has nothing to do with it. "Whim" appears to be the criteria being applied.

Shaming The Shameless

Venable LLP's Randy Shaheen and Amy Mudge might just be prime candidates for guest posts on Bank Lawyer's Blog. A recent "All About Advertising Law" post launched a snark attack that made this blogger proud. The victim was every banker's bête noire, the CFPB, and the cause for the caustic comments was the CFPB's apparent hypocrisy.

According to the American Banker, an outspoken critic of indirect auto lenders, Harry Douglas Lane, was in the audience at a recent CFPB forum and was called upon to speak as an audience participant. However, no one in attendance or the press covering the event was informed that the CFPB had paid for Lane’s flight to the forum as well as his hotel.

The lawyers point out that if a private advertiser had engaged in this sort of egregious omission, the FTC would likely have found that it acted inappropriately.

A company holds a press event to tout the success of its newly introduced product. Someone in the audience asks a question, which the Company subsequently uses in its advertising for the product. However, the Company fails to disclose that it actually paid for the audience member to fly into the press event. Is this a problem under the FTC’s Endorsement Guides? Most likely yes, since the payment of travel expenses would probably be a material connection between the consumer and the company.

[...]

As noted above, if advertisers had engaged in this sort of behavior, they almost certainly would have violated the Endorsement Guides, and the CFPB’s purported justification for its failure to disclose, that the critic had only a “limited” role in the Forum, would likely be met with deafening silence by the FTC staff and Bureau Director. Even if the CFPB and other government agencies aren’t literally covered by Section 5, isn’t the practice of disclosing material connections still common sense? After all, government agencies, like advertisers, are often pitching a product or ideas to consumers. Doesn’t the public (and the press) have the right to know that people who speak out in support of these ideas have a “material connection” to the agency advocating the policy?

The answer is "Yes." But, don't hold your breath. It took a "60 Minutes" expose to uncover the practice of Senators and Congress persons benefiting from insider trading, and get them to ban the practice. Even then, Congress, in the dead of night, rolled back part of that ban. Bloggers don't carry the same heft as CBS News and neither does the banking trade press. In addition, while the average voter is already chapped on general principles about the fact that members of Congress have access to oxygen, and, as a result, he or she will sit up and take notice at scandalous behavior by those clowns, he or she doesn't give a flying fig in a rolling donut that the CFPB might be paying witnesses without disclosing it in order to set up auto lenders for a fall. They're just banks, aren't they? Aren't they all a bunch of fat cats who are responsible for the economy collapsing, global warming, baldness, and Miley Cyrus? Set 'em up and take 'em down by whatever means necessary!

Still, the few of us who will follow this latest instance of rolling over a log to view the maggots crawling out appreciate the authors' closing observations.

Perhaps it’s time that what’s good for the goose is good for the gander.

Perhaps it is. Nevertheless, when the gander's the one cooking the goose, expect that the goose to be the only one who's roasted.

A Kerfuffle Fades To Black

The forced placed insurance kerfuffle we last discussed three years ago appears to be winding its way to an unhappy ending for loan servicers in the way many claims against loan servicers, lenders, and big businesses of all kinds end in our over-lawyered land: paying huge sums to class action palintiffs' lawyers to make them go away.

To refresh our collective memories, forced placed insurance is property insurance that loan servicers buy when the borrower fails to keep the property insured. As we discussed previously, the practice has been around for decades, and makes sense in terms of protecting the collateral for home loans when the borrower fails to do so. However, as we said in our last post, government officials and the trial lawyers who follow them like orcas in a tuna boat's wake have been worked up over certain close relationships between force placed insurance companies and loan servicers. Commission splits, referral fees, and other alleged "kickbacks" have raised the ire of the righteous, who claim that the entire arrangement is a rip off of the borrower, who ends up having a very high premium added to the unpaid balance of his debt, a premium that would not be so high if servicers weren't profiting from the misery of the deadbeats downtrodden who don't pay their insurance premiums or, in many cases, their loans.

At any rate, after wading through the sludge of civil litigation for a while, servicers are starting to settle. Wells Fargo is the latest. Not that they think that they did anything they should have been sued for, mind you.

"While we believe the lender-placed insurance purchased on behalf of these borrowers was issued in accordance with the terms of the mortgages and applicable laws, we have decided to settle these cases to avoid protracted litigation,” Tom Goyda, a spokesman for Wells Fargo, told HousingWire. “We continue to support our lender-placed insurance services, which provide continuous insurance protection for real property customers when their voluntary insurance lapses.”

They continue to believe in it, but according to Housing Wire, they and the insurance companies are paying homeowners back about 11% of the amount of premiums. That is not chicken feed. Well, for the late John Candy's chicken, it might have been, but for a normal-sized chicken it's a big bag of cornmeal. The linked article also mentions that Chase paid $300 million in a settlement, and Citigroup another $110 million. How much of that actually made it into the pockets of affected homeowners is not related. You can bet your bottom dollar that the plaintiffs' lawyers made out like bandits very well.

My sentiments on this issue haven't changed much in the past three years. As I said in my previous post:

As I've indicated in other posts, I'm no fan of many of the practices of the loan servicers. However, as is the case with loan modifications, the root cause of this particular problem becoming a problem in the first place is the fact that borrowers don't comply with the loan terms they've negotiated. They are in default of the covenant in their mortgages to keep in place homeowners insurance that protects not only themselves, but the lender. The failure to keep such insurance in place gives the lender the contractual right to obtain the force-placed insurance or, for that matter, to declare the loan in default and foreclose. You don't want the servicer ordering expensive force-placed insurance? Pay your insurance premiums.

As I also said at the time, I am more sympathetic to loan investors, since the higher costs for insurance are ultimately borne by them, especially with respect to loans that borrowers don't repay. I thought that aspect of the problem could be better handled by changes to the servicing agreements.

I realize that my sentiments appears to be that of a small minority. The majority sentiment in this country appears to be that loan servicers are all public utilities that exist not to provide a valuable service to loan owners, but to provide low-cost public services to home owners. Any attempt to make money from the process is inherently suspicious and indicates an unreformed reactionary attitude out of line with the the concepts of liberty, equality, and fraternity that ought to motivate all of the citizens of the republic as they work together for "the common good," as determined by Elizabeth Warren and her running buddies.

Under the prevailing view, these servicers are getting just what they deserve. As are the class action lawyers who sue them.

FinCEN Consults The Dude For Guidance On Banking Marijuana Businesses

I love some of the headlines I read last Friday and over the weekend on the preposterous "guidance" issued by FinCEN last Friday on the process financial institutions should follow in providing financial services to marijuana-related businesses. The most common (incorrectly used) metaphor was that the guidance "opened the door" for banks to inhale deeply the second-hand smoke of reefer madness. That's either a mighty tiny door or an infinitesimally small opening. As one of the first comments I received (from a skilled financial institutions compliance attorney) put it so well:

This is the biggest joke.  Basically, it tells FI’s that you are finally given the green light to conduct transaction activity for Marijuana Businesses but every time you do, you have to file some form of SAR that might potentially include information from a DOJ memo that you have never read and probably never heard of, all so that you can go out and do the leg work for our investigations.  They should just let FI’s do business with folks on the OFAC list and just make them file lengthy and detailed SARs on those people every single time the conduct any transaction.

Other comments received from financial institution attorneys, especially those who represent either banks or marijuana businesses that want to get together, were equal parts F-bombs and derisive laughter.

Reactions from banks and trade group representatives in Colorado, the state with the most immediate need for action at the federal level, were uniformly negative.

"We're still not going to bank them," said Jim Reuter, executive vice-president of FirstBank, the state's second-largest bank in terms of market share."We are not comfortable taking this guidance alone and on its face," Reuter said. "There's simply too much at stake."

[...]

"They should proceed with maximum caution," CBA president Don Childears said he'll advise its members. "But, honestly, we'll be telling them to not proceed at all."

A FinCEN spokesman tried to put a positive spin on the non-starter.

"This reduces the burden on banks," FinCEN's Shasky Calvery insisted in an interview. "Marijuana under federal law requires a SAR. Now, the necessity is limited, reducing the banks' burden a bit and more importantly clarifies where law enforcement focuses its attention."

"reduces the burden"? Really? It still requires a SAR! In every instance the bank "banks" a marijuana business! The type of SAR may vary, but determining which type of SAR is now required adds to the burden, it doesn't lessen it. As my correspondent above noted, the guidance adds to the already-staggering burden that federal regulators place on financial institutions to do law enforcements "leg work."

CBA's Childears agrees that the burden is not lessened, it's increased.

"It's just bizarre. The threatening language about the liability for prosecution," he said. "Now, not only must we know our customers' business, but our customers' customers' business."

Moreover, under the guidance, the bank is required to refer to "The Cole Memo," a memo that is internal to the US Justice Department and that was not attached to the guidance. The bank has to worry about Mr. Cole's "priorities" of bad-guy behavior and the evil consequences of consorting with Mary Jane in various degrees of seriousness (including harvesting foremen who rely too much on the catch-phrase "Say hello to my little friend"), and also to do all kinds of detailed due diligence, including watching out for a boatload of "red flags," including these two gems:

• The business receives substantially more revenue than may reasonably be expected given the relevant limitations imposed by the state in which it operates.
• The business receives substantially more revenue than its local competitors or than might be expected given the population demographics. It also is still illegal under federal law to service a recreational marijuana business.

That is merely a tiny taste of the problematic nature of the burden imposed by the guidance. We could go on and on, but why bother? The IBC's Barbara Walker said what many of us feel: "Better luck next time."

"The bottom line would continue to be the need for the (banking regulators) to address in writing all of the many issues of concern to the financial services industry," said Barbara Walker, executive director of Independent Bankers of Colorado. "The (Federal Deposit Insurance Corporation, Federal Reserve and Office of the Comptroller of the Currency) are simply asleep at the wheel on the many serious issues posed by Colorado's laws. It's shameful."

"Asleep at the wheel." That sometimes happens when you get to toking when you should not be smoking.

Is There Something Wrong With Aunt Fannie?

While the US Department of Justice is busy trying to squeeze perfectly legitimate businesses out of business, and working feverishly to avoid enforcing federal drug laws in order to accommodate the voters of a swing state, it appears to be mysteriously absent from recent allegations that Fannie Mae may have more than one rotten apple in its bottomless barrel.

A metro Denver real estate broker has sued the Federal National Mortgage Association (Fannie Mae), claiming that her contract work with the federally-sponsored company dried up after she tried to report fraud.

In her federal complaint, Karen Frisone alleges that the fraud involved kickbacks, attempted bribes and a fake office scheme by other Denver brokers.

Frisone, at one time a top broker of FNMA REO properties in Denver, claims that a Fannie Mae official tried to solicit a bribe from her and when she not only didn't play ball, but reported that another brokerage was getting more than its fair share of listings due, she alleged, to fraud, Fannie Mae terminated her contract. Litigation has ensued, and Aunt Fannie has issued the typical response: Frisone's claims are "without merit."

I suppose that response might have more of an impact if it weren't for the fact that Frisone is not the only one singing the same sad song about how they've got The Fannie Mae Fraudster Blues.

The case mirrors a case in Irvine, Calif., where a former employee of Fannie Mae was indicted in 2013 on charges that he solicited illegal payments from a broker, as reported by the Los Angeles Times. That office’s supervisor was fired in June.

The nefarious doings in Tinsel Town may be an isolated case. Frisone's allegations may be unsupported. Fannie Mae may be as pure as the driven snow.

Pigs may fly.

Whether or not the allegations ultimately turn out to have a basis, you would hope that the DOJ would be in the thick of an investigation as to whether or not Frisone's allegations are true. After all, Fannie Mae, and its red-haired step-cousin twice removed, Freddie Mac, are wards of the state, having been in conservatorship since before The One became The One. If there are kickbacks and bribes being paid, that would speak ill of the ability of the Feds to manage their affairs. I know, that's a harsh allegation, but there you have it.

Let's hope AG Holder can resist his illicit love for disparate impact and his gut-wrenching aversion to payday lending long enough to cast a piercing glance at Fannie Mae's minions in the Mile High City before they're covered in a thick haze of (perfectly legal) cannabis smoke. If there's something wicked there, it might be nice to actually stop it before it spreads to a Red State, where sober people might be harmed.

How To Choke Payday Lenders

The war by the Obama administration on payday lenders, Native American online lenders, and other forms of politically incorrect businesses which provide financial services to the fog-brained amongst us, has a code name: "Operation Choke Point." Inasmuch as the targeted businesses are not actually illegal, the federal government can't force them to stop serving their customers. Instead, the federal government, including the all-too-willing federal banking regulatory agencies, are forcing banks to stop providing such businesses with access to the nation's financial system. According to Michael Patrick Leahy at Breitbart News, the operation is "secret." Well, apparently, it's not-so-secret any longer.

The operation is headed by political operatives and career bureaucrats at the Department of Justice, the FDIC, and the new Consumer Financial Protection Bureau ("CFPB"). It appears to be the latest example of the Obama administration's successful efforts to weaponize the apparatus of the federal government against people and industries it opposes ideologically.

[...]

It also appears to have been kicked off in secret by the Department of Justice, FDIC, and the CFPB in early 2013 without the requisite statutory authority. Officials at the Department of Justice have withheld information about the program from Congress, though they have eagerly shared details with federal financial institution examiners authorized to supervise and discipline the nation's banks and related financial institutions.

On August 22, thirty-one members of Congress sent a letter to Attorney General Eric Holder and FDIC Chairman Martin Gruenberg , requesting a briefing of Congressional staff members on the project, the details of which were so obscure they did not yet know it had obtained the status of a federal initiative and was called 'Operation Choke Point.'

In the letter, which was organized by Congressman Kevin Yoder (R-KS) and Congressman Blaine Luetkemeyer (R-MO), the members of Congress stated "[i]t has come to our attention that the DOJ and the FDIC are leading a joint effort that according to a DOJ official is intended to 'change the structures within the financial system...choking [online short term lenders] off from the very air they need to survive.' "

"We are especially troubled by reports that the DOJ and FDIC are intimidating some community banks and third party payment processors with threats of heightened regulatory scrutiny unless they cease doing business with online lenders," the letter read. "As a result, many bank and payment processors are terminating relationships with many of their long-term customers who provide underserved consumers with short-term credit options," it continued.

The members of Congress warned Holder and Gruenberg that these actions were undertaken by their respective agencies without statutory authority. "Your actions to 'choke off' short-term lenders by changing the structure of the financial system are outside your congressional mandate," they wrote. "With the enactment of the Dodd-Frank Act, Congress acknowledged the need for short-term credit products and did not try to limit online lender's or storefront operators' ability to offer such products."

Congress, they wrote, actually wanted to limit these type of actions."Dodd-Frank also included a specific provision designed to prohibit the Consumer Financial Protection Bureau from imposing rate limitations on short-term loans. Neither Dodd-Frank, nor any other legislation passed by Congress, has given the DOJ/FDIC or any other federal agency the authority to 'take away the very air' that online lenders 'need to survive.'

In response, a DOJ representative met with Congressional staff but refused to give them any information about the operation, telling them that it was none of their business. In fact, that representative also refused to give the staffers her name, although Leahy claims she's been outed. Another DOJ representative reportedly met with bank examiners to brief them on how to put a choke hold on third party payment processors and other "bad actors" that have been targeted.

Representatives of the targeted businesses are not amused.

Peter Barden of the Online Lenders Association agrees that the Obama administration's influence on bank regulators has overstepped its legal authority. "It should also send a troubling message to banks that at any point regulators can force them to stop processing legal transactions simply because they don't like a particular merchant or industry," he said.

There's a lot more in the linked article, and while Breitbart News is well-known to be a partisan right-wing publication, the facts should be disconcerting to anyone concerned about abuses of executive power, especially at the federal level. As a Washington Times editorial cited by Leahy observes, trying to destroy legal businesses in this fashion, as opposed to pushing a legislative solution or at least engaging in open, transparent rule-making, is bad precedent.

"[Our] system of checks and balances was put in place to prevent such abuses. Mr. Obama is determined to lend himself as much power as he can. If Congress won’t assert its constitutional authority by blocking such behavior, it will never retrieve the power and authority the Constitution gave it."

We'll see. In an election year, I don't see Congress, with a Senate controlled by the Democrats, doing much of anything. Republicans might make some noise, but that will have little impact in the partisan atmosphere that exists in that branch of government. On the other hand, it does give opponents of secret government programs to strangle legally operating businesses on ideological grounds extra incentives to seek a change in the composition of Congreess in 2014 and of the White House in 2016.

SIGTARP's The Real "New Sheriff In Town"

A reader sent me a link to a Washington Post article about a  federal agency that, when it comes to bankers, knows evildoers when it sees them, and when it sees them, does everything it can to make sure they serve time.

At a time when the government is being criticized for not holding senior bank executives liable for crisis-era crimes, a little-known federal agency is compiling a growing list of criminal convictions.

Since 2008, the Office of the Special Inspector General for the Troubled Asset Relief Program has pursued criminal charges against 107 senior bank officers, most of whom have been sentenced to prison. Created to supervise the government bailout of the auto and financial industries, the agency has found dozens of cases of bank executives who misused bailout funds.

SIGTARP has a staff of 170, a budget of $41 million and an enforcement track record that rivals agencies twice its size. The agency’s work has resulted in $4.7 billion in restitution paid to the government and victims. Lawmakers are holding SIGTARP up as a model and questioning why other agencies are not producing similar results.

Of course, few, if any, of those broke-back bankers tread on the sidewalks of Wall Street when their heinous crimes were committed, but what the heck: the little fish are always easier to net.

SIGTARP has a strong record, but the office has mainly taken down community bankers, not Wall Street titans, for brazen acts of fraud, some observers say. “The amount of direct evidence of banker wrongdoing in these smaller bank cases is easier to show,” said Mark Williams, a former bank examiner who teaches finance at Boston University.

Still, he said, “these SIGTARP cases set an important precedence that bad banker behavior will not be tolerated and [will be ] aggressively prosecuted.”

That's what these cases show? I beg to differ. I think they show that the bigger you are, the firmer you stand. If you've got the money and the heft, you appear to be bullet proof. For the rest of the banking industry, the lesson is that if you're going to commit a crime, then, for heaven's sake, don't do it on a too-small-to-save financial institution. Dream big!

As definitive proof that SIGTARP's zealousness may be directed against the least troublesome class of crooks, Liz Warren has singled out the agency for special praise.

In October, Sen. Elizabeth Warren (D-Mass.) lauded the work of the inspector general in a letter asking financial regulators to disclose the extent of their efforts to pursue cases against individuals.

Although Warren credited the Office of the Comptroller of the Currency, the Federal Reserve and the Securities and Exchange Commission for achieving “landmark settlements” with banks for crisis-era misdeeds, she said that “a great deal of work remains to be done” at the agencies.

Hit with Liz Warren's praise: that has GOT to hurt.

My point isn't that SIGTARP isn't putting away bankers (or those close to them) who have committed crimes. My point is that the bankers they're putting away are low-hanging fruit. We saw droves of them jailed (some, more than once) in the aftermath of the savings and loan crisis of the late 1980s.Texas, for example, was at that time chock-full of venal, crass, and not-as-bright-as-they-needed-to-be-to-get-away-with-it banking bad actors. A prosecutor could stretch his arms yawning and knock a couple to the ground. Heck, a prosecutor could go "crook hunting" with Dick Cheney in those days and even Cheney could bag a few (albeit after peppering the prosecutor's mug with buckshot).

What would be world-class impressive would be to start slugging it out with some big bank masters of the universe who are bright, clever, rich, well-connected, and just as criminal, slap some cuffs on them, and put them through a public shaming. Then you'd have something to really crow about. Until then, bask in the glory of Wapo puff pieces inside The Beltway. Outside, the rest of the world is less than impressed.

Eminent Domain Has A Fan In The Garden State

Several readers sent me links to various articles like this one, which discuss yet another busted municipality's plans to get rich quick via the use of the power of eminent domain to seize underwater mortgages and write down the principal balances so that a select group of homeowners can reap the benefits of the municipality's police powers at the expense of mortgage loan investors. This time, the police state charge is being led by a burg on the right coast rather than the left, Irvington, New Jersey.

The city's mayor proclaimed that this plan is better than others because the city plans to only hose private label security owners rather than holders of Fannie Mae, Freddie Mac or Ginnie Mae mortgage-backed securities. That obviously appeals to folks who believe that private business has no place in the residential mortgage markets in the first place, mortgage lending being a function akin to a public utility, where loans ought to be rationed out via a command and control system micromanaged by government bureaucrats.

Smith said the city will try to avoid being sued through "friendly condemnation," which offers incentives to the mortgage owners if they agree to avoid litigation.

"Incentives"? In New Jersey, that means you won't end up as part of a concrete foundation pier of a warehouse. How about the "incentive" of never having to lend again in Irvington, N.J.? If the city proceeds with this asset grab, that ought to be an easy incentive to realize.

One of the creators of this scheme, a college professor (tell me you're not surprised), inadvertently damned the entire scheme with this bit of truth-telling.

According to Cornell University law professor Robert C. Hockett, eminent domain is one of the few tools available to take over and write down an underwater mortgage because it gives municipalities the power to circumvent mortgage contracts, acquire loans from bondholders, write them down and give them back to the bondholders.

"Some government instrumentality is going to have to do this," said Hockett, who helped create the approach. "No private actor can get around the contracts, but a public actor can."

That's right: the scheme uses government power to "get around" contract rights. The 5th and 14th Amendments to the US Constitution be damned. The power of eminent domain ought to be used sparingly and only when there is a pressing need for the government taking private property for public purposes, not to benefit a few. The outrage on the left over the Kelo v. City of New London decision in 2005 has turned full circle. It's not right to seize private property of homeowners to benefit a private commercial development but it's just fine to seize private property of mortgage investors to benefit a small group of homeowners.

That's why the ACLU, which, as another article on the proposal notes, "has frequently found itself opposing eminent domain proposals," is supporting the taking Irvington.

The difference in Irvington, [ACLU-NJ Executive Director Udi] Ofer said, is “racial justice,” creating a real-estate free market by making loans available to local residents at rates that are normal elsewhere..

In other words, the ends justifies the means.

Hypocrisy: "The practice of professing beliefs, feelings, or virtues that one does not hold or possess; falseness."