Blacklisting by Banks

bank-of-america-steve-rhodesNew Orleans      The Federal Consumer Protection Bureau is looking into the issue of “blacklisting” by banks when some consumers try to open checking accounts.  If you are lucky, you may ask, what are they talking about, aren’t banks in the business of providing customer service through individual checking accounts?  Oh, child, you are so “old school,” 1980’s, and yesteryear.

Many big banks argue that they lose money on personal checking accounts.  At best it’s a loss leader of sorts.  They want them because they need the deposit base in some cases, but in most instances checking accounts have become little more than the way banks access your money to charge excessive fees for every little thing.    It starts with the monthly service charges that suck out your minimum balances and then there are the overdraft charges that can range up to and over $35, and that’s not counting the fact that many banks are all too willing to let scammers hit your account for predatory and multiplying charges, sell your info for credit card solicitations, many of them from their own subsidiaries, and often nearly rob you blind.

An FDIC survey reveals 65% of banks deny checking account applicants who have prior mismanagement in their consumer reports.  “A consumer who bounced a check once is not a deadbeat, a consumer who bounced a check once may not even have made a conscious mistake,” said Ed Mierzwinski of the National Association of State Public Interest Research Groups.  Mierzwinski said potentially millions of Americans are “blacklisted from banks” and consumer advocates worry financial institutions could be shutting out some people whose records were dinged by accident.  “There could have been an automatic payment that the consumer had canceled but the company by mistake continued to try to take out of their account, and that is happening more and more often today,” Mierzwinski said.  Federal law says you can request a free banking history report each year, and dispute any incorrect information. Chex Systems said if consumers find errors it is “committed to resolving all such disputes as quickly as possible.” Early Warning declined comment.

            This is a good thing for the FCPB to investigate.  Who reads the fine print, but when you open an account you give the bank the right to reject you as a customer unilaterally without cause or explanation.  With the huge databases out there, banks who are pre-screening new accounts might take a bounced check or overdue payments from your teenage years and block you from an account for years.  And, despite the fact that the devil lives in these details, as predatory as banks have become, not having an account at all exposes a consumer to even more difficulties in bill payment, establishing credit, and even receiving their paychecks electronically in many companies.

            Damned if you do, damned if you don’t.  Some protection and minimal, enforceable, easily accessible rights would be welcomed because the news everyday proves repeatedly that we need help and protection in dealing with banks.

 

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Wholesale Bank Retreat from Lending to Lower Income and Minority Borrowers

cra1New Orleans      The Community Reinvestment Act (CRA) passed in 1978, more than 35 years ago, was straightforward. Banks could no longer redline, meaning they could not use the deposits from lower income and minority neighborhoods to finance mansions for the rich in the sprawling suburbs. More plainly stated, they could not discriminate in their lending. As importantly, under the Home Mortgage Disclosure Act (HMDA), they couldn’t hide their lending records, but had to make them transparent enough for regulators and the rest of us to know that they were doing right. Fair enough, and this worked not perfectly, but pretty well, for almost 30 years until the Great Recession by meeting the huge demands in our communities for homeownership.

Without being willing to come right out and say so, banks have gone to war against the CRA and lending to low-and-moderate income and minority communities without formally revealing that they have agreed to a declaration. They don’t want to say they don’t want to loan anymore to lower income working families and minorities, but they just don’t want to do so.

The war is being led by the biggest of the banks, especially JP Morgan and Bank of America. JP Morgan’s Jamie Dimon, indicated that the bank has reduced its exposure in the market for FHA insured loans that are targeted to first-time homeowners with “little wealth, especially minorities, because it allows borrowers to make down payments of just 3.5%.” A year ago Morgan accounted for 12.7% of these loans, but most recently it revealed that its share is down to 2.3%, which is to say, knocking on the door to doing nothing. Bank of America has also retreated, claiming it will focus primarily on servicing his existing customers with accounts at the bank.

And, what is their rationale for the retreat? Well, this is interesting, because it goes to the issue of transparency and accountability for lending, which was at the heart of HMDA as well.  First and foremost is the fact that they don’t want to hold the loans on their books. For right now this is why 80% of their loans are pushed into programs with various federal guarantees. A new accounting rule proposed for 2018 could make this even dicier, because they will be required to write off a portion of the loan at the same time they are making the loan, which you just know will scare the heck of them. Here’s the rub. Dimon is whining because his bank and a pack of the others are now paying fines, $614 million for Chase, because they defrauded FHA by claiming that some loans they packaged met the FHA requirements that didn’t, and even after an internal audit discovered this, they tried to continue the cover-up and not inform the FHA that they had swindled them until an internal whistleblower spilled the beans.

So, let’s all understand, Morgan got caught cheating the government, so now the big whine from CEO Dimon is that they lost money on the scam, because they are having to pay a penalty for doing wrong. They essentially want some kind of do-over rule that allows them to cheat, say I’m sorry without a fine, and keep doing whatever they feel like doing.

And, one thing Morgan, Bank of America, and others don’t feel like doing anymore is lending to first timers, working families, and minorities it seems. Unfortunately the way the CRA has had its teeth pulled over the years makes this possible, along with the fact that the Federal Reserve is the police watching over the banks and their CRA obligations, and they have tended to play patty cake on these lending obligations for years.

We need to look at the coming CRA numbers more and more rigorously, because whether we know it or not, we’re in a fight to keep money in our communities, and we’ve got a huge body count already and no sign of any cavalry coming to save us.

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