Bank Lawyer's Blog

The Marijuana Minefiled Continues To Claim Banks

No matter how many times commentators like this curmudgeon warn banks that decide to dip their toes in the toxic waters of banking marijuana businesses, some banks not only don't "get it," they don't get it that they don't get it. At least, they don't until the regulators whack them upside the head.

The latest slow learner is apparently Millennium Bank, a small ($73 million) bank in Des Plaines, Illinois. According to the American Banker's Kevin Wack (paid subscription required), in March 2016, that bank entered into a consent order with the FDIC and Illinois banking authorities that "a source familiar with the matter" claimed "stemmed from the bank's involvement in serving pot businesses." As consultant Steven Kemmerling notes, there is no "template" for banks serving marijuana businesses to navigate the mysterious waters of the FinCEN "guidance" issued in March 2014, which purported to give financial institutions a path to serving marijuana businesses that were engaged in state-legal, federal-illegal activities. The consent order itself does not mention marijuana, and its numerous requirements could be interpreted as an indictment that the bank in question did not have even a basic BSA program required to meet applicable law and regulation. Kemmerling anticipates additional consent orders "as regulators continue to refi9ne how to safely bank marijuana." In other words, the smoke has not yet cleared on how to break federal criminal laws without, you know, getting your writs slapped.

The fact that the consent order (found here) nowhere uses the word "marijuana" indicates that the bank regulators are not anxious to admit that they are tacitly permitting (according to the article by Mr. Wack) 301 banks to engage in activities that are literally illegal. As Alabama Law Professor Julie Anderson Hill pointed out in an excellent law review article that we discussed last year, the regulators who fudge on these activities face another potential risk.

If the Federal Reserve provided payment services to a cannabis credit co-op, the Federal Reserve and its employees would be engaging in money laundering. They might also be conspiring to manufacture and distribute marijuana, aiding and abetting the manufacture and distribution of marijuana, and acting as accessories after the fact for the manufacture and distribution of marijuana. 

When marijuana advocates ask the bank regulators for "clarification," they are praying for rain in Death Valley. What's needed is action from the US Congress, action that would make banking state-legal marijuana businesses also legal under federal law. At that point, more "clarification" on BSA procedures might actually be useful. Don't expect Congressional action this year.

Incidentally, all those banks that are chomping at the bit to get their hands on drug money might want to consider the long-term effects of legalized recreation marijuana use. Trail blazer Colorado is experiencing some kick back from being the Mile High State.

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I am giving a one-hour webinar for BankersHub on July 19 on the banking and credit union regulators' expectations for technology service agreements. You can find information here.

Pot, Meet Kettle

Since shortly after the onset of the financial meltdown and housing market collapse in 2008, a populist narrative has been that mortgage lenders and servicers have deprived defaulting borrowers of their rights by "robo-signing" documents and outright fraudulent manufacturing of note and mortgage assignments and similar practices in foreclosure actions. The narrative has a factual basis.

However, not all of the fraud may have been perpetrated by lenders. Recently, allegations have been made that at least one Florida lawyer falsified note assignments to make it appear that the notes had been assigned to a bank other than the one that initiated the foreclosure proceedings.

The allegations against Kalogianis center on promissory notes, the document in which a borrower promises to repay the lender. Promissory notes often change hands as mortgages are sold and resold. Many lenders went out of business after the housing crash. Because it was not always clear whom a borrower owed, promissory notes often were stamped with a "blank endorsement'' — whoever the promissory note was endorsed to would be legally entitled to foreclose and collect any money due.

"It's like a blank check,'' Weid­ner said.

In cases defended by Kalogianis, the companies seeking to foreclose said they filed promissory notes with blank endorsements. But at some point, the motion says, the notes in four of the cases were altered to show they had been endorsed by "Bank of New York, as trustee.''

In the fifth case, a blank endorsement was altered to show Wells Fargo had signed it, the motion says.

One company, BAC, lost its case against a Kalogianis client in 2014 when Kalogianis argued at trial that only Bank of New York could foreclose because it was the one that had endorsed the promissory note. (The case has since been reopened.)

Kalogianis denies the allegations and asserts that the lender falsified documentation and "was trying to 'turn the tables'' on him rather than lose the case."

"It is the plaintiff's own improper conduct … that should be reviewed,'' he said.

Another impediment for the lender is that there is no eyewitness who saw the alteration of the assignments, and there exists no clerk's office video which would reveal the alteration. The lender asserts that it must have been Kalogianis who altered the assignments because no other person who might have had access to the documents had a motive to falsify it. I'm not sure that's a winner. Remember, just like on "Cops," all suspects are presumed innocent until found guilty in a court of law. Moreover, if Kalogianis can prove his allegations that the lender engaged in other document fraud, then a judge could determine that any falsification of the assignments to show the Bank of New York as the assignee may just as well have been made by the lender rather than Kalogianis, perhaps as a desperate "Hail Mary" maneuver.

The Tampa Bay Times reporter does devote considerable space to recounting the colorful history of Mr. Kalogianis, including a couple of previous ethical complaints, his unsuccessful run for US Congress, and the fact that he worked his way through law school as a male stripper. So many of us worked our way through law school as strippers that I fail to see what bearing that might have on the lender's allegations.

Other than the allegations of a couple of clients of Kalogianis, both of whom alleged that the lender in their cases had "committed fraud," there is no similar recounting of the colorful past of the lender or any of its legal counsel. Perhaps they are all Carmelite nuns and monks who spent their law school years and beyond grappling with the dark night of the soul and had no time or inclination for strip bars or the US Congress, nearly identical fora in the popular imagination.

Certainly, the lender's motion in this case might be more persuasive if, as was the case with a motion brought by another foreclosing lender against Kalogianis, he was allegedly caught on camera.

This week, Bayview Loan Servicing, which is foreclosing on a Kalogianis' client on behalf of Bank of America, obtained a video of a man it says is Kalogianis looking at court files in the Pasco clerk's office. The video appears to show him removing a small object from an accordion folder, stamping a page in a court file and returning the object to the folder.

Kalogianis' attorney's defense is "nothing to see here" and "I'm rubber, you're glue, whatever you say bounces off me and sticks to you."

"I can't see anything incriminating other than a lawyer doing a diligent search, going through files looking for mortgage fraud,'' Cohen said of the video. "After all, it would not be unusual to find mortgage fraud on the part of Bank of America and its legal agents in that they've already stipulated to being responsible for tampering with evidence resulting in payment of billions of dollars of fines to avoid a possible criminal prosecution.''

Cohen said that Kalogianis has won "many cases'' in which promissory notes had not been stamped or signed by any lender.

"Why in the world would he want to do something that could potentially hurt his client by putting a stamp on a note?'' Cohen asked "Simply stated, there was no need for Constantine to stamp anything to win the case.''

Forging or altering public records, including court records, can be a felony punishable by up to five years in prison.

As I have discussed many times in the past, the last point is important. Anyone, lender, borrower, or their respective counsel, who falsifies public records ought to get the book thrown at them from a criminal law perspective. Winning or losing a foreclosure case should be collateral damage. At this point, we have nothing to judge but allegations and press reports, but we'll be following this one to see what, if anything, shakes out.

Fourth Corner: Staying Power or Sampling The Product?

When last we checked in January on the trials and tribulations of Fourth Corner Credit Union, a state-chartered Colorado credit union formed to provide financial services to the marijuana industry, the credit union had been denied an injunction by a federal district court in Colorado to force the Federal Reserve Bank of Kansas City to grant the credit union a "master account." It needs that master account to gain access to the banking system. The district court judge ruled that the court was not going to compel the Fed to grant access to a credit union that would facilitate illegal money laundering under federal criminal laws (albeit an activity that is fine and dandy under Colorado law). The court also "hinted" that if it ever got to the merits of the issue of whether Colorado marijuana laws trumped federal marijuana laws, the Supremacy Clause of the US Constitution would lead the court to favor federal law.

On April 29th, the credit union appealed the district court's decision to the 10th US Circuit Court of Appeals in Denver. I have not reviewed the appellant's brief, so all I have to go on regarding the arguments to support the appeal thus far are the public statements of the credit union's spokesperson as reported in The Denver Post. Those statements don't fill me with an excess of hope that the credit union's appeal will be successful. The arguments seem to be:

• The Justice Department and FinCEN are "hypocritical" for issuing guidance that would lead banks to believe that they can successfully avoid prosecution under federal law if they follow the guidance without actually allowing them to do so.
• The government bureaucracy moves slowly, so drug money can't be laundered through the banking system and is, thus, "unsecured," and that "scares" the spokesperson.
• A decision was rendered by a Colorado district court judge that marijuana buds were covered under a general liability insurance policy, a decision that the court made clear involved solely state, not federal, law.
• The US Supreme Court declined to hear a lawsuit filed by the states of Nebraska and Oklahoma against the state of Colorado, a decision that was based solely on jurisdictional grounds, in that the alleged harm is being caused by individuals, not by a state, and, therefore, the SCOTUS does not have jurisdiction to hear the case. The attorneys general of Nebraska and Oklahoma can refile the case in federal district court.

There may be fine legal arguments made by the credit union that support its contention that the Fed must issue it a master account. If so, they are not making it into the main stream media. If all it's got is what I read in the newspaper, I'd recommend that the CU roll 'em if its got 'em, don't Bogart the joints, slap a few Cheech & Chong cd's in the boom box, and "get mellow," because the future is looking somewhat gloomy in the real world.

Then again, come November, we have absolutely no idea what kind of wild card the electorate might draw for the Oval Office. We might actually get a president and Congress that will take the Thai Stick by the lit end and burn down the barriers to a full monty of a Mary Jane-friendly society. Or, those of us who haven't rolled a joint in nearly a half century might be compelled to nestle down in the high country with a M249 SAW, a bale of concertina wire, a half-dozen claymores, plenty of bottled water and Tostitos, and several pounds of Ghost Train Haze and Blue Dream. And yes, unlike our former president and future first man, in such circumstances, we would plan to inhale.

The Devil You Know

Writing in the latest issue of The Atlantic, Bethany McLean gives a fairly balanced treatment of the oft-whipped payday lending business, and asks the very intelligent question, "If you get rid of it, will anything better replace it?"

After noting that payday lenders serve almost 15% of American households, and that the typical customer is a white woman age 25 to 44, she also points the problems faced by those typical customers, many of whom live paycheck to paycheck, as a result of the typical payday loan.

The entire amount—the fee plus the sum that was borrowed—is generally due all at once, at the end of the term. (Borrowers give the lender access to their bank account when they take out the loan.) But because many borrowers can’t pay it all back at once, they roll the loan into a new one, and end up in what the industry’s many critics call a debt trap, with gargantuan fees piling up.

McLean states "a key truth" about all small, short-term loans: "they are expensive for lenders to make." Payday loan borrowers are not "price sensitive" because "[t]he typical payday-loan consumer is too desperate, too unsophisticated, or too exhausted from being treated with disrespect by traditional lenders to engage in price shopping." With price competition being "inelastic" and with fees being so high, you would expect to see the business "awash in profits," yet studies of the industry show that the profit margin is less than 10%, which is less than one-third of the profit margin of the consumer-financial-services industry as whole. This is because default rates are high. The people who pay high fees for short-term loans don't have access to other alternative sources of credit because they are lousy credit risks, and on a $300 loan, payday lenders can't afford to underwrite them as they do more "conventional loans. An even bigger drag on profitability is overhead. Lots of storefronts, high employee turnover rates, and overall lousy efficiency.

The CFPB's proposed rules for the business would require underwriting to ensure sufficient verified income to ensure repayment (as well as living expenses) without either default or repeated re-borrowing. The latter is the aspect of payday lending that most disturbs its critics, who feel that payday lenders "trap" borrowers in never-ending cycles of re-borrowing. However, McLean supports the payday lending industry's supporters' contention that these requirements would put all payday lenders out of business, and she asks whether or not that's a good thing.

Emergency credit can be a lifeline, after all. And while stories about the payday-lending industry’s individual victims are horrible, the research on its effect at a more macro level is limited and highly ambiguous. One study shows that payday lending makes local communities more resilient; another says it increases personal bankruptcies; and so on.

[...]

If most payday-lending customers ultimately need to fall back on financial support from family members, or on bankruptcy, then perhaps the industry should be eliminated, because it merely makes the inevitable more painful. Yet some consumers do use payday loans just as the industry markets them—as a short-term emergency source of cash, one that won’t be there if the payday-lending industry goes away. The argument that payday lending shouldn’t exist would be easy if there were widespread, affordable sources of small-dollar loans. But thus far, there are not.

She discusses the desire of consumer advocates like Sheila Bair and Richard Cordray to strong-arm banks and credit unions into the business, at much lower rates. On the other hand, she rightly observes that Bair's foray in 2007-2008 to entice banks into the mix was a crashing failure because, as even dim bulbs like this blogger noted at the time, you can't make any money on them at 36% (the consumer advocate's favorite annual percentage rate cap). McLean also notes the perversity of the subsequent FDIC and OCC guidelines about the risks of small-dollar lending that drove Wells Fargo and U.S. Bankcorp to drop the business entirely. Even credit unions, which (need we point this out?) DON'T PAY TAXES, can't figure out a way to make payday lending work for them, at least not on a scale that will replace the current payday-loan-office-on-every-corner industry model and service the targeted market.

Although McLean suggests that Colorado has done some "out-of-the-box" thinking about payday lending (thinking apparently done prior to the legalization of recreational marijuana use), it's not likely to satisfy the industry's critics (like Cordray & Co.) because it actually leaves the industry in place. Sure, it's a much smaller industry, one that charges 42% less in fees, and one whose loans default less frequently, but it still actually exists, making all those icky payday loans to people that The Care Bair and King Richard need to protect from themselves because they're all just too dense to do it alone. True believers will never rest until Michael Corleone and his crew step back into the role they were born to play: real-life loan sharks and knee-cappers. If that happens, McLean will not be rooting from the sidelines.

Outrage is easy, and outrage is warranted—but maybe payday lenders shouldn’t be its main target. The problem isn’t just that people who desperately need a $350 loan can’t get it at an affordable rate, but that a growing number of people need that loan in the first place.

That last sentence is especially cogent, but a topic for another day, and a different blog.

Rent-a-Charter vs. Strategic Alliance

In June 2004, I wrote a post about schemes by non-bank lenders, especially payday lenders, to "partner" with banks and thrifts in ways that would allow the non-banks to use the bank's or thrift's status to "preemept" "inconvenient state laws, such as those pesky usury limits. As I said at the time:

Apparently, the state-chartered banks involved in this practice are counting on the continued lack of objection by the FDIC, and the continued sympathy of state banking regulators who are eager to increase the number of state-chartered institutions that they regulate. In my opinion, this is a risky course.

I also pointed out at the time that national banks and federal savings banks could rest assured that their primary federal regulator would be scrutinizing their business arrangements with non-banks like Elizabeth Warren looking under her bed every night for a bad banker looking to steal all the cash she has hidden in the sock that she keeps under her pillow.

According to a recent client alert from Chapman and Cutler LLP, this bad old idea not only refuses to die, but has engendered state officials to take action to stop it in its tracks. While the alert discusses the State of Pennsylvania going after payday lenders who've aligned themselves with Native American tribes (which has been a problematic marriage for quite some time), it has wider implications for similar arrangements. In this instance, the Commonwealth of Pennsylvania alleged that the "true lender" for regulatory purposes was not a bank in Delaware that would have been exempt from Pennsylvania usury limits and licensing requirements but the non-bank website "originator" that did most of the origination work and derived most of the economic benefits from the loans. The authors note that in other jurisdictions, the court decisions have not been in lockstep on the issue of preemption, arrangements like the one challenged here are likely always to put the lenders in the regulatory crosshairs.

No clear rule has emerged although regulatory challenges almost certainly are more likely to be made when excessive interest rates and/or abusive sales or collection practices are involved. In this case, the loans imposed interest rates of 200% to 300%.

The alert notes that even though the court's decision involved only a motion to dismiss Pennsylvania's action, and that is a long way from a judgment on the merits, the red flags for financial institutions involved in such relationships are clear "because it demonstrates that plaintiffs will continue to raise the “true lender” theory and courts will not necessarily dismiss at an early stage (for failure to state a claim upon relief can be granted) “true lender” claims solely because a bank is the named lender on the loans, at least where there are allegations that the originating bank does not have substantive duties or an economic interest in the program."

In order to mitigate the risk of claims based on the “true lender” doctrine, companies that engage in internet-based lending programs through an arrangement with one or more banks should consider how the programs are structured. For example, consideration should be given to operations where the bank has substantive duties and/or an economic interest in the program or loans. We are aware that some internet-based lending programs are considering structural changes of this nature.

The firm also advises institutions to make certain that they comply with regulatory guidance governing relationships with service providers. They cite FIL-9-2016 and related FDIC guidance. I'd also suggest taking a look at the OCC's Bulletin 2013-29.

Or, for a change of pace, a bank considering one of these schemes might decide to take its entire capital to The Bellagio in Vegas, walk up to nearest roulette wheel, and lay it all on "00." I mean, if you like dancing along the razor's edge with insured deposits, you might as well go all-in. Plus, you get free booze as long as your money lasts. To hedge your bet, you might want to hold back enough to buy a one-way ticket to Havana (regular flights from the States start soon) just in case that method of income-generation doesn't work out as well as a strategic alliance with a non-bank payday lender.

Don't Ask, Don't Tell

You may recall last year's pronouncement by the head of FinCEN, Jennifer Shasky Calvery, that 105 financial institutions were, thanks to the amazing guidance provided in February 2014 by FinCEN, servicing state-legal, federal-illegal marijuana businesses. Apparently, less than 10% of those are in Colorado, land of the free and home of the dazed, because according Colorado Rep. Jared Polis, only eight commercial banks and two credit unions in that state are banking the pot biz, and none of them want to be publicly named.

I assume that they don't want to happen to them what happened to publicity-challenged MBank out of Oregon. As recently related in published reports, that Oregon bank announced in January that it was open for (marijuana) business not only in Oregon, but in Colorado, and that it had the "tacit approval" of the FDIC to bank the unbankable. Within less than a week, because it was supposedly "overwhelmed" by the response from Colorado marijuana businesses, it pulled entirely out Colorful Colorado. Now, it's announced that it has pulled out of the entire marijuana business nationally, even in its home state of Oregon, apparently haven satisfied the munchies and gotten a good night's sleep. Like the Colorado exit, the industry-wide exit is supposedly due to the unexpected response of unbanked pot sellers and the bank's determination that "the bank is not big enough to provide and support all of the compliance components required."

It may be pure coincidence, but it appears that any time a bank is publicly "outed" as a banker to the stoned, the bank pulls out of the business. None of the 105 institutions cited by Ms. Calvery or the ten cited by Mr. Polis was named. Had they been, how many of them would have "pulled an MBank"? Most, if not all, is my guess.

Unlike banking payday lending, a perfectly legal business that the regulators are trying to eradicate, banking marijuana selling, a blatantly illegal business (under federal criminal laws), is just fine with the federal banking regulators as long as the bank flies under the radar screen. It's OK to service an illegal drug business as long as you (A) file the right kind of Cheech & Chong SAR or SARs, and (B) don't ever, ever, let anyone but the illegal business owners and bank officials know about it. Do you think that this state of affairs breeds cynicism and contempt for the rule of law? Me, too.

"Don't Ask, Don't Tell." It was bad policy for the US military and it's no better for the US banking business.

The Fed's Cold Comfort To Colorado MJ Businesses

I'm traveling this week on business, but I didn't want to leave town without a comment on the visit of Esther George. head of the Federal Reserve Bank of Kansas City, to Denver last week. She was invited to meet with Colorado Representatives Polis and Perlmutter, who've been trying to find a way around the inconvenient fact that what might be legal in Colorado in the way of raising, refining, and selling marijuana for recreational use is still a violation of Colorado criminal laws, as is the handling of funds derived from such illegal activities by banks. According to Rep. Polis, George gave them the Mount Rushmore Response: impassive staring with no audible sound.

George was "circumspect" in her comments about banking for marijuana businesses, Perlmutter said.

"She wouldn't give us a 'yes, no or maybe,'" he said.

But George "expressed great interest in learning about the challenges" marijuana businesses are facing, said Perlmutter, D-Golden.

In other words, like Bill Clinton, she felt their pain in a rhetorical sense only.

The application of Colorado's Fourth Corner Credit Union, formed top bank the unbankable state-legal Mary Jane businesses in Colorado, for a FRB master account has been hung up for months at the Fed. It is likely in Washington, D.C., where it may be sucked into a black hole, eaten by a goat, or consigned to Elizabeth Warren's S&M dungeon.

What actually caught my attention was the assertion by Polis that eight banks and two credit unions were secretly banking marijuana businesses. In other words, eight banks, with the "tacit" collusion of bank regulators, are engaged in illegal drug money laundering.

I understand. The banking regulators are too busy trying to drive legitimate payday lending businesses out of business through Operation Choke Point to bother with federal criminal laws. This is perfectly understandable in the Humpty-Dumpty, Alice-Through-The-Looking-Glass world in which we live today.

New ILCs? Nahhh!

Four and one-half years ago, we wondered if the three-year moratorium on FDIC insurance applications for new industrial loan companies (ILCs) and other restrictions placed upon ILCs by Franken-Dodd would spell the death knell for the ILC charter. While that moratorium expired a couple of years ago, no new ILC charter applications have been filed since then, and those few charter applications that were pending before the Care Bair put her Bairly legal 2006 moratorium on new ILC insurance-of-account applications have still not been approved by the FDIC. Therefore, a disinterested observer might be forgiven for assuming that the moribund charter might remain, as Fredo Corleone was to his brother, The Godfather, "dead to me."

However, American Banker reporter Ian McKendry thinks that for ILCs, perhaps there's a ray of sunshine peaking through the clouds (paid subscription required).

With optimism growing that de novo bank activity might rebound, some observers say attention could soon shift once again to the embattled industrial loan company charter.

[...]

[N]o federal law banning commercial or financial parents from pursuing ILCs has ever been enacted. And as the industry's continued recovery increases the likelihood of more new-bank applications overall, some observers believe interest in the ILC charter may ultimately pick up as well.

"You are going to see movement because there is pent-up demand," said Frank Pignanelli, who represents industrial banks as a partner at the Utah government relations firm Foxley & Pignanelli. "There is pent-up demand for capital to be used either through ILCs or other state-chartered institutions and I just don't think the FDIC can stop that any longer."

Other commentators think that just because a couple of de novo commercial bank applications have survived the FDIC gauntlet in the last five years, that is no reason to think that ILC de novo applications will fare as well, especially when the owner will be a commercial (as opposed to financial) business. They point to the fact that the two successful de novo bank charter applications involved unique situations, and clearly involved banks focused on serving specific communities where the need for a traditional community bank was clearly demonstrated (after considerable time and expense). The traditional attraction of the ILC charter has been to serve specific commercial businesses in financing their operations, including providing financing to customers who buy their products. The reason for Oh-My-Little-Sheila's original renegade moratorium, and the outcry that prompted and continues to "dog" the ILC charter, involved the efforts of retail giants like Home Depot and Wal-mart to enter the "banking" business, which scarred the living ca-ca out of the commercial banking business (which lives in mortal fear of the low-cost competitive advantage possessed by entities like Wal-mart as much as it does the tax-exempt status of credit unions). Critics see those concerns as still being the insurmountable roadblock to a resurgence of new ILCs that are FDIC-insured.

It's true, however, that there is no impediment built into federal laws for new ILC charters.

"We are pretty close to the possibility where you could see one of these applications fairly soon," said V. Gerard Comizio, a partner at Paul Hastings LLP. "It is now legal again for a nonfinancial company to get an industrial loan bank charter and deposit insurance for it."

Jerry's perfectly correct regarding legality. However, it was legal in 2006 for the FDIC to approve insurance of accounts applications for ILCs whose owners were engaged in commerce, and the FDIC punted, and has continued to punt, the ball down the field. Then again, Jerry's a guy whose opinion I respect, so I may have to turn my ILC frown upside down.

Or not. "Pretty close to the possibility where you could see" is, for me, a sight that is far beyond the visible horizon.

Lawmen Sue To Stop The (Reefer) Madness

You would think that when all a state wants to do is let weed-lovers light up, their neighbors would just chill and let them have serious conversations, along the lines of the following:

The Dude: It's like what Lenin said... you look for the person who will benefit, and, uh, uh...

Donny: I am the walrus.

The Dude: You know what I'm trying to say...

Donny: I am the walrus.

But, no. The neighbors can't get their redneck noses out of Colorful Colorado's smokin' hot ganja biz.

A few months ago, Oklahoma and Nebraska sued Colorado in the US Supreme Court, asking Clarence Thomas to speak up loudly enough, and Stephen Breyer to venture back from his exploration of Martian law long enough, to stamp out Colorado's raging forest fire of legalized recreational pot sales. The wind blows east and south out of the Rockies, and those states apparently are worried about the deleterious effects on their citizens of second-hand smoke. Banks in Colorado didn't need another reason to avoid banking the recreational MJ business, but that lawsuit certainly didn't lessen the risk.

Recently, Sheriffs in Nebraska and Kansas, joined by six traitorous Colorado sheriffs, filed yet another lawsuit against Colorado's governor (appropriately named "Hickenlooper") over the same issue (legalization of recreational pot sales).

“This suit is about one thing — the rule of law,” Larimer County Sheriff Justin Smith said in a news release. “The Colorado Constitution mandates that all elected officials, including sheriffs, swear an oath of office to uphold both the United States as well as the Colorado Constitutions.”

The last time we saw federal supremacy thrown around so much it involved the OCC's march-to-the-sea over the blazing husk of the 10th Amendment in defense of the right of national banks to thumb their noses at guys like Eliot Mess, the"Sheriff of Wall Street." At that time state bank regulators and law enforcement officials weren't so keen on the federal supremacy clause (or the National Bank Act). Now that Franken-Dodd and the Cuomo v. Clearing House Corporation decision have put chinks in the preemption armor of national banks, that particular reason for hating federal preemption doesn't have as much steam. People who hate federal preemption in this situation are not people who want to save the state from those who would use federal preemption to break state laws, but people who want to break federal law in order to engage in a state-sanctioned activity.

Some legal experts think that the latest lawsuit has a chance of success of somewhere between "slim" and "none."

Sam Kamin, a law professor at the University of Denver, was skeptical of the sheriffs’ argument. He said no law requires local officers to act as de facto federal drug agents.

“Of the four (lawsuits), this is the one with the least merit,” Kamin said. “They have targeted not just the (marijuana store) regulation piece but they’re also essentially saying Colorado can’t legalize marijuana. No one has ever gone that far.”

Even if true, that leaves three more lawsuits that continue to add to the risk of banking marijuana businesses, whether or not they are "legal" under state law.

The Mistress of Spin

A reader recently emailed that she was surprised by how brazenly Elizabeth Warren speaks out of both sides of her mouth. The specific event that caused her incredulity was Warren's initial public support of regulatory relief for community banks and her subsequent assertion that community banks didn't need regulatory relief because they were doing just fine financially.  After telling her that speaking out of two sides of a mouth is a gift commonly demonstrated by those born with a forked tongue, I pointed out that Ms. Warren's been stretching the boundaries between lies and damned lies for, literally, years.

Back in 2008, she went on the warpath (this was in the days before anyone called her questionable claim of Native American ancestry) over what she claimed on her blog (yes, Liz was a blogger) was a proposal by national banks to claim preemption from all state foreclosure laws. The fact that those banks were claiming preemption only over extended foreclosure moratorium and similar laws, not the general binding nature of each state's foreclosure process law requirements, didn't enter her discussion. Instead, she made this spurious allegation as to the position of the banks:

State laws are pre-empted whenever a national bank holds the mortgage, so the states can't make them follow the local rules. Pre-emption has been used successfully by the credit card companies to fight off state regulation, so now the banks want to escape local restrictions on foreclosure as well.

That was not the position of the banks regarding foreclosure laws at the time. It was also not the position on national bank preemption of either the OCC (which issued preemption regulations and opinions) or of the federal courts. In fact, the then-applicable OCC regulation specifically stated that state debt-collection and foreclosure laws were not preempted. Warren's characterization that the banks were arguing that they were preempted from all state foreclosure laws and, therefore, could, apparently, seize homes at will, was false. Of course, as a practical matter, some national banks did, in fact, seize homes without due process (even those on which they did not hold a mortgage), and even the owner's pet parrots, but that was through incompetence, not intent.

While intellectual dishonesty has served her, and will continue to serve her, well as a US Senator, Ms. Warren's ability to let no fact stand in the way of a populist narrative should come as no surprise to anyone who's been paying attention to her public pronouncements for any length of time. I mean last year, she blamed the 2008 financial meltdown on Ronald Regan. Next up: ISIS was created by Billy Graham.