Bank Lawyer's Blog

Shaming The Shameless

While we're sure it's merely a coincidence, hot on the heels of the letter that Rep. Pete Sessions sent to the Treasury Department's Inspector General that complained about the repeated failure of the Comptroller of the Currency to issue a final decision in the case of Patrick Adams, the Comptroller raised his middle finger to the requirements of 12 USC 1818(h) issued yet another extension of the deadline to issue a final decision, this time extending the date of decision from August 13 to September 30. As one observer pointed out, at least this time the Comptroller gave himself a deadline to issue a final decision. Whether he "sticks to it" remains to be seen.

Mr. Adams' plight has generated some interesting email. Customarily, private practitioners are most harsh in their indictment of the sort of cavalier nose-thumbing at the requirements of federal law by those whose job it is to enforce it that we've seen demonstrated in this case. However, former enforcement attorneys, such former OCC attorney Robert Serino, whose concerns about Mr. Adams were highlighted in the post linked above, have also expressed their displeasure with the way the regulator has ignored the requirements of fundamental fairness (and, as noted above, the deadlines set by federal statute). One former regional counsel for a federal bank regulatory agency wrote to complain about the "shameless arrogance" displayed by the federal government in this case and to assert that in his decades both in government service and on the other side of the table from the government, he had "never seen any type of enforcement action instituted against an individual that remotely resembles the OCC action against Mr. Adams."

Frankly, neither has anyone else with whom I've spoken about Patrick Adams, including former OCC counsel. It's not only questionable conduct, it's almost inexplicable. I say "almost," because after decades of my own experiences with federal regulatory attorneys and enforcement personnel, and after some of the spittle spewed my way in the last few years in reaction to blog posts by a couple of Erik Dorfs currently at home in the bowels of the Mother Ship, nothing much really surprises me anymore.

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.

The Unacceptable Nature of Sound Risk Analysis

Henry Meier, the General Counsel of the New York State Credit Union Association, wrote a blog post last week in which he noted the growing sentiment among consumer advocacy groups and the regulators who love them to favor putting the clamps on the nefarious fiends at ChexSystems. As Henry points out, credit unions (and other financial institutions) have been using ChexSystmes for over 20 years to prescreen consumers for potential credit and bank account offers. Notwithstanding the insanity of the subprime mortgage debacle (fostered by non-financial institution originators and their Wall Street bank enablers, by the way), most financial institutions have this funny tendency to want to be repaid money they lend and to have account customers who don't bounce a lot of checks (notwithstanding the popular notion that all banks desire check-bouncers to generate overdraft fees). Well, according to the same folks who fell in love with "disparate impact" in the lending area, that's simply not fair.

Henry links to a lengthy New York Times article that is chock full of state bank regulators and consumer advocacy spokespersons who claims that maintaining a database on people who bounce checks and otherwise stiff banks is preventing poor people and racial minorities from getting bank accounts, all based on the fact that they haven't handled bank accounts responsibly in the past. In other words, they are suffering the logical consequences of their behavior. You can understand how unfair this might be in a world when those who have not are entitled to have simply because...they are.

The article notes that the CFPB is currently investigating whether databases like that maintained by ChexSystems violate the FCRA. The New York State Banking Superintendent is also on the case. The boys and girls at the US Department of Justice can not be far behind.

While conceding that banks don't want to "bank" customers who aren't profitable, and that bouncing checks in light of the recent cut backs on the ability to charge overdraft fees makes such customers potential money losers, the article then gets down to the real reason that banks must overcome their adherence to sound business principles and take the kind of risks that regulators claim to hate: Feelings. Nothing more than feelings.

The sting of being rejected, though, can make lower-income individuals feel like second-class citizens.

“I just don’t understand why they wouldn’t want me,” said Ms. Murrell, the Brooklyn secretary. “It feels unfair.”

There you have it: It's simply "not fair."

The watch words for a new area of banking policy and enforcement actions: Life is not fair, so we'll use the power of the state and federal government to make it fair. Because, after all, no one should have their feelings hurt.

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.

Yes, It Does Flow Downhill

I occasionally receive mail from colleagues who occupy the opposite side of the fence from my piece of the political and professional pasture, but whose views I respect. I received one of those emails recently from an attorney who thinks that MERS is the spawn of Satan. Well, that characterization of his comments is a little over-the-top, but that's the style I prefer. What he actually said was:

MERS while laudable in its goals completely disenfranchises the ordinary citizen (all of us) from appropriate legal transparency in real property matters.  We used to be able to go to the County Recorder’s office and figure things out.  No more.  To my chagrin MERS has been wining cases around the US, but an enterprising state, Connecticut, is hitting back and extracting some blood from this turnip.  Go states!

He included a copy of a recent Connecticut law that raised the recording fee for the first page of any document affecting a residential real estate mortgage held in the name of a nominee like MERS (other than assignments and releases) from $53.00 to $116.00. Now, that high fee may give MERS-haters a momentary thrill, until they realize that all MERS does is pass it along to the borrowers whenever possible. Thus, the blood that's squeezed is from a vampire, not a turnip, which sinks its fangs into the necks of consumers and replenishes its blood supply quickly.

Business principles are a bitch, aren't they?

I'm out of town all week and away from the blog until the week of July 7th. I hope that all the readers, even the trolls, have a happy 4th.

Interview With The Bank Lawyer

Crystal Gimesh, who, among her other duties, blogs for NContracts, a vendor management and contract management solutions company, asked to interview me for her blog. I assumed that she must be hard up for material, but she seemed like a very nice person, and wasn't threatening me with career-ending sanctions like certain other readers, so I agreed. The interview questions were some of the best I've experienced and I had a blast answering them. The best part? I can merely link to her interview post instead having to actually write my own post tonight.

Crystal: the beer's on me.

Tracking A Troll

I'm going to hold off on further comment on the United Western decision for the time being while other people work to track down the abusive troll who drove off the rails over last Wednesday night's post on that decision. His IP address is 68.100.237.36, which belongs to Cox Communications. They've been notified and verified that they're looking into it.

Interestingly, on Friday, I had two visits to the blog in the early morning hours (prior to 7 am) from the troll's IP address, and the troll spent over ten minutes reading the pages I linked to in Thursday's post, including my 2007 post on the criminal nature of his conduct. I hope that he learned something. He was back over the weekend several times. He uses both a Mac operating system and a Windows system, so I assume he has a Macbook or iPad and also a desktop PC. I also know, for each visit, his browser, monitor resolution and color depth, Javascript version, entry and exit time, pages visited, and other information that will come in handy when the time comes to nail his identity down.

Interestingly, on Friday I received 11 visits to the blog from the OCC, and only four from the FDIC and FRB combined. All OCC visits were from IP addresses 199.83.40.33 and 199.83.40.34. I say "interestingly," because the only hateful comments I've received from federal bank regulators over the past few years have come from people employed by the OCC, one of whom is an attorney and who advised me after the summary judgment hearings in the United Western case last November that I "should keep a spot next to your plate tomorrow for a big helping of crow.  Mmmm….  Tasty." How did that guy know I was eating a raven for Thanksgiving?

The other contact from the OCC was by a person who posted a comment in January to another post using the IP address 199.83.40.34. He identified himself only as "Carl," but used the email address "[email protected]." A quick Google search revealed the likely name of an OCC attorney. I made a reply comment that called him out, by that full first name, for using an OCC computer to leave immature comments on a blog during working hours, and I heard nothing further from him. Of course, I suppose someone at the OCC using his gmail address and first name could have been setting him up. Maybe it's that kind of place.

The last visit from the OCC on Friday came via a link on this page on Investor Hub, where investors in United Western stock have been following the trial for some time. Guess where the troll's first visit from home on Saturday morning originated? Yes, from that same page at Investor Hub.

All this may be coincidental. This coward may be holed up in the Air and Space Museum or working the cash register at a 7-11. Nevertheless, if this clown is, as he alleges, with one of the federal banking regulators, then I hope his conduct is considered to be an aberration by that agency.

By the way, visitors, especially those with a law degree, really need to read and pay attention to my Disclaimer and Comment Policy.

Barring further developments, I'll be back to other topics tomorrow.

UPDATE 03.11.13: A reader emailed me to ask whether I wasn't being too harsh on this troll, but that my correspondent might feel differently if the troll had threatened regulatory retaliation. I thought I had made that clear in my previous post. "Don't think that people in the banking agencies forget your gratuitous insults." How, exactly, would you interpret that? You think I'm irritated because of name-calling? 

The Perils Of Trolling

Last night's post about Tuesday's United Western decision generated an attempt by an "anonymous" troll to leave an abusive comment this morning. I moderate comments, so it didn't make it past the "editor." In addition to some substantial "I hate Kevin" vitriol (some of it scatological), and threats that the regulators (of which the troll intimated he was one) would "get me" for my snark, it contained what I think are outright libelous per se statements regarding the former management of United Western and their outside counsel. The troll used a pseudonym and what I assume to be a phony hotmail account email address. I assume that the troll didn't realize that my blog service captures the unique IP address of all commenters, this IP address being one assigned by Cox Communications to a residence in the Annandale/Falls Church area of the Washington, D.C. suburbs. There's only one location with that assigned IP address, and it won't take more than  a John Doe subpoena to uncover the name of the account holder at that location.

I forwarded the comment and identifying information to United Western's attorneys. I assume that they'll take it from there. I think that it's time to remind the unhinged of the issues I raised in a post in 2007. In addition to other legal (and, if the troll is a lawyer, ethical) violations, the conduct constitutes a federal crime.

Please people: Get a grip. If my blog posts drive you so batty that you feel compelled to engage in illegal anonymous harassment, either seek professional therapy or...here's an idea...don't read this blog.

M&A; Is A Goldmine For More Than The Dealmakers

While the community banking business acts like the incredible shrinking man, there is a growth industry in America and Kevin LaCroix has been focused on it: securities litigation over mergers and acquisitions of public companies.

In a recent post on LaCroix’s blog D&O Diary, Kevin dissects a report by Cornerstone Research that concerns the amount of such litigation in 2012. In the most litigious society since ancient Rome, the fact that trial lawyers are stirring up lawsuits over any plausible cause of action they can concoct should come as no surprise. On the other hand, the analysis of the Cornerstone Report should make any reasonably happy privately owned bank think twice about the potential brain damage involved with going public.

Among the report’s gems that LaCroix uncovers:

• Plaintiff law firms filed lawsuits on behalf of shareholders in 96 percent of M&A deals valued over $500 million and 93 percent of transactions valued over $100 million.
• 58% of cases filed in 2012 have settled, 64% of those by settlement.
• In only one case did the settlement result in a higher sale price to the shareholders. Instead, 81% of the settlements involved only additional disclosures.
• The deal termination fee was reduced in four cases and the parties reached agreement about appraisal rights in six cases.

Thus, there was a boatload of litigation for fairly modest (in many cases, no) financial reward for the shareholders. If the plaintiffs are making money, why is this type of litigation so popular?

Yes, you guessed it.

The average agreed-upon attorneys’ fee for the 2012 settlements was $725,000, The average fee in a disclosure only settlement was $540,000, down from $570,000 in 2011 and $710,000 in 2010.

That’s a decent piece of change for the average fee, even if the average amount is slightly down with the relative improvement of the economy (“relative” being the operative word when comparing the economy to previous years). Most of us would like to take down more than a half of a million dollars in return for making a seller disclose more to buyers who will buy the stock anyway.

All of which makes Kevin’s concluding sentence no surprise.

The report notes that “as the 2013 proxy season approaches, this litigation may expand.”

Ya’ think?

I was talking to a couple of deal lawyers today about community bank mergers and acquisition trends in different areas of the country, and we concluded that in some areas, the trend will be increasing, while in others, it may take some time. None of us was focused on the fact that for our brethren in the bar who litigate for a living, M%A looks like a growth business 24/7/365.

Memories, Like The Corners Of My Mind

Yesterday's post prompted a couple of quick responses from regular readers. One asked me if I had noticed who applauded Senator Chingachgook's question about taking big banks to trial. I had not noticed. My correspondent alleged that they were wearing NACA logos on their shirts. That explained much.

NACA is one of the non-profit organizations that was a prime player in the DAP debacle, which cost HUD a bundle of loot due to the fact that the percentage of borrowers under that program who defaulted on their loans far exceeded the percentage of borrowers who did not participate in the program. NACA also tried to convince various legislatures to enact foreclosure moratoriums, alleging that they were aghast that mortgage servicers were handling foreclosures in-house (The horror! The horror!). Finally, NACA was also one of the pre-Occupy-This-Or-That activist organizations that staged mock foreclosures at the homes of bank executives, prompting me to suggest that the way to combat those non-legal foreclosures might be with extra-legal firepower. As usual, cooler heads prevailed.

Of course the applause came from NACAites. Liz is their kind of pol.

Another reader reminded me that Senator Magua's habit of dramatic overstatement and misdirection was highlighted by me before the CFPB was even a gleam in the eye of either Dodd or Frank. That post featured the fevered dream of then-blogger Lie-awatha that national banks who were loan servicers were trying to preempt all state foreclosure laws. I think she might have thought that what national banks wanted more than life itself was to be able to move a battalion of dozers through poor neighborhoods with impunity, crushing homes like piles of matchsticks, just because they're all evil and that's what evildoers do. I'd forgotten about that post, but my elephant-minded reader had filed it away in his mental chest of fond memories.

I'm pleased that some readers pay more attention to what I write than I do. It saves time and effort to be resupplied in a timely fashion by others when the snark train needs another shovel-full of coal to keep steam in the boiler.

Full speed ahead.