Bank Lawyer's Blog

Doing Well By Doing Good

Since it is the season to be jolly, let's focus one of our last posts of the year on things that banks, and credit unions, do that might even cause Bernie Sanders to throw them a grudging compliment.

First up is Gesa Credit Union of Washington State, which lat year sponsored students at a local culinary center in preparing Thanksgiving dinner for residents and staff at a local teen homeless shelter. This year, the credit union approached the center's instructor with a proposal to do the same thing, only this year for Christmas. The students jumped all over it. This is called "proactive agape."

Next in line is Virginia-based community bank Southern Bank. They're the corporate sponsor for a Hampton Roads television station's annual "Operation Christmas List." The station collects and delivers toys to local children whose parents don't have the money to afford much more than a lump of coal. This beats the polar opposite type of story sometimes featured this time of year, especially over the past seven years, about a heartless bank kicking some family out of its home and into a snow bank (notwithstanding Fannie Mae's policy of suspending evictions for the holidays.

Finally, we have another Virginia community bank, Union Bank and Trust, teaming up with a Richmond-based television station and a local bookstore to give a little girl whose family just moved out of homelessness what I think is a priceless gift: a library. That will be a gift that will keep on giving.

If good publicity results from these efforts, then good for all concerned. Community banks and credit unions are part of the fabric of local community life, as are so many other local businesses. Their numbers are dwindling year by year. Whether or not you believe me, you'll miss them when they're gone.

Merry Christmas.

Compounding Your Errors

Because we've been relentless in our coverage of Bank of America's repeated foreclosure faux pas over the years, it's only fair to welcome to the slap-fest BofA's erstwhile partner in slime, CitiMortgage. Like the bank America love's to call its own, Citi also knows that when it comes to generating bad publicity for banks in general and big banks in particular, nothing works better than breaking into and looting a house the bank does not own.

Until this year, Honesdale attorney Jeffrey S. Treat thought he had seen everything in the wild world of home restoration, flipping and landlording.

CitiMortgage and its agents confused his handyman’s special — a small, long-vacant foreclosure he purchased for cash at 1526A Thackery Ave. in Scranton — with a home it foreclosed on two doors down.

In several visits from June through July, the bank cleared Treat’s building of its contents, including tools, building materials and replacement windows.

The bank changed the locks and crudely padlocked and posted the home.

This came as a great shock to Treat, who had no mortgage on the home and no relationship with Citi.

Unable to reach an agreement with the bank or the company that did the property clean-out, Safeguard Properties of Valley View, Ohio, Treat sued them and CitiMortgage Inc. of O’Fallon, Missouri, for the $3,500 estimated worth of what they removed and $5,000 for trespassing and damages.

A spokesman for Citi said Safeguard Properties and Treat are trying to resolve the issue. But Treat is past negotiating and is preparing for court.

“I don’t live there, and it was just tools, lumber and whatnot, but it’s just bizarre that this would happen,” he said. “It’s my place and all these people were in there and they took my stuff. Yeah, I feel violated.”

If you're going to pick on an individual to abuse in this fashion, who better than a lawyer? Sure, people love to loathe attorneys, yet as a group, they have the annoying habit of not being intimidated by big institutions, knowing their way around a courthouse, and, most unfortunately of all for giant financial institutions, matching bankers tit-for-tat when it comes to displaying your inner A-hole.

Not that Jeff didn't have provocation to sue the beatitudes off of Citi, you understand.

All summer, there were subtle and not-so-subtle clues that a big bank was about to pounce on his property. Treat tried to warn everyone, but never suspected a confused mortgagor would trespass, break into his property and remove everything in it.

It started when he found oversized sheriff’s sale notice on the house, citing a CitiMortgage foreclosure. He called the big law firm handling CitiMortgage’s foreclosures.

“You got the wrong house,” he said. He researched Citi’s actual foreclosure, found the property they wanted was two doors up, which he said was in much better shape than his dusty gut-job. He thought that was the end of it.

He continued working on the property, often with help from his father-in-law, who is retired and enjoys the activity. Through the summer, the grass was mowed regularly.

Treat concluded his father-in-law was taking care of the lawn.

His father-in-law thought Treat was taking care of the lawn.

They never discussed it.

Turns out, it was probably CitiMortgage and Safeguard Properties.

“That shows you what kind of guy I am,” Treat said. “I didn’t even thank my father-in-law for the work I thought he was doing, otherwise I would have known that Citibank was treating my property as though it was theirs.” He gets wind of people on his property and makes a visit, finding the locks changed, the home cleared and a padlocks attached from the outside.

The neighbors watched it happened, thinking Treat fell behind on his payments.

Treat broke into his own property, saw his stuff was gone and replaced by a Safeguard sign-in clipboard where employees logged their visits and what they had done. Treat’s tools, replacement windows, even bags of cement were gone. Treat put up a sign to CitiMortgage and Safeguard, telling them to that it is not their house.

The bank's contractor, who stole Treat's tools, could have settled up by just paying a premium on the "conservative estimate" Treat gave it for the value of those tools. Instead, it decided that nickel-and-diming was the way to best address the "reputational risk" that the federal bank regulators claim is of major concern when a bank engages in questionable activities, like processing payments for an online dating service or a payday lender. We assume that breaking and entering might also qualify as "high risk" of damaging a bank's reputation.

Treat sued them for five large in small claims court.

Citi could still have cut its reputational losses by cutting Treat a check. I mean, going to small claims court when the only issue involves an amount that Treat claims is "not even an hour of fuel in a corporate jet" seems like bullying the little guy, especially when the question of liability is cut-and-dried. However, according to the linked article, both the bank and its contractor have hired lawyers to contest the proceeding. I hope they show up at the right courthouse. Their track record does not give one encouragement. I suggest the use of a seeing eye dog.

You have to wonder who at the bank is making the judgment call to slug this one out. Treat's getting all the favorable press, and whether or not he gets the full monty financially when he gets his day in court, he's already exacted his pound of flesh in the court of public opinion. The negative publicity hit has got to be costing Citi more than simply paying the guy a few grand and keeping this embarrassing episode out of the newspapers.

Things could have been worse, I suppose. Treat could have had a pet parrot in that house.

CFPB Cracks Down On "Marketing Services Agreements"

One of the first posts I inflicted on an unspecting public, way back in 2004, when "W" was King and the bubble had not yet burst, was a rant about bogus referral arrangements that violated the anti-kickback provisions of Section 8 of RESPA. And although HUD itself once stubbed its toe over Section 8's threshold, both HUD and state regulators have been all over various schemes that attempt an end-run around RESPA's prohibition on referral fees.

With the late-night creation of Franken-Dodd, we now have the gentle ministrations of everyone's favorite benign Grandpa of a federal regulator, the CFPB, applied to Section 8, and as a recent MoFo alert advises, CFPB promises to be (in the lyrics of Jimmy Webb) a "harsh mistress."

 The CFPB entered into a Consent Order with a title company (Lighthouse) on the basis that "marketing service agreements" for "advertising" with real estate companies were, in reality, disguised referral fee arrangements. Lenders who attempt similar arrangements with real estate-related businesses, in which compensation can be related to the volume of loan business referred to the lender should take a lesson.

As evidence of the violations, the CFPB cited the following:

• Lighthouse failed to determine, or document a method for a determination of, the fair market value of the services it received under the MSAs.
• Lighthouse determined the fees it paid under the MSA, in part, based on the number and value of referrals received by the related counterparty.
• Lighthouse did not monitor whether it was receiving the services for which it contracted.
• The number of referrals provided to Lighthouse by counterparties was significantly greater if Lighthouse had entered into an MSA with the counterparty.

In sum, the CFPB asserted that Lighthouse was unable to provide a legitimate fair market basis for its pricing under the MSAs and believed that there was a strong correlation between the pricing for each counterparty and the number of referrals Lighthouse received per the subject MSA’s.

Lighthouse paid a $200,000 penalty and the CFPB imposed a $5.00 cap on the value of any consideration that the title company to "referral sources." A fiver isn't likely going to generate beaucoup business for Lighthouse, is my completely obvious conclusion.

MoFo's "takeaways" are insightful.

• As expected, the CFPB will look beyond the face of an MSA and consider the facts behind implementation, performance, and payments as between the settlement service provider and the referring party.
• The CFPB in the Consent Order created a broad definition of “marketing services agreement,” a term that is not defined in RESPA.
• The CFPB emphasized that an objective determination of “fair market value” of marketing services to be rendered must be performed with written documentation of the determination that is retained and available for review.
• In the fair market value analysis, the CFPB frowned on the settlement service provider’s consideration of what other title companies in the market were willing to pay to referral sources for marketing services.
• The necessity of monitoring MSA performance to ensure that services contracted for are actually delivered.
• MSAs that result in more business being referred to the settlement service provider than is referred by the same referral sources not pursuant to MSAs provides evidence of a violation of RESPA §8(a). How the CFPB determined these differences is not clear from the Consent Order.

Any real estate services businesses that are starting to realize that when the CFPB is on the case, there will likely be no way to ever run this dodge again get a gold star for "perception." The last takeaway asks how the CFPB could have determined how much business is referred by the same source with a "marketing services agreement" and without such an agreement. I assume the authors of the alert are displaying a dry sense of humor. As everyone knows, with the CFPB being such a self-professed "data-driven" regulator, they'll always be able to find pertinent data, even if the hiding place is an orifice on their own body.

I don't think this is the beginning of the end of these types of arrangements. I think this the end. Period.

The again, there are always those living in caves who always are the last to hear. Thus, there may be a few more Consent Orders before "marketing services agreement" as ingenuously disguised referral arrangements finally become extinct.

Wal-Mart Is Go-Go On GoBank

Not satisfied with prepaid cards from Green Dot or Bluebird Accounts via American Express, Wal-Mart's march into the banking business is now all the way into checking account territory.

Walmart, the nation’s largest retailer, is teaming up with Green Dot, known for its prepaid payment cards, to supply checking accounts to almost anyone over 18 who passes an ID check.

Daniel Eckert, senior vice president at Walmart, said on Tuesday that the accounts would be available nationwide by the end of October. The accounts are intended to be low-cost alternatives to traditional bank checking accounts, with no fees for overdrafts or bounced checks and no minimum account balance.

In comparison, a basic checking account at Citibank charges $12 if a check is returned and $34 for overdrafts.

The new accounts from Green Dot, called GoBank, will cost $8.95 a month if they have direct deposits totaling less than $500 a month. Mr. Eckert said that most people on Social Security or fixed pensions would qualify.

GoBank, as the service is known, is part of Walmart’s long-running push into financial services for people with little or no access to traditional banking.

[...]

Walmart has been eyeing financial services for some time. Two years ago, the company announced a partnership with American Express to offer a prepaid card and debit accounts. Retailers like Target and 7-Eleven also offer prepaid cards.

But the new Walmart initiative will be the first full-blown, off-the-shelf checking account. To help attract customers, Walmart and Green Dot will forgo a screening system many banks use to vet potential customers and rely instead on a proprietary system. The model is expected to allow almost any consumer who passes an identification check to open an account in minutes, according to Green Dot.

In the past, Walmart has tried to secure a federal bank charter to become a deposit-taking bank, but abandoned that effort in 2007 in the face of opposition from the banking industry. Since then, the retailer has assembled an array of services that could be offered without a charter, as well as partnerships with financial service companies like Green Dot.

Five years ago, we discussed how well Wal-Mart was adapting to the stonewalling by the FDIC of its attempt to start or buy an industrial bank. One benefit was that Franken-Dodd's "study of the need for industrial bank charter" may have presaged the demise of that particular charter, making Wal-Mart sorry that it got what it wished for. But there was more to it than merely the form of the charter that it was denied.

It's interesting that Wal-Mart, by not being in the banking business, is side-stepping the public relations backlash that is tainting other bankers who had nothing to do with the causes of the current crisis, such as community banks that are dropping like lawyers on a dove hunt with Dick Cheney. Instead, Wal-Mart is using the avenue open to it (not ideal, but workable) to cement its relationship as a low-cost provider of financial services to working class Americans. The Beast of Bentonville refuses to be tamed.

Wal-Mart didn't get to be a retail "beast" by backing down when confronted. When denied entry through one door, it has relentlessly worked on finding other doors, and then opening them wide. I simply don't see them stopping. As a consequence, of course, lower income citizens who form Wal-Mart's core customer base and who have traditionally had less access to traditional banking services are being "served," but in a beneficial way. Therefore, whether or not bankers are thrilled, the same FDIC that once effectively barred Wal-Mart from the banking business ought to be standing and applauding these latest efforts. Or, at the very least, a squatting ovation seems in order.

More Adventures In Consumer "Protection"

The CFPB's gossip column (which we've previously blasted) got a recent fisking from George Mason University scholars Hester Peirce and Vera Soliman. They point out several inconvenient truths about The Adjustment Bureau's plan to expand the scope of a public rag sheet where anyone and his second cousin Luigi can anonymously lambaste, in narrative form, any financial business in the Milky Way with unverified snark of various flavors. You know, just like what we like to do here at Bank Lawyer's Blog.

Peirce and Soliman make the following criticisms:

• There is not a market failure that would justify the public database (it's a solution in search of a problem). "There may be a powerful consumer demand for sharing bad experiences, but a private complaint database provider can more effectively satisfy that demand."
• It's a costly enterprise whose purported value does not justify the added expense.
• "By publishing a database of unverified, redacted (to remove personally identifiable information) consumer complaints, the Bureau would entice consumers to rely on incomplete and potentially inaccurate information—exactly the type of practice the Bureau seeks to stop financial firms from engaging in."
• Financial institutions will suffer financial harm from unverified complaints that they cannot effectively rebut, given the ridiculously short response time (15 days) and inability to publicly identify the accuser.
• The Bureau lacks legal authority to establish the database.
• The Bureau's argument that other agencies publish similar databases lacks argumentative "heft." "[B]ad practices at one agency do not justify bad practices at another." Moreover, some of those databases provide protections regarding verifiability that the Bureau's will not.

Based upon the CFPB's initial responses to comments it's received about the proposal, don't expect the CFPB to back down from this bad idea. After all, the CFPB has been fairly clear in recent public pronouncements that while technically it's mandate may be to prevent and remediate "unfair, deceptive or abusive" practices, what really revs its engine is "improving customer service." It's not enough to prevent fraud. The Adjustment Bureau is all about improving the "quality" of customer service. It doesn't believe that the free market can adequately manage that aspect of an agenda that requires that life be hassle free, at least if you're not a financial institution. From that perspective, a government-sponsored consumer gossip column makes all the sense in the world.

Shaming The Shameless

Venable LLP's Randy Shaheen and Amy Mudge might just be prime candidates for guest posts on Bank Lawyer's Blog. A recent "All About Advertising Law" post launched a snark attack that made this blogger proud. The victim was every banker's bête noire, the CFPB, and the cause for the caustic comments was the CFPB's apparent hypocrisy.

According to the American Banker, an outspoken critic of indirect auto lenders, Harry Douglas Lane, was in the audience at a recent CFPB forum and was called upon to speak as an audience participant. However, no one in attendance or the press covering the event was informed that the CFPB had paid for Lane’s flight to the forum as well as his hotel.

The lawyers point out that if a private advertiser had engaged in this sort of egregious omission, the FTC would likely have found that it acted inappropriately.

A company holds a press event to tout the success of its newly introduced product. Someone in the audience asks a question, which the Company subsequently uses in its advertising for the product. However, the Company fails to disclose that it actually paid for the audience member to fly into the press event. Is this a problem under the FTC’s Endorsement Guides? Most likely yes, since the payment of travel expenses would probably be a material connection between the consumer and the company.

[...]

As noted above, if advertisers had engaged in this sort of behavior, they almost certainly would have violated the Endorsement Guides, and the CFPB’s purported justification for its failure to disclose, that the critic had only a “limited” role in the Forum, would likely be met with deafening silence by the FTC staff and Bureau Director. Even if the CFPB and other government agencies aren’t literally covered by Section 5, isn’t the practice of disclosing material connections still common sense? After all, government agencies, like advertisers, are often pitching a product or ideas to consumers. Doesn’t the public (and the press) have the right to know that people who speak out in support of these ideas have a “material connection” to the agency advocating the policy?

The answer is "Yes." But, don't hold your breath. It took a "60 Minutes" expose to uncover the practice of Senators and Congress persons benefiting from insider trading, and get them to ban the practice. Even then, Congress, in the dead of night, rolled back part of that ban. Bloggers don't carry the same heft as CBS News and neither does the banking trade press. In addition, while the average voter is already chapped on general principles about the fact that members of Congress have access to oxygen, and, as a result, he or she will sit up and take notice at scandalous behavior by those clowns, he or she doesn't give a flying fig in a rolling donut that the CFPB might be paying witnesses without disclosing it in order to set up auto lenders for a fall. They're just banks, aren't they? Aren't they all a bunch of fat cats who are responsible for the economy collapsing, global warming, baldness, and Miley Cyrus? Set 'em up and take 'em down by whatever means necessary!

Still, the few of us who will follow this latest instance of rolling over a log to view the maggots crawling out appreciate the authors' closing observations.

Perhaps it’s time that what’s good for the goose is good for the gander.

Perhaps it is. Nevertheless, when the gander's the one cooking the goose, expect that the goose to be the only one who's roasted.

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.