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Last week's release of a report by the FDIC's Inspector General that outlined the allegedly thug-like behavior of some FDIC lawyers and supervisory personnel against banks that dared to engage in tax refund anticipation lending, a business that the Care Bair found distasteful on moral grounds (notwithstanding that the line of business was legal), generated the expected smoke, blown up the public's backside by all the usual suspects. A couple of articles in the American Banker (paid subscription required) by reporter Lalita Clozel nicely outlined the sturm und drang for those of us with short attention spans.
The agency allegedly used a number of strong-arm tactics -- including rigged examination reports, selectively leaking information to a competitor, and hampering a firm's acquisition plans -- in order to force the banks from offering such loans.
The inspector general's report concluded that the actions "involved aggressive and unprecedented efforts to use the FDIC's supervisory and enforcement powers, circumvention of certain controls surrounding the exercise of enforcement power, damage to the morale of certain field examination staff, and high costs to the three impacted institutions."
Among the criticized actions of the FDIC were the actions of an FDIC attorney, who allegedly "abusively threatened" banks in person and on the phone. I'm not sure what "abusively threatening" a person entails in this case, but in my 41+ years of practicing law, most of it representing financial institutions, I've been threatened on rare occasions by government attorneys, and invariably the person doing the threatening is what is often referred to in legal circles as a "classical parum canis asinum" ("punk ass little bitch"). People with actual courage don't threaten, they simply "do." With a few notable exceptions, the overwhelming majority of bank regulatory agency attorneys I have dealt with over the years have not been "abusively threatening," and among those few that have issued threats, some of have done so under what they thought was the protection of anonymity.
Clozel sets forth a bullet point list that summarizes many of the other criticized actions of the FDIC against the banks in question and against the FDIC's own examination staff. The FDIC disputes almost all of the allegations of the inspector general, although it does assure the IG that it will take several steps "to improve both internal and external communication." In other words, when the boys and girls in D.C. tell the field staff to screw a bank, they'll make sure that it's communicated clearly. The FDIC also alleged that it will update its "appeals process" so that banks that are being shot at by FDIC supervisory and legal staff can appeal up the food chain to the officials who set the rein of terror in motion in the first place, so that they can say that the agency paid lip service to due process while they all sit around and laugh at the appeal.
The FDIC also claimed that it "does not condone" the "aggressive behavior of at least one employee" and that this employee "has since left the agency." No doubt to join ISIS. It's comforting to know that when it comes to taking action on abusive action of one of its employees, the FDIC is always quick to throw under the bus those who are no longer employed by the agency.
In a Congressional hearing, at which the IG testified about the matter, Republican and Democrats split predictably. The Republicans were "troubled" by the alleged abuse, while the Democrats were "troubled" by tax refund anticipation loans themselves. As we've seen with both parties, depending on the issue, each believes that in some cases, the ends justify the means.
Fred Gibson, the FDIC's Inspector General, expressed an additional concern that many share, and that may apply with even more force to the CFPB. He said that the FDIC should have released guidance, rather than create "rules by enforcement." This concern was echoed by Rep. Sean Duffy, the Chairman of the House Subcommittee that conducted the hearing.
"It is hard enough to comply with rules that are put out that people are trying to read and try to comply with but it is even harder when you have a regulatory body of our financial industry that tries to enforce first and give guidance later. We should know what the rules are, the rules of the game should be clear."
If you make the rules of the game clear, then (A) people can challenge them on the basis that they are arbitrary or lack substantial support, or (B) the agency is then bound by the rules in lieu of personal taste (or, in the case of tax refund anticipation loans, distaste). That takes all the found of regulating.
This all was nice theater, and you have to give the Mr. Gibson and his staff a hat-tip for spitting into the wind. Nevertheless, if anyone thinks this will change the FDIC's conduct going forward, your smoking some of that legal/illegal Colorado hemp. The only thing that will do that is a change in the White House in November. Then again, Sheila Bair, who started this "trickle down" abuse in 2008 (according to the IG's report) was a Bush II appointee.
