Bank Lawyer's Blog

Go Together Like A Fish And A Bicycle

I have received unconfirmed reports this weekend that HUD has requested certain large mortgage loan servicers to send marketing materials to HUD borrowers reminding them to sign up for health insurance under the Affordable Care Act, aka "ObamaCare." As one unidentified commenter put it, considering the Claymation Death Match struggles between those large servicers and the federal government on a number of fronts, asking them to carry the Feds water on such a cluster-FUBAR is either a "ballsy move" or a demonstration of fatal hubris. I vote for the latter.

If this report is correct, it's the kind of strong-arm tactic typical of a crowd suckled on the mother's milk of South Side Chicago bare-knuckled local politics. After all, the large servicers have what the federal government can only dream about: an efficient information distribution system.They're also susceptible to arm-twisting, as evidenced by the billions recently coughed up for robo-signing, enforcing their investors' legal rights under loan documents by foreclosing when borrowers failed to make payments, and otherwise performing the job they are contractually obligated to do. You can understand why the ACA Gang That Couldn't Shoot Straight, led by Queen Kathleen and the Web Masters of Oz, would want to enlist the services of for-profit entities who, when their customers visit their web sites, are presented with a message other than The Blue Screen of Death.

The fact that mortgage loan servicers soliciting their borrowers to sign up for health insurance in order to save the ACA's (and the Democrats') bacon inspires "WTF!!??" reactions on so many levels should not impede the continued pursuit of this scheme, if it in fact exists. After all, the "Perpetual Speechifier" is a lame duck, so his attitude, and those of the minions at his beck and call, has to be "What are you gonna do about it, huh? Not vote for me the next time I don't run?"

I wonder if and when the main stream media will pick up on this thread to see if there is any meat on the bones?

 

Bank of America Does It Right

Having blistered America's Bank for a social media faux pas, it's fair to give it a hat tip when it uses social media well. What the bank has done well is a video that it produced with Kahn Academy. For those not familiar with Kahn Academy, here's some background from 60 Minutes. Personally, I'm a fan of what Kahn and his cohorts have been doing to teach young people (and adults, for that matter) what many take to be tough subjects, like "Math" (gag, choke).

The latest effort with B of A is a video to teach consumers the difference between a debit card and a credit card, and the advantages and downside of each. While professionals in the banking industry might think it's simplisitic, I think it's effective in teaching the basics. It's not necessary that the average consumer be a banking geek; he or she just needs to know enough to make informed decisions. Kahn Academy (with B of A's help) is, in my opinion, making that happen. When I viewed the video again this evening, it had over 1,200,000 views. That's a lot viewing for a subject that is devoid of twerking or a character named "Katniss."

You can judge for yourselves. The video can be viewed here.

The Sunshine State Shines A Light On Short Skirts

You'd think the home of Crockett and Tubbs would have plenty of problems to deal with other than LinkedIn endorsements of attorneys' skills and the hem length of the skirts of a lawyer's office staff. You'd think that. Of course, you'd be dead wrong, as dead as Tony Montana after a gunfight with a cadre of Columbians.

Orlando lawyer Luis Gonzalez has no plans to block endorsements on LinkedIn, no matter what the new Florida ethics rules require.

"I'm not changing a damn thing," he tells the Daily Business Review. “I want the bar to come after me. I'm 61 years old, and I'm not going to tolerate garbage like that."

Gonzalez is one of several lawyers criticizing the state bar’s new social media rules, enacted as part of new rules on lawyer advertising approved in May by the Florida Supreme Court. Many law firms consider the rules regarding Facebook, Twitter and LinkedIn to be the toughest in the country, the story says.

According to this summary (PDF), the guidelines require advertising lawyers to list their names and office addresses, bar misrepresentative testimonials and restrict the use of the words “specialist” and “expert,” as well as their variations.

Lawyers on Twitter are concerned about the need to state an office location on each tweet, the story says. Lawyers on LinkedIn also are concerned about the need to ban third-party endorsements and to refrain from using the word “expertise.” For lawyers on Facebook there is another potential problem—the need to refrain from posting inappropriate or unprofessional photos and videos.

A Twitter post is only 140 characters long. Even if stating an office location and disclaimer on every tweet made a lick of sense, which I question, what's the rest of the tweet supposed to contain? "OMG! U R MY BFF!"

Anyone who's been around LinkedIn for more than fifteen minutes understands that LinkedIn endorsements are as questionable as Anthony Weiner's grasp of the concept of "impulse control." LinkedIn, not the member, automatically generates endorsement suggestions to that member's contacts, and picks the practice area to recommend. That's the only reason that casual acquaintances have endorsed my expertise in Swiss admiralty law. I certainly never requested such an endorsement.

What's especially amusing about the linked article is the brief mention (pun intended) of the nefarious photo posted on a lawyer's Facebook page of his female office staff clad in what the Florida Bar poobahs thought were inappropriately short skirts. While the lawyer removed the photo (a spokesperson for the Bar said that "[h]e kindly removed them when we asked"), I find that the late, great Johnny Cochran could have saved that photo for a leering public with the line, "If the legs are fit, the photo must sit."

Seriously, this is what the Florida Bar is focused upon these days?

Two of my favorite comments in the comments section of the linked article are (1) "He kindly removed the short skirts when asked? How does that improve the image of the bar", and (2) "My Facebook account is very clearly personal and not professional. I’ll put pictures of cats in short skirts if I want to...In the meantime the Bar has signed off on PI firms running ads with pictures of clients and their settlement amounts as if they’re Lotto winners. That’s certainly helping the image of lawyers."

Nothing New

Not long ago, Ballard Spahr partner Mercedes Kelley Tunstall, gave some sage advice at a regulatory symposium. She was discussing social media legal and regulatory compliance for financial institutions, and she said that "there is nothing new under the sun." A bold proclamation in a world where "twerking" wasn't on anyone's radar screen (outside of a Cat House) a mere five years ago. Nevertheless, it's true.

"Just like you have to disclose online, you have to disclose on social media. You can't look at this as completely different."

What's different in social media is that people talk back to the bank. In traditional online (and offline) marketing, the bank does all the talking. Having "outside the box" conversationalists in the mix adds a new level of risk. However, the types of risk remain, for the most part, the same.

Another speaker at the same symposium was the FDIC's Elizabeth Khalil, who I gently chastised for her earlier comments about the proposed FFIEC guidance on social media being guidance, not regulation, and, therefore, not forming the basis for regulatory enforcement actions if it's not followed. Ms. Khalil indicated that the final version of the guidance should be issued this month or next. She indicated that while details will be "tweeked" (but, presumably, not "twerked"), their will be no "wholesale changes" to the proposed guidance.

Since bankers, like most business people, prefer ceratinty to uncertainty, the issuance of the "guidance" will be welcome. At the very least, they'll provide financial insitutions with a starting point for regulatory and legal compliance in their social media efforts.

Big Bank Bizarro Land

Both big banks and big-bank-hating judges have been acting with increasing wackiness lately, as The New York Times' Gretchen Morgenson recently explored. In one case, a Massachusetts judge claimed that he bought the argument of Wells Fargo that a borrower's predatory law claims against the bank were barred by federal preemption principles, but then made the bizarre demand that the bank provide the court with a resolution of the bank's board, signed by a majority of the bank's directors, that stated that the board is not waiving its right to claim federal preemption. The judge believed that the bank's public advertising that it is consumer-friendly raises the issue as to whether or not it has waived its right to claim federal preemption. Naturally, knowledgeable observers, including the counsel for the borrower, had never heard of such a judicial demand. The bank is appealing the requirement, which appeal, unless the judge backs down, the bank will win.

While the judge labels the bank's alleged conduct to be "outrageous," a commenter in an ABA Journal article on the decision made a telling observation.

This judge has gotten too big for his britches and is stepping beyond his constitutional role as a neutral jurist. It makes no difference whether he personally finds Wells Fargo’s conduct to be “outrageous” or out of sync with the company’s public image, conclusions that are legally irrelevant and do not entitle the judge to dictate what the company must do to raise a legitimate defense. Justice is supposed to be blind to personal sympathies such as this; he is displaying prejudicial and unprofessional bias toward a party, and he should be recused or sanctioned.

It's Massachusetts, pal. He'll be neither recused nor sanctioned. He'll be hailed as a lion of the bench.

On the flip side, Gretchen also recounts a case where Bank of America and its assignee hounded a homeowner repeatedly for payment of a debt that had been discharged in bankruptcy. Apparently, repeated contact by collectors continued even after the bank was sued. Determining whether or not a debt has been validly discharged in bankruptcy is not the equivalent of discovering the cure for cancer. The bank that can't shoot straight on the foreclosure trail apparently has no better aim when it comes to general debt collection.

The phone calls and letters continued even after Mr. Schwartz went back to court to ask that Bank of America be sanctioned for illegal attempts to collect the debt. During this time, Bank of America sold the servicing rights on the first mortgage to another company, which soon began sending its own demand letters to the Ramoses.

This month, the matter came before Robert D. Drain, a federal bankruptcy judge in New York. Judge Drain found Bank of America in contempt of the debt discharge order protecting the Ramoses and required the bank to pay Mr. Schwartz’s legal bills in the case. The judge also ordered the bank to pay $10,000 a month in sanctions to the Ramoses until it stopped making the repayment demands.

Judge Drain acknowledged that it wasn’t a lot of money to Bank of America. But, he said, he hoped that its lawyers would get the message. “This is not just a stupid mistake” by the bank, the judge said. “This is a policy.”

A Bank of America spokeswoman said the bank was working to resolve the court’s issues and “researching and investigating what transpired.”

"Researching and investigating" what? Did they call and/or write or didn't they? You need a drug-sniffing dog and an electron microscope for that task, America's Bank?

We all know why the people with pitch forks and torches want to burn down the banks. Now, it appears, the cumulative effect of years of this type of moonbattery by big banks is driving even respected jurists batty.

The borrower's lawyer in the Bank of America case thinks that the bank has a deliberate policy of ignoring the law and is willing to fork over the occasional sanction as the price it pays to squeeze blood out of turnips. Personally, I think that gives them too much credit. I subscribe to the "Too Big To Think" theory. If it's a choice between Professor Moriarty and Alfred E. Neuman, I vote for the "What, Me Worry?" explanation.

Compounding The Problem

I've been critical of "blown" foreclosure seizures in the past, especially of Bank of America's repeated FUBARs and its seizure of pet parrots and similar heinous crimes against nature. Unfortunately for the banking industry, it's not only the giant whipping boys who step in piles of mud pies and make headlines in this regard.

A woman in McArthur, Ohio, about 70 miles south of Columbus, said a bank mistakenly cleared items from her home, confusing it for a foreclosed house across the street, then demanded receipts when she asked to be compensated for her missing possessions.

Katie Barnett, 36, a nurse, said her family had left for about two weeks last month and returned to find the locks on their home had changed and many of their belongings had been taken.

"We called the cops and they said they thought it was a squatter," she said.

Two dressers and clothing for her five children were taken, as well as items from outside their home, including pool cleaning supplies and patio furniture, she said.

Weeks later, she said, police told her that a bank representative had contacted them, saying someone was living in a foreclosed home: the Barnett's one-story, three-bedroom home.

"Obviously I wanted to find out what bank it was. I was mad about the whole situation," said Barnett.

She later learned First National Bank in Wellston, of which she is not a customer, had mistaken her home for a bank-owned property across the street.

A bank employee told 10TV News that the bank is trying to come to an agreement with Barnett.

"A GPS had led them to my house, the president of the bank told me," Barnett said. "They also said my grass hadn't been mowed so they just assumed that was the house."

You have to wonder whether the crack about the unmowed lawn was an Epic Fail of a snark attack or an accurate statement of the extent of the due diligence conducted by the bank's personnel in determining the location of the actual property that was the subject of the foreclosure. Either way, it was apparently pouring salt on Ms. Barnett's open wound. If the bank had stopped there, it would have been bad enough. However, it wasn't through digging its own public relations grave.

When Kate asked for $18,000 to compensate her and her family for the lost items, the bank demanded receipts, because they weren't going to "pay retail." Seriously, they said that. On its web site, the bank, which refused to respond to questions from one of America's most popular morning network television shows, ABC's "Good Morning America," claimed that while it wants to compensate Ms. Barnett "fairly and equitably...the written list of items that she provided to us – and the value she assigned to those items – is inconsistent with the list and descriptions of items removed that was prepared by the employees who did the work, and with the list and values of missing items provided by the homeowner herself as recorded in an earlier telephone conversation with one of our representatives." The bank states that it needs to reconcile those differences before compensating the homeowner whose house it broke into and from which it removed items that did not belong to it and which it had no lawful right to remove. You understand how a bank wouldn't want to pay more than depreciated present value of those household items, don't you? I mean, that wouldn't be FAIR!

When I recently discussed on this blog the concerns that federal banking regulators have with the use of social media by banks, I mentioned that fact that "reputational risk" was a legitimate safety and soundness concern. Getting a black eye in the main stream media (or social media) can hurt the bank's "brand." Therefore, regardless of whether or not the bank has a legitimate concern about the nature and number of items claimed to have been lost or their current value, it seems to me that one of the factors a bank might want to weigh in deciding what to pay or whether or not to pay at all, is the damage to reputation that can occur when "Good Morning America" plasters your name on television and the world wide web in a context that gives the average American consumer one more reason to hate another bank, as if he or she needed another reason.

While we may be getting only one side of the story from the linked article, in large part that's because the bank has chosen not to respond directly to ABC News, but to respond solely through a web site posting. When only the plaintiffs and their attorneys do the talking, the press reports are sure to be slanted in their favor. Barnett claims that she's hired an attorney and that she plans to sue the bank, that her kids' summer has been ruined, and that other emotional stress has ensued to the family members.Therefore, the publicity in this case for the bank is not likely to improve.

Let's say that Kate is "overestimating" the value of the removed items. Let's say, purely for the sake of argument, that she's doubled their "actual value." Would having payed her the extra $9,000 she demanded, having obtained a full release of liability, and having put her under an agreement of confidentiality right from the start have been worth the cost? Each bank must make its own decision, but I can see how many banks in the same position might think that it would be worth it. They would consider the "overpayment" as additional compensation for "emotional pain and suffering" and as an additional cost of doing business when the folks doing your foreclosure property takeovers have a tough time distinguishing the street addresses "509" and "514."

During a time in our history when bankers rate as low as lawyers in the public's view, the extra payment to mitigate the reputational risk might just be justified.

The Help Was Not Helpful

I gave a presentation a couple of weeks ago in New York City to credit union officers about the legal risks of engaging in social media activities. One of the entities that I told my audience I thought was doing a decent job in social media was Bank of America's "Help" Twitter feed. From my personal observations, their "youngsters" seem to do a good job of handling customers who may be frustrated dealing with other segments of the giant bank's customer service octopus.

I guess I should monitor BofA Help more frequently. Digiday's Saya Weissman recounts a series of tone deaf tweets by a BofA Help "tweeter" that lead a casual observer to wonder whether someone was on Quaaludes and, if so, who. Responding to an allegation by Occupy LA that the bank should stop stealing people's homes by offering to review Occupy LA's account make you wonder about a number of things, including the following speculation by Ms. Weissman: "The immediate and understandable assumption was that the bank’s Twitter feed is run by a bot – a program that automatically replies to tweets that mention it. Bafflingly, this turns out not to be the case. A bank spokesperson explained to Digiday that real people are, in fact, behind all of the brand’s tweets."

A spokesperson for the bank insisted that real, live, human "bots" are tweeting those gems. Weissman claims that the bank's "utter lack of online competence...merely reinforced these angry tweeters’ view of the company as a faceless, heartless conglomerate." She concludes that if this is the best "help" that BofA can offer, "who needs enemies?"

I guess I wouldn't have been that harsh on the tweeter, who was likely proceeding in compliance with a carefully scripted line that he or she was required to follow. On the other hand, you have to wonder about the bank's guidelines for initiating "conversations" on Twitter. If it's whenever the bank's name is mentioned, then there ought to be some requirement that before the BofA employee "tweet"s, they be required to actually comprehend the content of the tweet to which they are "responding."

The proposed FFIEC Guidelines on social media compliance that we've previously discussed are shot through, from stem to stern, with concern about "reputational risk." Such risk is posed not only by technical violation of laws or regulations. It's also posed by ineptness.

You don't have to be perfect all of the time. However, if you're going to be incompetent any of the time, expect to pay a reputational price. Even (or, perhaps, especially) in cyberspace, it's hard to hide.

FDIC's Take On FFIEC's Social Media Guidance

I ran across an interview recently that the FDIC's Elizabeth Khalil gave to InfoSecurity's Tracy Kitten about the FFIEC's proposed guidance on social media. Among my take-aways are the following:

• The push for the guidance came from smaller banks that wanted the regulators to give them some free advice. We all understand the fact that because small banks have less money available to pay for expensive lawyers, they look to leverage off of every free resource they can glom onto. Trade associations aren't free, but if you're paying your dues, you look to them to give you your money's worth. Since banks pay the federal bank regulators assessments, they want some bang for those bucks, as well. I get it.
• While Ms. Khalil mentioned "reputational risk" as the second major risk of the three she discussed ("compliance issues" was number one and "third party risk" was the third), I think reputational risk layers through much of the regulators' concerns. For example, misuse of consumers' personal information may be a compliance risk issue, and a Facebook vulnerability to hackers is a third-party risk. However, they both can impact the bank's reputation. Bad things that happen in a bank's social media endeavors often pose a reputational risk as an additional risk, and that's a safety and soundness concern which, in turn, is a regulatory compliance concern.
• None of what's in the guidance is new, and banks that are already engaged in social media activities should already be familiar with the elements of the guidance. If they're not, they better become familiar in a hurry and hope that no one notices.
• Due diligence on third party service providers that you intend to use is critical. The due diligence needs to be ongoing. A third party's faux pas can bite the bank in the backside as well as the third party. Monitoring is essential.
• As is the case with online banking security, the regulators encourage banks to educate consumers on social media risks. For example, the regulators will look favorably on a bank educating its social media users on the risk of fraudulent bank sites, how to recognize the real deal from the fraudster, and that they should never give up personal information over social media. 
• Whether or not a bank is actively using social media to interface with current or potential customers, it needs to have a social media use policy. The bank's employees are using social media, and other people may be saying bad things about you in cyberspace. The bank should have a policy that deals with these issues.

The final guidance is expected to be out in the near future (the comment period closed March 25th), depending on the nature of the comments received.Interested bankers should keep their eyes peeled (although, don't hold your breath).

I'll be giving a breakout session on social media compliance on July 3, 2013 at CUNA’s America’s Credit Union Conference in New York City. If you're a reader and are attending that conference, say hello.

The Real Deal? Not...

From time to time on this blog, I express the wish that banks and credit unions would stop sticking forks in each other's faces long enough to cooperate on issues of common concern. Credit unions in Missouri have obviously been reading my blog posts, taken them to heart, and decided to tell me to stick my feel-good bloviations where the moon don't shine.

The gist of their advertising campaign appears to be that all commercial banks are tied directly to Wall Street and all credit unions are tethered tightly to The Cosmic Muffin. I guess all residential mortgage loans that are made by credit unions remain in portfolio and none ever end up in a mortgage backed security that's prepared, packaged, rated, bought, or sold by a Wall Street firm. That's certainly believable.

I also love the "real" customer quote on the "How To Switch" page about how banks have "all these different policies." I guess credit unions have only one policy that deals with everything, is that correct? Credit union compliance officers, let me hear from ya' on that aspect. As for being quick-on-the-draw regarding decisions and actions, my wife's recent attempt to set up a simple traditional IRA jumbo CD account at a credit union down the street ran aground on the shoals of the credit union's complete befuddlement with the concept of a trustee-to-trustee transfer. It took them a long time to screw that up and an even longer time to unscrew it up.

In fairness to credit unions generally, the community bank across the street from that credit union understood the quick-decision concept quite well, but then fatally enraged your trusty correspondent, who was also trying to set up a checking account, by insisting that Texas law required a legal professional who practiced under his or her own name to file an assumed named affidavit (Texas law does not require this). It was bad enough that the legally-challenged bank officer repeatedly argued with your favorite bloviator on this point of law, but then pulled out the account application of a woman who had set up a sole proprietorship under an assumed name and showed me reams of personal information about this woman. I told him that I could never do business with a bank whose deposit account officers routinely violated not only bank privacy policies, but state and federal privacy laws. His shocked expression was quickly succeeded by a look that conveyed his dawning realization that he had stepped in something squishy and foul-smelling, which, in turn, was succeeded by the vision of the swiftly moving bodies of my spousal unit and myself exiting the bank's premises.

The Bozo Factor: it's an equal opportunity affliction. It strikes credit unions and community banks with a distinct lack of partiality. I know as many banks that can make quick decisions for customers as credit unions that couldn't make a correct decision quickly if their pants were on fire and a quick, correct decision would enable them to jump into a barrel of pleasantly cool river water. And vice versa.

Thus, if you want to harp on legitimate distinctions between banks and credit unions, be my guest. For example, the advertisements do state that credit unions generally offer better rates, which is true, but fail to note that this is due to the fact that they don't pay income taxes. Yet, they yearn to be not only just like banks, but better banks than banks, only better banks that shirk their patriotic duty to fund state and federal government raping and pillaging of taxpayers like their for-profit commercial banking brethren and...oh yeah...credit union members must do. That might make for a fascinating fact-focused ad campaign, don't you think?

At least these ad campaigns give us all something to do in between wondering whether the washed up actor, the washed up comedian, or the washed up athlete will be the next bad dancer booted off "Dancing With The Stars." For that, we can be grateful.

Eductaing Customers About Online Fraud: A Case Study

Two years ago, we discussed the fact that, pursuant to supplemental guidance issued by the FFIEC, financial institutions were going to have take seriously the need to educate their online banking customers about ways to prevent online banking fraud. BankInfoSecurity's Tracy Kitten recently interviewed the heads of social media and information security for Bank of the West about their efforts in this area. In addition to posting educational videos for customers on the bank's web site, the bank is uploading to the bank's Youtube channel in an attempt to make those videos "go viral." In other words, the bank is blending its internal information security technology and social media expertise to do what the bank regulators want them to do: help combat online banking fraud by educating their customers.

While the entire, relatively short, interview is worth a listen, I took away the following points:

• If you want social media content to "go viral" (for the social media challenged: "circulate widely via social media"), you have to make the content "relevant and compelling." You also must update it frequently. Easier said than done. It's why I believe that banks need to blend their internal talents, the way that Bank of the West is doing. Social media is not the sole province of either marketing or "technologists." It takes folks with a variety of skills to make it rock.
• To banks like this one, that have been in the social media game for a while, the recently proposed FFIEC social media guidelines are no big deal. They should be well positioned to meet those guidelines with little, if any, modification to their existing procedures. As one of the gentlemen interviewed observed, they've been expecting these guidelines for years.
• Social media (videos) is only one arrow in the educational quiver. The bank is also using seminars targeted to specific groups of customers (small businesses, primarily, since that's the customer group that is most at risk for online banking fraud losses).
• Of most concern to information security officers is the movement of organized criminal organizations into this arena. They bring with them the money and skill set (not to mention the ruthlessness) to pull off the most successful heists, targeting not the banks but their customers.
• Quality is more important than quantity in online education efforts. Throwing everything against the wall and seeing what sticks will likely not be a successful approach.
• You need cooperation from different areas of the bank to do this successfully. Therefore, you need "buyoff" internally before you launch, not after.
• Most of these efforts are too new to be able to measure their effectiveness, but using the tools that are available to do so on an ongoing basis is important. If your efforts aren't paying off, then you need to consider tweaking them.