Bank Lawyer's Blog

Preparing for a Hurricane; Hit by a Tsunami

This has just GOT to make a bad week worse.

A bank has been ordered to pay a $50 million settlement for buying more than 650,000 names and addresses from the Florida Department of Highway Safety and Motor Vehicles.

The Electronic Privacy Information Center, which filed an amicus brief in favor of the plaintiffs, announced the decision this week. EPIC said Fidelity Federal Bank & Trust bought 656,600 names and addresses for use in direct marketing and the purchase violated the Drivers Privacy Protection Act.

[...]

From 2000 to 2003, Fidelity purchased data containing personal information of hundreds of thousands of drivers living in Palm Beach, as well as Martin and Broward counties for only $5,656, according to papers filed in Kehoe v. Fidelity Federal Bank and Trust. The bank sought the information for car loan solicitations, according to papers filed in the class-action lawsuit.

In 2004, the U.S. District Court for the Southern District of Florida ruled that James Kehoe had to demonstrate actual damages before obtaining monetary compensation under the Drivers Privacy Protection Act. Kehoe appealed to the 11th Circuit Court of Appeals, which overturned that ruling.

Can't you hear a marketing guru boasting about how much personal information he could buy for a pittance? I hope they made plenty of car loans, because they'll need all the dough they can lay their hands on. Of course, it IS Florida, so maybe a midnight ride in a cigarette boat to an offshore rendevous might be called for.

2000 to 2003, three years when the bank may as well have been smoking crack. Ignorance of the law is no excuse, so if you're going to act stupid, you might as well have a good reason.

As H. Ross Perot would put it: "Here's the deal." The Drivers Privacy Protection Act has been around for a while now. It's not new news, it's old news. It just doesn't seem logical that a bank (or any other business for that matter) could have missed the fact that you can't buy that type of information (especially for bulk marketing purposes) unless you have the individual license holder's consent. Were they a "bank in a bubble"?

To compound the bank's misery, when a privacy advocacy group like EPIC gets on your case, you have to have the resources, financial and mental, to outlast them, because they're like a dog with a real tasty bone to gnaw on. They're filing these amicus briefs and generating all this bad publicity for offenders because they actually believe in the righteousness of their cause. There's nothing worse for a business based solely on generating cash than an opponent that isn't motivated by money. EPIC's a pit bull. It'll clamp down on your leg and not let go until you either cry "Uncle" or apply a blowtorch to its haunches.

Fidelity representatives said they were preparing for Tropical Storm Ernesto and could not provide immediate comment on the settlement. The Florida law firm representing the bank did not return calls seeking comment.

On a rare day, a hurricane on the way isn't such a bad development.

Banks to North Korea: No Mas!

This past April, I mentioned in passing that the U.S. State Department had labeled North Korea a "Sopranos Country," run like the organized crime family portrayed on HBO, but without, you know, all the Emmy Awards. Apparently, banks around the world concur.

The financial noose is tightening around North Korea as international banks sever ties with the nation - a move championed by the United States, a top Treasury Department official says.    

The United States has accused Pyongyang of spreading weapons and missile technology to other countries, counterfeiting U.S. currency and trafficking drugs. It wants to see the reclusive, communist-led regime financially incapacitated.

"There is sort of a voluntary coalition of financial institutions saying that they don't want to handle this business anymore and that is causing financial isolation for the government of North Korea," Stuart Levey, the Treasury Department's undersecretary for terrorism and financial intelligence, said in an interview Monday with The Associated Press.    

"They don't want to be the banker for someone who's engaged in crime, as the North Korean government is," he said.

Banks in Singapore, Vietnam, China, Hong Kong and Mongolia are opting not to do business with North Korea, Levey said.

"Is there a complete cutoff, so that they can't get banking anywhere? No, that's not the case, but they're having a very difficult time finding banking services," he said. "You're seeing a near complete isolation."

When the Mongols cut you off for being a bad boy, you know that you've been very, very bad.

Some analysts worry that the financial restrictions are only deepening the North's isolation. This, they argue, has allowed North Korea to push ahead with its weapons programs. North Korea accused the United States of tracing North Korean accounts in banks in at least 10 countries and called this "a gangster-like act."

Let me parse that line of reasoning by Kim Bong Ill or whatever the name is of that North Korean leader with the funny hair: tracing the accounts of a band of gangsters is a "gangster-like act." That's correct in the same sense that bringing a 500-pound bomb down on the head of Abu Musab al-Zarqawi was a terrorist act. We be bad!

I get a kick out of unnamed "analysts" worrying about the actions of banks "deepening the North's isolation." Those psychotics are already so far into Disneyland that they think Goofy is Stephen Hawking. That's like worrying about making Osama bin-Laden so much more hostile to Western Civilization that he might do something rash.

Speaking of the war against Western Civilization, it appears that our North Korean nut cases are not the only off-the-reservation renegades feeling the heat of Mr. Levey's smackdowns.

In other matters, Levey called Iran a "central banker of terror" that provides millions of dollars a year to bankroll terrorist acts carried out by the militant group Hezbollah.

"Iran is like the elephant in the room, if you will. ... They are the central banker of terror. It is a country that has terrorism as a line item in its budget," he said.

I talked about elephants in a room a couple of days ago. They tend to smash the furniture.

"The central bank of terror." "Terrorism as a line item in its budget." I bet Alan Greenspan thought those one liners were a hoot.

Squeeze the axis of evil every which way you can, Mr. Levey. If you keep this up, even the Swiss may eventually cut these nut bags off. We won't hold our breath, though.

Yet, even as we mock these terrorist states, Mr. Levey's parting words chill us to the marrow.

"We have got an adversary out there that we are trying to do everything to stop. They may be evil, but they are very smart," Levey said.   

The threat to the United States is real, he said. "This is not some made-for-TV movie."

No, it's even more real than cable.

Fannie Mae: Not Out of the Woods Yet

From Paul Muolo's column "What We're Hearing" in this past weekend's National Mortgage News:

Well, it looks as though former Fannie Mae officials won't be doing a 'perp walk' after all. In case you were at the beach this past week, the Department of Justice informed the Congressionally chartered mortgage giant that it has discontinued its investigation of the GSE in regard to its $10.6 billion accounting scandal. No criminal charges will be brought against the company at all. The obvious question is this: does that mean charges might be brought against any individuals, as in former top officers? DOJ will not confirm or deny that any individuals were ever the subject of a criminal probe in the case. And if the "accounting side" of the investigation has been discontinued that would imply that no charges will be brought whatsoever against individuals. In other words, former chairman and CEO Franklin Raines, and former chief financial officer Timothy Howard can start sleeping at night again. Of course, DOJ is still investigating whether the two men perjured themselves before Congress in the fall of 2004 when they denied manipulating accounting rules to make earnings targets. By dropping the probe does that mean DOJ believes that no manipulation occurred? Or was it "civil" manipulation versus, say, "criminal" manipulation. Whatever the case, DOJ's decision to scuttle the investigation can be viewed as a major victory for Messrs. Raines and Howard. Their contention that the whole accounting mess was merely a disagreement over arcane FASB rules no longer looks so suspect. It also could hurt civil cases being brought against the company. Stay tuned...

I have no inside (or even outside) information on whether or not Franklin Raines or Timothy Howard will ever face criminal charges for their part in the Fannie Mae accounting scandal. However, as reported by Bloomberg News and others late last week, "the SEC is still weighing civil charges against individuals," so their wallets are still at risk if not their liberty. Also, as I discussed a couple of months ago, Franklin Raines has been accused by at least one U.S. Congressman of having perjured himself in testimony before the House. I agree with Mr. Muolo that it's looking less likely that fraud charges will be brought by the DOJ, but I'm not ready to throw in the towel on that possibility yet, and even less so regarding perjury charges, if Congress wants to push it. It's perhaps merely wishful thinking on my part. After all, Congress couldn't nail Raphael Palmeiro for testifying "I have never used steroids. Period" six weeks before he failed a steroids test. If they can't bring that guy to justice, then Raines may very well skate.

Perjury's a tough crime to prove. There was one guy I read about some years back who claimed in the course of a videotaped deposition that he never had sexual relations with a particular woman when, in fact, he'd had not only relations with the woman but with a cigar that had kept company with her. Waste of a good cigar, if you ask me, but regardless, it caused some kind of hoopla or another, Congress got involved, but they couldn't make the case stick. At least, that's what I recall, although the details are murky.

I think that case proved two things: (1) Even if you lie on camera, your best course may be to brazen it out; and (2) when forced to choose between a bad woman and a good cigar, the answer is not always obvious, even to a perjurer.

THE BETROTHED
---Rudyard Kipling

"You must choose between me and your cigar."
BREACH OF PROMISE CASE, CIRCA 1885.

Open the old cigar-box, get me a Cuba stout,
For things are running crossways, and Maggie and I are out.

We quarrelled about Havanas — we fought o’er a good cheroot,
And I knew she is exacting, and she says I am a brute.

Open the old cigar-box — let me consider a space;
In the soft blue veil of the vapour musing on Maggie’s face.

Maggie is pretty to look at — Maggie’s a loving lass,
But the prettiest cheeks must wrinkle, the truest of loves must pass.

There’s peace in a Larranaga, there’s calm in a Henry Clay;
But the best cigar in an hour is finished and thrown away –

Thrown away for another as perfect and ripe and brown –
But I could not throw away Maggie for fear o’ the talk o’ the town!

Maggie, my wife at fifty — grey and dour and old –
With never another Maggie to purchase for love or gold!

And the light of Days that have Been the dark of the Days that Are,
And Love’s torch stinking and stale, like the butt of a dead cigar –

The butt of a dead cigar you are bound to keep in your pocket –
With never a new one to light tho’ it’s charred and black to the socket!

Open the old cigar-box — let me consider a while.
Here is a mild Manila — there is a wifely smile.

Which is the better portion — bondage bought with a ring,
Or a harem of dusky beauties, fifty tied in a string?

Counsellors cunning and silent — comforters true and tried,
And never a one of the fifty to sneer at a rival bride?

Thought in the early morning, solace in time of woes,
Peace in the hush of the twilight, balm ere my eyelids close,

This will the fifty give me, asking nought in return,
With only a Suttee’s passion — to do their duty and burn.

This will the fifty give me. When they are spent and dead,
Five times other fifties shall be my servants instead.

The furrows of far-off Java, the isles of the Spanish Main,
When they hear my harem is empty will send me my brides again.

I will take no heed to their raiment, nor food for their mouths withal,
So long as the gulls are nesting, so long as the showers fall.

I will scent ‘em with best vanilla, with tea will I temper their hides,
And the Moor and the Mormon shall envy who read of the tale of my brides.

For Maggie has written a letter to give me my choice between
The wee little whimpering Love and the great god Nick o’ Teen.

And I have been servant of Love for barely a twelvemonth clear,
But I have been Priest of Cabanas a matter of seven year;

And the gloom of my bachelor days is flecked with the cheery light
Of stums that I burned to Friendship and Pleasure and Work and Fight.

And I turn my eyes to the future that Maggie and I must prove,
But the only light on the marshes is the Will-o’-the-Wisp of Love.

Will it see me safe through my journey or leave me bogged in the mire?
Since a puff of tobacco can cloud it, shall I follow the fitful fire?

Open the old cigar-box — let me consider anew –
Old friends, and who is Maggie that I should abandon you?

A million surplus Maggies are willing to bear the yoke;
And a woman is only a woman, but a good Cigar is a Smoke.

Light me another Cuba — I hold to my first-sworn vows.
If Maggie will have no rival, I’ll have no Maggie for Spouse!

Today, Even Stevie Wonder Could See The Elephant

Last November, I talked about mortgage banking's "elephant in the room:"

The risk posed to mortgage bankers from the representations and warranties made by them when they sell loans in the secondary market. Whether the loan is conventional or "non-traditional," when a mortgage originator sells the loan, it makes extensive representations and warranties to the buyer with respect to the borrower, the property securing the loan, the mortgage instruments, the underwriting, and numerous other "qualitative" issues. In good times, when the percentage of defaults is relatively manageable, the  purchasers of such loans (who customarily bundle and securitize them) tend not to look closely at these representations and warranties; however, in bad times, the holders of the loans have been known to require a second "scrubbing" of the loan files, looking for breaches of representations and warranties that will justify requiring the originator to repurchase the loan. In the last economic downturn, I personally experienced more than one instance of a mortgage lender suffering the infliction of extreme financial and emotional pain caused by buyback demands from secondary market purchasers like FNMA, FHLMC and private institutional investors. A "pure" mortgage banker, who holds and services few loans, may think he's passed on the risk (absent outright fraud). Sophisticated originators know better.

In a recent article in The American Banker (paid subscription required), the paper notes that both Fannie Mae and Freddie Mac "have a reputation for being more aggressive than private conduits when it comes to buybacks." Thomas Lund, Fannie Mae's senior vice president in charge of its single-family mortgage business, admitted as much, but said, in effect, "We may be hard cases, but at least we're consistent."

"One of the things that we pride ourselves on, quite frankly, is taking a very consistent approach to how we do business," Mr. Lund said. "I think our lenders are very comfortable that, regardless of good times/bad times, we are there working against a set of guidelines, working with them consistently."

Yes, Tom, they're about as "comfortable with that" as a heretic on the rack.

Goldman Sachs Group Inc.'s, Kevin Gasvoda (remember when the name "Kevin" was used only by the Irish?) notes in the article that private conduits have recently been forcing more buybacks, based primarily on early delinquencies. (I assume loan originators are qualifying people who can't afford the payments due to the mortgage broker's first rule of business: "Close the loan. Book the fee. Apres mois, le deluge.") However, Gosvoda expects buybacks to rise in the future based on breaches of other representations and warranties. While he doesn't believe they will cause "significant" pain for originators, they will cause some pain. Whether or not  pain is "significant" to the sufferer is always a matter of perspective. It's easy to sit on the outside and say "Butch it up, Alice," but when you're the bank funding the buybacks, it's often an unpleasant experience.

When you think about the volume of loans that a relatively small bank or thrift can originate and sell in the secondary market, you realize that if its underwriting standards (and/or their enforcement) are even just a little bit "off," they could take a significant hit to capital if the mortgage market heads too far south. With foreclosure rates in many parts of the country soaring (according to The Dalls Morning News, foreclosures in North Texas are up 30% from one year ago), I guess we'll see fairly soon how "significant" the pain for mortgage origintors will be.

The Heat Is On

The Wall Street Journal (paid subscription required) had an interesting article the other day about multi-layered security for online banking, a subject that this blog has been blathering about for some time. Blathering about to the point where many readers are shouting at me in utter frustration: "Get a life!"

No, I refuse.

The article includes anecdotes that demonstrate that the approaches taken by banks, no matter how "seamless" they might try to make them, can cause hiccups for consumers who bank online. In Bank of America's "Sitekey" system, when logging into the online banking system from a computer that the consumer hasn't previously registered with the bank, the consumer is issued a couple of challenge questions that have been previously selected by the consumer. Unfortunately, the consumer in question could not remember the exact answer she chose. That's a "senior moment" that no bank can do a "work around" to resolve. You have to assume a minimal level of intellectual capacity. Alzheimer's patients likely will not do well with this system. On the bright side, they won't remember that their bank annoyed them.

According to online security provider RSA, only 1% of customers actually forget the answers to their challenge questions. Of course, the statistical sample used by RSA must be relatively small because this technology is new. Give it time. The world is a large and cerebrally challenged biosphere.

Some interesting statistics and "factoids" listed by the WSJ:

• According to a Gartner survey, more than 5% of Internet users said that they stopped doing their banking online because of security concerns, up from 1% a year ago.
• As expected, there has been a rush of business for security firms like RSA. It estimates that 40% of the top 100 U.S. banks now use its online banking security system. As I guessed last week (and months ago), RSA could be a big winner between now and the end of the year.
• A Gartner spokesperson said that "all the extra customer-service calls trying to figure...out [the new online security systems] could cost large banks more than $1 million apiece a month."
• "Some financial institutions, including ING, have added virtual keypads that allow users to enter their passwords by clicking on buttons with a mouse instead of typing on a keyboard -- an effort to foil a kind of spyware that can steal your information by tracking keystrokes." Cool. Those virtual keystrokes will feel "right fine" when delivered by my "virtual lover" purchased from my favorite cyber-porn emporium.
• E*Trade Financial is trying "tokens," but, as I mused previously, I think only commercial customers and geeks are going for the tokens. Being a geek, I can dig that. A commenter to a post from last December also mentioned the use of "scratch cards," although I've seen no reports in the press of banks adopting that method. If any have done so, please drop a comment or an e-mail and let me know.
• Washington Mutual is using an "invisible" (to the customer) online monitoring system that notifies the customer through other means (e.g., a telephone call) or challenges the online user, only if "fishy" (as opposed to "phishy"?) use of the system occurs. Big Brother is, in fact, watching you. Credit card companies have been using this technique for years, although, I assume, not as the transaction actually occurs.

As the WSJ observes, all this activity is being driven by the mandatory FFIEC guidelines. It's only going to get more intense as the year ticks down.

Sauce for the Goose is Sauce for the Gander

According to an article from Dow Jones Newswires, the OCC's Inspector General (pictured to the left) has determined that the OCC treated Wells Fargo with kid gloves for a number of years with respect to weak money laundering controls.

The top regulator for national banks in the U.S. improperly decided not to issue a public cease and desist order against Wells Fargo Bank last year for weak money-laundering controls despite requests by top government examiners, according to a report released by the Treasury Department's Office of Inspector General.

From 1999 through 2004, examiners at the Office of the Comptroller of the Currency unearthed multiple anti-money-laundering weaknesses at Wells Fargo, the fifth-largest U.S. bank, and recommended a formal sanction against the company, according to the report.

That position changed, however, after senior OCC officials, including acting Comptroller Julie Williams, met with Wells Fargo Chief Executive Officer Richard Kovacevich on Feb. 9, 2005.

Until then, top agency officials, including Williams, "were in agreement that (Bank Secrecy Act) violations existed and strong enforcement action was needed," the report said.

OCC spokesman Kevin Mukri wouldn't comment on what took place at the meeting, but the inspector general report said Wells Fargo officials had complained the company "was not being afforded due process," and that it had received a "mixed message" from regulators.

The inspector general's report found that a formal cease and desist order was warranted and added that OCC officials "could not offer a compelling reason for overruling the examiners."

"Additional information provided by the bank as to why OCC should not impose a cease and desist order was, in the words of one OCC official, 'overly argumentative, repetitive, and not very persuasive,'" the inspector general's report said. "We agree."

Yeah, we know how the OCC feels when the exercise of its discretion is challenged by an ivory tower academic snot nosed know-it-all who really doesn't comprehend the first thing about the business of banking but feels compelled to justify his own pitiful meaningless existence by second-guessing good faith decisions made by people on the firing line who didn't have the luxury of sitting on their fat tushes and pontificating with hind sight about calls that had to be made NOW DAMMIT and couldn't wait until a committee of limp-wrested sissies and butt-kissing bureaucratic slugs who never did an honest day's work in their entire worthless lives got to peer over their shoulders and smirk sneer and nitpick the rock-solid over-the-middle-of-the-plate fastball-called-strike no-brainier right-on-the-money carved-in-stone guaranteed verdicts of REAL MEN! You sit there in your Armani suit with the $500 tie, the Thomas Pink dress shirt (with FRENCH CUFFS!), the A. Testoni shoes, reeking of expensive (FRENCH!!) cologne, Mr Fancy Pants, Mr. Pony Tail, Mr. One Diamond Ear Stud, and tell ME how to make a decision!!!! ME!! I BUY and SELL punks like you every day of my life! I EAT snails like you for an appetizer! Why, if I was half the man I was 10 years ago I'd take a flamethrower to this place! The truth??? You can't handle the truth!! Eat lead and die, Motha $#***&^%#@!*&!!!!!!!

Oh, sorry. That wasn't OCC supervisory personnel responding to the OCC's Inspector General; that was an average bank's CEO responding to an OCC examiner. Never mind.

For its part, the OCC said it generally agreed with the inspector general's findings and would carry out its recommendations accordingly, with one caveat.

Specifically, Dugan took issue with the recommendation that the Washington Supervision Review Committee should keep detailed minutes of its deliberations.

"I am concerned that such a requirement would have the counterproductive effect of chilling open and candid discussion of the merits of particular proposed enforcement actions," he said in a response letter attached to the report.

"I mean, seriously," I imagine Dugan saying. "If I can't sit around the conference table with my fellow regulators and laugh at the picture of an ugly wife and kids that some bank president had sitting on his credenza, or candidly ask Julie if she's been 'gettin' any' lately (she laughs like she'll bust a gut when I do that), or honestly inquire of 'my peeps' whether or not we ought to 'cap' this banker or 'waste' that one, or call up one of my captains and find out how much 'scratch' some low-life banker might be willing to pay to keep a C&D a mere Memorandum of Understanding, how you expect me to do my job? I mean, like, get real!"

Personally, I think that's a reasonable caveat. I know that at bank board meetings, I always make sure we're "off the record" before we discuss kickbacks, money laundering for those "very special Floridians," and which of the new tellers at the home office are "listening to reason," if you get my drift. Then, we always hit the sauce pretty hard, take a nap, and adjourn. I assume that it works the same way at the OCC.

You know, small to middling banks have been convinced for years that the big boys get special treatment when it comes to regulatory enforcement. This case certainly could cause you to raise a Rock-like single eyebrow. The big boys always retort that they're just better able to afford to hire more sophisticated "help" to keep them out of trouble. Certainly, if you can afford to hire this guy to attend a meeting with the OCC, have him sit there cross-legged, Yoda-like, saying nothing until all others have been heard, and then have him mutter "Unpunished should this bank be," well, that does sound like a plan that probably works better than the way we small fry play the game. Plus, if the OCC pushes back, you have the added benefit of Yoda being able to whip out his light saber and go all ninja on their sorry backsides.

Whatever they're doing, the Wells Fargo's of the world seem to be leading charmed lives.

FTC Chairman Says "Nyet" to Net Neutrailty

Sadly, this doesn't surprise me:

ASPEN, Colo.--The head of the Federal Trade Commission on Monday expressed sharp skepticism toward proposed laws that would levy extensive Net neutrality regulations on broadband providers.

Deborah Platt Majoras, the FTC's Republican chairman, said extensive Net neutrality legislation currently pending in the U.S. Senate is unnecessary because there has been no demonstrated harm to consumers, that normal market forces would likely prevent any problems, and that new laws would cause more problems than they solve.

"I ask myself whether consumers will stand for an Internet that suddenly imposes restrictions on their ability to freely explore the Internet or does not provide for the choices they want," Majoras told a luncheon audience at the Progress and Freedom Foundation's annual conference here.

Ms. Majoras is simply spouting the party line on net neutrality, in this case the party being Republican. Rather than taking a bi-partisan approach to determine policy based upon what might be in the best interests of all parties concerned, the issue has turned into just another purely partisan rope-pull.

I've previously posted (most recently here) about why banks and their lawyers ought to be concerned about whether telecom companies should have the ability to discriminate (and charge higher fees to) certain net users, like, for example, banks and their customers, or whether we need some regulatory oversight to ensure that the promises of the Internet are fulfilled. Most of the rest of the civilized world has jumped on the net neutrality bandwagon, but free market true believers back home are opposed to any government regulation. Ms. Majoras speaks for them. While I'm usually a "free market" kind of guy, I lean toward net neutrality regulation because I think it will be the best course for banks and their customers, and I fear the venality and greed of the telecoms when they are left unfettered to control the pathways for online banking. I'm funny that way.

I suspect that net neutrality is an issue that galvanizes banks and their attorneys as much as does cod fishing off the Grand Banks. Yet, eventually maybe enough light bulbs will go off over enough noggins to generate sufficient momentum for banks to take a more active role in this debate. Yes, I know, when you're sitting on the same side of the table as Nancy Pelosi, you start vibrating like a tuning fork. But, it could be worse: you could be sitting next to Ann Coulter (makes the sign of the cross and adorns self with necklace of garlic cloves).

Judging from the comments to the linked article, there's a lot of support for net neutrality among the tech-savvy readers of C/Net News.com. I think one commenter went a little off the rails with this gibe at Ms. Majoras, however: "Which a** is her head up? Copper, fiber or just grand ole elephant's?"

Now, is that any way to treat a lady? Totally uncalled for! You should be ashamed of yourself (hee, hee).

Speaking of "ladies" and "ashamed," I have to confess that I lost my train of thought for some minutes after reading the following sentence:

The concept of network neutrality, which generally means that all Internet sites must be treated equally, has drawn a list of high-profile backers, from actress Alyssa Milano to Vint Cerf, one of the technical pioneers of the Internet.

As if there weren't enough solid intellectual and business (i.e., greedy) reasons to support net neutrailty, how could any red-blodded American (or even French) male resist aligning his stars with those of Alyssa Milano?

Sorry...where was I?

Oh, yes, net neutrality.

Well, let's face it. Chatting up Alyssa Milano about net neutrality has simply got to beat the pants off (to use a completely inappropriate colloquialism) talking about the Internet with Al Gore.

Case closed. For now.

At the Risk of Repeating Myself

"Once more into the breach, dear friends, once more."

As I observed in April, apparently, I'm going to have to repeat this post every couple of months until it sinks into the noggin of every reader who suffers from comprehension impairment.

From October 30, 2005:

I thought that my Disclaimer was fairly clear, but l"d like to reiterate something: I don't intend to render legal advice through this blog. If you are not already a client of my firm, please don't ask for legal advice from me by sending me an e-mail or leaving a comment. If you need legal advice, hire an attorney to give it to you and pay them for their services, as you would any other service provider. This blog is intended as my personal commentary on legal issues affecting banks (and certain other issues that might interest me). The content of this blog is not legal advice. If you haven't done so, please read the Disclaimer and my Comment Policy.

As my biography and the posts to this blog should indicate, I represent banks. I'm not interested in answering questions or comments of people who dislike banks or, God forbid, want to sue them. Although I may question some things that individual banks may do from time to time, I like banks. This economy could not function without them. There are many, many litigators who love to sue banks, but I'm not one of them. If you need one of those lawyers, you won't find him or her here.

Thank you.

Here's more, from a post in February:

Attorneys are knowledge sellers. That's what we do. You need legal advice? Don't ask me as the author of this blog to give it to you unless you and my law firm have an attorney-client relationship. If we do, and you're a client, expect me to charge you for it. If you're a reader who's not a client, don't send me an e-mail with a question such as, "Do you know a good free source where I can find the laws of these 23 states on the topic of whether or a not a bank chartered under the laws of Y state needs to be licensed in those states to do Z"? No, I don't. Hire an attorney to render that advice and pay him or her to render it. Also, if you're a bank's employee, I won't give you a "sample form" of an agreement so you don't have to pay your bank's regular attorney to draft it. You'll pay a garage mechanic to fix your car, or a restaurant to cook and serve you a burger, but paying for legal advice somehow sticks in your craw? Amazing.

If you send me an e-mail message that contains a litany of complaints against a bank, contains defamatory statements (and if you're going to accuse a bank of "steeling" at least learn to spell the word correctly), or otherwise talks about a problem you're having with a bank, I will delete it as soon as I get the first inkling of what it concerns. I don't want to know the details. Really, I'm not interested. You must believe me when I tell you that such communications fill me with inertia.

I also won't allow comments along the same lines to be posted. How much more plainly and simply can I state these simple policies?

Finally, why in the ever-loving world would you think an attorney would respond with legal advice to an anonymous e-mail? What planet might such a correspondent be from? One in our galaxy?

Ranting is over for this 24-hour period. Resume your normal activities.

“It is not the simple statement of facts that ushers in freedom; it is the constant repetition of them that has this liberating effect. Tolerance is the result not of enlightenment, but of boredom.”
---Quentin Crisp

UPDATE: To those of you claiming to be mortgage brokers and real estate brokers, who've concocted obviously illegal schemes ("obvious" to everyone but yourselves) to violate Section XIII of RESPA: save your weary little fingers from further keying. I'm not interested in dealing with what authors Stephen Pizzo, Mary Fricker and Paul Muolo call "financeopaths." Been there, done that, no thanks. Take that hinky stuff on down the road. I should forward your e-mail addresses and IP addresses to HUD and your state attorney general. Don't push your luck. Just go away.

Off On A Rant

We at Bank Lawyers Blog occasionally get a wee bit behind in our trade paper reading (after all, someone has to taste each new batch of Shiner Bock as it's brewed), but we sleep soundly at night because we know that our faithful readers are scanning the fine print for stories of interest. One such reader, Tom Bieging of Bieging Shapiro & Burrus, brought to our attention a story that makes our bald heads (when I say "our," I do not include Tom's) sprout a thick mat of flaming Irish red curls to match our tempers. From this past Thursday's American Banker (paid subscription required):

The Federal Deposit Insurance Corp. is giving $31 million in surplus cash back to shareholders of a failed Oregon thrift.

In a shareholder notice released last week, the agency said it is anticipating giving $4.02 per share to shareholders of Benjamin Franklin Federal Savings and Loan. The funds are left over from the receivership of the Portland thrift, which failed in 1990 with 4,773 shareholders on record.

Such payments are required by law when funds from a failed institution are not expended in the payment to creditors and the administrative expenses of the receivership. The Oregon thrift was closed by the Resolution Trust Corp. during a wave of failures at the height of the savings and loan crisis of the late 1980s and early 1990s. The FDIC has been the thrift's receiver since 1996.

More funds could be available to the shareholders, depending on the outcome of litigation in the U.S. Court of Federal Claims, the FDIC said. That includes an extra $10 million left over from the receivership which shareholders claim is theirs. Additionally, the court in 2002 ruled that shareholders were owed about $35 million because of a 1989 law that rescinded offers of "supervisory goodwill" to the buyers of troubled banks. Federal officials are appealing that decision.

In cases such as this, when a reporter states that the thrift "failed," I'm sure that what he meant to say was "was stolen." You know, like all that waterfront property in Connecticut that "failed" when the local government condemned and seized it for sale to a private developer? That kind of "failed." Only here, the government didn't pay the owners of the thrift anything for their seized assets until the owners sued them and won $35 million in a breach of contract suit. We've posted stories about these heinous "supervisory goodwill" cases and how the government loses on liability but never stops fighting, so they can attempt to find an appellate panel weary or misguided enough to whittle down the damages. Apparently, they're doing the same thing with Benjamin Franklin Federal.

[Must... Control... Fist... of... Death!]

In Ben Franklin's case, not only is the government saying that "a penny stolen is a penny saved," but also, "Hey! You weren't broke after all! Oops! Our bad! Please accept this paltry $31 million with the thanks of a grateful government. Another $10 million may follow."

Think about it: the FDIC liquidates the institution because in 1990 it's insolvent, but sixteen years later it has $31 million dollars IT DIDN'T FIND A WAY TO SPEND (our federal government??!!??) to return to the shareholders of the "insolvent" thrift. As Tom suggested to us, it may be that the FDIC will claim that this is all due to its superior ability to work out troubled assets. Well, that argument would fly in the face of the attitude of the FDIC expressed in 1990 (about which I recently posted here) that the assets of failed thrifts needed to be liquidated post haste, rather than be worked out over time.

In the government's view, why would you have propped up any of these "insolvent" thrifts in 1990 (albeit with new management) and let them work out the troubled assets over time? What sense would that have made? None of them would have recovered!

Except maybe Benjamin Franklin Federal Savings and Loan. That thrift, like many others, became "insolvent" only because (1) on August 10, 1989, Congress passed a law that provided that they could no longer count as regulatory capital "supervisory goodwill," and made no allowance for the fact that the U.S. government had asked institutions like Ben Franklin to take over insolvent thrifts and gleefully agreed to let them include in regulatory capital as an intangible asset the amount of negative net worth ("supervisory goodwill") that resulted from merging with an insolvent thrift, and amortize that "asset" over 40 years; and (2) the banking regulators, still smarting from the powder burns suffered as a result of Congress blasting the Southwest Plan out of the water, wouldn't attempt to create any basis for forbearance for such institutions (which they could have done had they been willing to stretch their intellects). They just shut them down.

These types of cases (and others) get no press because they aren't "sexy" and don't fit the prejudice of the public (and of venal politicians who attempt to avoid their own culpability) for "bad guys" versus "good guys" simplicity. While there were plenty of "bad guys" on the savings and loan ownership and management side of the fence, objective observers understand that there were weak and venal players on the other side as well. The latter are just better at avoiding accountability for their decisions.

Of course, that's just my opinion. I could be wrong.

A curious case. Stay tuned.

ING Adopts RSA Technology For Dual Authentication

ING announced yesterday that it, too, had decided to use RSA Security's technology to meet the dual authentication requirements for "high risk" online banking activities as required by federal guidelines. A few months ago, I expressed my opinion that many banks would opt for the RSA tools. Even if, as earlier surveys indicate, only 57% of the top 50 U.S. banks will implement dual-factor authentication by year-end, that's still leaves a lot of work for RSA and other authentication service providers by year-end.

Speaking of the December 31, 2006 deadline, the FFIEC FAQs that I posted about earlier today reinforce the regulators' expectation that banks had better get this implemented by year end or be able to explain their failure to do so. The short and sweet "Timing" section of the FAQs in its entirety is as follows:

Timing

Q-1- What do the Agencies expect institutions to have accomplished by year-end 2006?
A-1- The Agencies expect that institutions will complete the risk assessment and will implement risk mitigation activities by year-end 2006. The Agencies are not considering any general extension of the timing associated with this guidance.

Q-2- What if the financial institution or its technology service provider cannot implement a solution by year-end 2006?
A-2- The Agencies’ examiners will assess the adequacy of each financial institution’s authentication controls on a case-by-case basis.

If you're a bank that hasn't started the risk assessment or has but hasn't gotten very far down the road with it, I'd say you'd best get cracking.