Wells Fargo, Criminal Enterprise

ct-wells-fargo-settlement-questions-oversight-20160910New Orleans   I’ve never been a fan of Wells Fargo. We fought them endlessly over predatory lending practices in mortgages and subprime products. They don’t listen, they obfuscate, stonewall, and hide behind layers of lawyers in stubborn refusal even when faced with evidence of clear misdeeds. We were able to fight Citicorp, Bank of America, HSBC, and a ton of subprimes, even Countrywide, and succeed in reforming practices and achieving decent settlements, but Wells Fargo, even when they settled did so narrowly and without conviction. I was clear for ACORN and our members, you just can’t trust a bank like that with your money.

It is some relief that now everyone in the United States is getting a crash course in learning that Wells Fargo is not the community banker it has claimed to be, but a criminal enterprise.

Let’s review the facts, now being widely reported. For five years employees of Wells Fargo opened up to 2 million bank and credit card accounts willy-nilly without any permission from anyone. Often the accounts were closed fairly quickly which is why the penalties now being paid by the bank are less than $200 million. It was a penny ante, amateur scam with employees making up email addresses and sometimes virtually opening up the accounts from Wells Fargo internet domains. The bank has now fired 5300 employees who were involved in this fraud. As the New York Times’ columnist, Andrew Sorkin, points out, “that’s not a few bad apples.”

Wells Fargo has taken out ads apologizing and taking responsibility, but they clearly, as usual, have their fingers crossed behind their backs. A couple of months ago before all of this criminality became public, they allowed Carrie Tolstedt, a 27-year veteran and their head of “community banking,” to retire and walk away with over a $120 million going away present. Various banking analysts are calling for a “clawback” since Wells has rules allowing them to recover monies from executives where there were ill-gotten gains. The Wall Street Journal was so grossed out by all of this that they reported the calls for clawbacks and showed a picture of Ms. Tolstedt, but couldn’t bring themselves to mention the $120 million she took away with her office plants for fear that all of us Visigoths would be clamoring at the gates.

What will they learn? Likely nothing.

But, it’s easy to explain how this happens, and it is the same way that it happened when mortgage brokers were writing fictitious so-called, “lair’s loans,” where many observers of the 2008 financial meltdown are still confused and some think it was the borrower fibbing, rather than the underwriter. In the current Wells Fargo case on cards and accounts, as well as their own and many other situations previously on loans, it is crystal clear that once you link pay to simple production, you can guarantee there will be fraud. The only question will be how long it takes you to be caught, and how much money the bank makes in the interim.

For managers there, just like Carrie Tolstedt, there is a disincentive to impose the kind of controls that would weed out these problems. Top dogs get paid on the numbers, just like the runts of the litter. In bank after bank, once you get them across the table for all of their talk about protection using sophisticated algorithms, risk management, and blah, blah, blah, they simply are culturally and systemically unable to tightly manage on performance and standards, once production is all, and pay is linked to such incentives.

They are all smart enough to know this, but it’s the nature of capitalism in some ways to ignore it. You can only conclude that they didn’t care or thought that they wouldn’t be caught. None of which recommends a bank like Wells Fargo as a place to trust your money, since they are clearly committed to themselves first and their customers last, as little more than numbers being crunched in their back rooms somewhere.

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Please enjoy Phish’s Breath and Burning. Thank you KABF.

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Middle Class, Walmart Lies, Too Big to Indict or Fail, Altruism, and Stress

unions rally in Michigan

New Orleans    You wouldn’t believe it, if it weren’t true!

Second Walmart Supplier Found in Bangladesh Fire Tragedy:  Steven Greenhouse, NYT

Scott Nova, executive director, of the Worker Rights Consortium, said the new documents raised additional questions about Walmart’s role at the factor.  ‘If Walmart’s claim that they were the victim of one rouge supplier had any shred of credibility, it’s gone now.  Walmart is limited to one of two options – to say, yes, we know these suppliers were using the factory or, two, we have no control over the supply chain that we’ve been building in Bangladesh for more than 20 years.”

Attack on Union Security in Michigan, Home of UAW and Middle Class:  Monic Davey, NYT

“We’re hearing from people around the country asking what in the world is happening in Michigan,” said Senator Debbie Stabenow, a Democrat.  “The governor had said he didn’t want to become Wisconsin.  Well, this is Wisconsin – and worse, because we’re the place, frankly, where the middle class began.”

HSBC Agrees to Pay Almost $2 Billion for Money Laundering, But…

HSBC announced on Tuesday that it had agreed to a record $1.92 billion settlement with authorities. The bank, which is based in Britain, faces accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.While the settlement with HSBC is a major victory for the government, the case raises questions about whether certain financial institutions, having grown so large and interconnected, are too big to indict.   (Ben Protess & Jessica Silver-Greenberg, NYT)

But, None of them Know What to Do With “Banks Too Big To Fail” Still!

The paper from the Bank of England and the F.D.I.C. focused on one way to accomplish this. The relevant regulator would take control of the bank’s parent company, then embark on a restructuring. By saying they are focusing on the parent company, regulators hope to shape expectations in the market and minimize destabilizing uncertainty when a bank implodes. This approach, “will give greater predictability for market participants about how resolution authorities may approach a resolution,” the regulators wrote.  The strategy then aims to put a seized bank back on its feet. In most cases, the bank would be insolvent, meaning that losses had eaten all its equity. To right the bank, the regulator would take the parent company’s debt and turn it into enough equity to support the bank’s operations in the future.   But questions surround the strategy. The paper is little more than a commitment to cooperate. In other words, it does not give either regulator the power to reach into a foreign jurisdiction to restructure a bank.   [Peter Eaves NYT]

Can’t Inhert Altruism, but at Least it Feels Good to Give:  Perri Klass, NYT

“There is some degree of heritability,” said Carolyn Zahn-Waxler, a senior research scientist at the University of Wisconsin-Madison, who has done some of these twin studies. But she notes that the effect is small: “There is no gene for empathy, there is no gene for altruism. What’s heritable may be some personality characteristics.”   Scott Huettel, a professor of psychology and neuroscience at Duke, described two broad theories to explain prosocial behavior. One, he said, was essentially motivational: It feels good to help other people. Economists have also looked at the question of altruism, and have hypothesized about a “warm glow effect” to account for charitable giving.

Don’t Worry about All of This Though, Chill Out! – Jane Brody, NYT, Personal Health Column

In an interview, Dr. Chansky said that when real calamities occur, “you will be in much better shape to cope with them if you don’t entertain extraneous catastrophes.”  By “extraneous,” she means the many stresses that pile up in the course of daily living that don’t really deserve so much of our emotional capital — the worrying and fretting we spend on things that won’t change or simply don’t matter much.  “If you worry about everything, it will get in the way of what you really need to address,” she explained. “The best decisions are not made when your mind is spinning out of control, racing ahead with predictions about how things are never going to get any better. Precious energy is wasted when you’re always thinking about the worst-case scenarios.”  When faced with serious challenges, it helps to narrow them down to specific things you can do now. To my mind, Dr. Chansky’s most valuable suggestion for emerging from paralyzing anxiety when faced with a monumental task is to “stay in the present — it doesn’t help to be in the future.  “Take some small step today, and value each step you take. You never know which step will make a difference. This is much better than not trying to do anything.” Dr. Chansky told me, “If you’re worrying about your work all the time, you won’t get your work done.” She suggested instead that people “compartmentalize.”

There you are, ready for another day!

 

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Wells Fargo Racial Steering and Discrimination Settlement with Justice Department

New Orleans    The recently announced settlement between the Department of Justice and Wells Fargo Bank saw them pony up $174 Million to provide restitution to 34,000 customers because of racial discrimination in lending rates and steering them into toxic subprime rates caught my eye and brought me to full attention.  This might be a case of justice delayed not having been denied.

Some years ago with ACORN after settling with Ameriquest (remember them?) and HSBC on predatory lending, Wells Fargo had come into our sights as the next biggest offender.  We found a zillion cases of families who would have been eligible for lower interest conventional loans that had ended up in subprime disasters and a lot more.  The highlight of ACORN’s National Convention in 2004 had been a march of 1500 to their skyscraper in Los Angeles only blocks away from the stunningly dramatic opera building designed by Frank Gehry.   There we handed Wells executives copies of the suit we had just filed against them on these grounds.  Based on a lot of factors including a change in various laws around class actions we finally ended up settling on a California-only basis for thousands there to receive restitution and agreement on “best practices” that would be implemented by Wells to prevent this from happening in the future.

Almost exactly one year ago in July 2011 Wells Fargo settled with the Federal Reserve for over $80 million for essentially ignoring everything that they had committed to in our settlement from 2004 to 2008.  Now one year later and almost $100 million more they are having to settle with Justice on a pattern of discrimination and steering, which would have also been precisely what they swore to us they were not doing once again.

I reached out to Sarah Siskind with Minor, Barnhill out of Chicago and Madison, who along with Neil McCarthy of San Francisco, had represented ACORN on the Wells matter as well as the earlier HSBC settlement.  My questions were:  How did Justice get them and was there anything we would have missed earlier?  Sarah speculated that with Justice records subpoena power they were able in all likelihood get access to all of Well’s borrower “profile” data including credit scores and crunch the numbers to more clearly see – and prove –the pattern or discrimination and steering by Wells into higher interest “products.”   In 2004 we only got lip service from Bush’s Justice Department on the issues.  Having a real Justice Department now obviously makes a difference because it means real investigations that even the “stonewall first” mantra of the Wells legal team and outside attorneys can’t prevent.

Of course in the Wall Street Journal Wells goes out of its way to continue to deny with every breath that they were really involved in any racial discrimination.  They seemed to have invoked the famous Richard Pryor defense:  “Are you going to believe me or your lying eyes?”

Sarah said that some were saying Justice might have settled to quickly and cheaply with “non-admissions” language, but that didn’t trouble her, and it doesn’t trouble me either.  What troubles me as we look more and more at banking in the light of other “criminal enterprises” is that this repeated litigation and settlements with ACORN before 2004 and now with both the Federal Reserve (in what was a record settlement for them 1-year ago!) and now with the Department of Justice is also evidence of a culture of discrimination and a management system that supports and encourages any means necessary, including possible racial bias, to achieve short term goals.

Somewhere in their bunker by the Bay, Wells executives need to finally learn a lesson that they seem to want to assiduously avoid no matter the hundreds of millions of dollars in fines and clean house to rid themselves of this continuing taint of bias and discrimination.

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A Corrupt Credit Business Model Travels to Chile and Brazil

New Orleans Cred

ODECU of Chile

ODECU of Chile

it card scams are the bad penny perfected in the United States that is turning up now elsewhere in the world.   These practices are not the foul play of bad actors as predatory lenders always claim, but intrinsic elements of corrupt, exploitive business models.  The economic success stories in Brazil and Chile now seem threatened by the avarice of casual corporate corruption matched as usual with light to non-existent regulation and consumer protection regimes.

In Brazil the debt to income ratio has risen from 22% to 40% in only five years from 2006 to 2011 according to a study quoted by Alexei Barrionuevo in The New York Times. In Chile in 7 years the ratio has goen to 70% according to the Central Bank.   There’s no question the model is predatory with interest annual interest rates reaching 220% in Brazil and no limits anywhere it seems.   The situation is especially intense at retail chain, freely issuing cards to working and moderate income customers to access basic consumer goods, and then routinely adjusting the terms and levels of the interest rates on the debt without any notice to the customer.

These cards were supported by transnational banking big boys like UK’s HSBC and Spain’s Santander and Itau-Unibanco, all of which, especially HSBC, absolutely knew better, but couldn’t resist the rip-off, knowing that they could get away with it.  When confronted by the prosecutor’s office in Brazil, the banks ignored appeals to fully compensate customers.

It was shocking to read that there are no only no limits to the level of interest rates in Chile, but also no way for an individual to be able to file for personal bankruptcy and get their act together.  Unfortunately, when ripped, there’s no way for them to run – or reorganize.  Stefan Larenas of the Organization of Consumers and Users of Chile, speaking about the Equifax-owned, unregulated Dicom credit score outfit in that country, was quoted ominously that, “If you are in Dicom, if you are not in hell, you are on the way there.  It is a true social stigma here.”  Seems a bad score not only bars you from any future loans, but is also seen as a legitimate reason to block you from future employment, creating a debtor’s prison without walls.

Predatory financial injustice is a global issue with most central banks simply burying their heads in the sand, just as our Remittance Justice Campaign has uncovered everywhere, and leaving workers and families nothing but fresh meet for corporate crime.

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H&R Block, HSBC, & the end of RALs

57334671TB002_Last_Minute_TNew Orleans Refund Anticipation Loans or RALs are a product that have preyed on lower income worker families since their inception and promotion by the big tax preparers, H&R Block, Jackson-Hewitt, and Liberty, as well as smaller fry who could get access to credit.  Negotiating with these companies could get depressing when I worked with the teams of ACORN members who the ACORN Financial Justice Center when better disclosure meant looking at a rate package that would be between 220 and 250% annualized.  There was never anything good about the products no matter what they were called, but their heartbeat was the desperate need of many families to have the money the few days quicker than it could be obtained from the IRS on an electronic or mail filing.

In a significant concession HSBC, the main lender to the large preparers, announced that it was departing the business in what they described to me, and I reported in Citizen Wealth, as “reputational” concerns.  Despite the fact that they were making almost $200M per year from this business, there was no way to disguise its predatory nature.  JP Morgan-Chase was another big player in a session where they were conceding that they would lower rates, asked me sarcastically if we thought it would be “better if they got out of the business,” to which we answered “yes!”  Santa Barbara Trust was the last major lender still hanging in the business.  HSBC has assured us that they were on a step down, transitional contract, which would pull them completely out of the business with H&R Block by the end of 2009 while they dropped other companies immediately.

Given that background, I was both disappointed and delighted to read the news from H&R Block that they were scrambling to replace HSBC as their lender and credit source for RALs for the 2011 tax season.  This should not have been a surprise to them, but it was a surprise to me to see that HSBC had continued to stand behind the RALs in 2011, long after they had assured me that they would be out of the business completely.  Clearly in the last 2 ½ years since I left ACORN the organization had taken its eye off of the target and the consequences had not been good for lower income working families who are dependent on professional preparers.  That is disappointing.

Delightful was seeing that the IRS finally did the right thing after having been an enabler to this thievery for so many years and eliminated a code this last summer that allowed tax preparers to know whether or not the likelihood was good that the filer would receive their entire refund sufficiently to cover the charges and fees being larded on by the preparers.  The IRS was effectively doing a low grade “credit check” for the preparers.  Disgusting!  Once they did that the Office of the Controller of the Currency (OCC), one of the many federal bank regulators, issued a determination barring HSBC and the like from such lending by classifying it now as too risky, despite a last minute contract extension that Block (after filing suit against HSBC for reneging on the contract) had negotiated with HSBC for the 2011 season where Block would cover all HSBC losses.  Finally the federales did the right thing!

Though this may be the death knell for RALs, which are a loan with interest, against the sums, some of the other predatory schemes will still survive.  Block announced that it would continue to fund refund anticipation checks, which are more like advances, through its own bank, the H&R Block Bank.

These predatory operations have been crack cocaine for the big-time preparers for years, so it will take some time and effort to cut the heads off of theses snakes, but at least more of the tails are now going.

Thanks to Eileen A.J. Connelly and David Pitt, AP personal finance writers for a great story on these developments!

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ACORN International Launches Remittance Justice Campaign

Money_Orders_25Phoenix In Vancouver, Toronto, Ottawa, and Hamilton ACORN International and ACORN Canada joined today to dramatically step up the international campaign to achieve improved access and fair pricing for remittances from immigrant families and their relatives in their home countries.

Today in Toronto Kay Bisnah, President of ACORN International, also unveiled an extensive report underpinning the campaign called Past Time for Remittance Justice (a copy is available at www.remittancejustice.org or www.acorninternational.org). The report is the result of  months of work and research by a multi-national research team including a battery of student interns with ACORN International at George Brown College in Toronto as well other researchers in Baltimore, Little Rock, and New Orleans joined with ACORN International and its federated organizations and staff in Latin America, Africa, and Asia.  In a survey of costs focusing on major global banking institutions as well as Western Union and MoneyGram, ACORN International found that the costs are exorbitant and predatory and averaged more than double what the World Bank estimates current pricing.

President Bisnah is expected to ask Toronto Dominion at the release today in Toronto to set an early meeting with representatives of the organization in order to begin discussions on how remittance justice can be achieved as quickly as possible.  Members of ACORN Canada will be demanding similar meetings with HSBC at the Canadian headquarters of the bank in Vancouver, while members in Ottawa will be pressing the Bank of Montreal for a meeting as soon as one can be scheduled.   In Ottawa demands are also going to be made for Canadian regulators to take up the issue of remittances and begin creating a mandatory and effective system.

The grid in the report shows costs can in some cases suck out almost half of the money being sent to families in home countries by as much as one dollar for every dollar being transmitted.  In few cases were charges, commissions, and exchange rates taking less than twenty-five cents on the dollar.  The report calls into question World Bank estimates of an average 10% cost factor and while adopting the World Bank goal of no more than 5% costs, ACORN International calls for the changes to be immediate and comprehensive, including both sending and receiving fees.

Remittances are huge and involve an estimate of over $430 billion with 75% going from developed countries like Canada and the United States to developing countries.  Remittances are a substantial part of the gross national product (GNP) for many of the poorer countries and populations in the world.

ACORN International indicated that in coming weeks more banks will be targeted.  Beginning next week the demands will spread first to Lima, Mexico City, Buenos Aires, San Pedro Sula, Tegucigalpa, and Santiago (Dominican Republic) as well as Nairboi, Kenya and Mumbai, Delhi, and Bangalore in India.  ACORN International also intends to release the report and press demands with major banks headquartered in the United States, United Kingdom and elsewhere, as well as demand government accountability in the same locations.

The sum of remittances dwarfs all other forms of foreign aid and foreign direct investment in developing countries.  A reduction from a 10% average transaction cost to a 5% average would move more than $20 billion in remittances to aid families.  ACORN International believes there is nothing to justify existing charges, and seeks in the Remittance Justice Campaign to push charges to real and reasonable costs rather than the current global “highway” robbery of banks and transfer companies.

No doubt there will be a lot more to come, since these are big targets and this is a lot of money, but there is no question that justice must be come.

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