CBS Interactive's Alain Sherter took off Friday on a bombing mission over the land that America loves to blast--Bank of America Territory--and dropped a cluster of verbal whoop-a** on the countryside.
As a condition for offering mortgage relief to Arizona homeowners, Bank of America (BAC) is allegedly requiring them to refrain from criticizing the company, according to Bloomberg BusinessWeek. That includes making borrowers delete any negative comments they may have made about the banking giant online.
Alain cites reports first published Thursday that the Arizona Attorney General is asking a judge to tell borrowers who have signed non-disparagement provisions contained in loan modification agreements that they don't have to comply with such provisions. The AG claims that such restrictions are impeding the AG's investigation into potential wrongdoing by BofA in connection with its servicing practices, including potential violations of a 2009 settlement agreement over charges that Countrywide (purchased by Bank of America) defrauded borrowers.
If these allegations are true, B of A's intent is clear: It wants to muzzle borrowers, especially those who are unaware that no court in the land would respect what amounts to a legally unenforceable -- and outrageous -- gag order.
I haven't researched the legal issues in a residential loan context, so I don't have Sherter's confidence that the confidentiality and non-disparagement provisions are prima facie unenforceable, nor, to me. "outrageous." In my personal experience, they're not uncommon in commercial loan modifications, especially in cases where the allegations by the borrower have been "intemperate" and/or the negotiations "contentious." A representative of the Arizona AG's office obviously thinks they present a legal problem for the borrowers, because she alleges that "[t]he settlement agreement purposefully makes it impossible, legally and practically, for a consumer signing it to come forward, voluntarily and promptly, to provide evidence in this case." If the agreements are obviously unenforceable, how can they make it "legally impossible" for a borrower to speak?
In this situation, the provisions are allegedly impeding a state attorney general's investigation. Therefore, there may be valid public policy arguments that the provisions should be held to be unenforceable. We'll see what the judge rules. That said, I don't think that BofA intended them specifically to hinder the Arizona AG's investigation. According to the Bloomberg article cited above, other banks are using them.
Wells Fargo & Co., the biggest U.S. bank by market value and the largest mortgage lender, has a similar practice, said James Hines, a spokesman for the San Francisco-based bank.
“Each case is unique and for a variety of reasons we may elect to include a confidentiality and/or a non-disparagement agreement as part of the settlement,” Hines said in an e-mail. He said he didn’t know how many settlements had been reached.
To me, this is one more ham-handed practice by a bank that has proved that it's tone deaf when it comes to playing a sweet public relations refrain. You have to wonder about a couple of things: first, is anyone home at BofA headquarters who can consider the reputational risk of such provisions in settlement agreements with consumers in the current climate in this country? Second, is the crowd that consistently screams that we need to "break up the too-big-to-fail banks" wasting its collective breath? Those banks seem to be doing an excellent job of destroying their own reputations without any outside assistance.
One final thought: how long before the CFPB finds confidentiality and non-disparagement provisions in loan modification agreements to be "unfair or abusive"?