Tag Archives: Department of Justice

Justice Going Wikileaks on Middlemen in Payday Lending Schemes

indexNew Orleans  By issuing subpoenas to the financial institutions that are enabling blatantly illegal payday lending schemes and scams, the Department of Justice with provocation from the New York State Attorney General’s actions, finally seems to be getting serious about stopping these predators, largely by picking up a page from the State Department’s Wikileaks assault in 2010.  The strategy is essentially, “if you can’t touch them, then go after whoever is helping them.”

            In the run-up to the first Wikileaks disclosures in the Guardian, New York Times, Der Spiegel, and other publications, Senator Lieberman of Connecticut and the State Department with no legal basis squeezed off Wikileaks’ funding stream by convincing PayPal, Visa, and banking institutions to deny Wikileaks access to any ability to receive funds, largely crippling the organization.  With payday lending predators the Justice Department is trying the same strategy but has stronger legal standing since a 1989 act passed during the savings and loan scandals at the time allows financial recovery from banks and other financial transaction processors if there is fraud or other violations

            The back story on this version of payday lending predation is e-commerce gone rogue.  As we have discussed before, 15 states including New York in addition to the District of Columbia, have lending caps on payday lenders while 35 let them get away with wholesale murder.  On-line payday lending has now passed $18 billion in transactions and poaches victims everywhere, including in places where they are barred.  Additionally, and sadly, there are some Indian tribes making a sovereignty argument, that have allowed themselves to be home base for some of these shenanigans, along with “anything goes” states like Utah and Delaware.   This online activity is huge and according to Arkansas-based Stephens, Inc. now is 40% of the total payday lending business.   And, some of this is not payday lending but outright scams promising jobs or delivery of goods that will never happen once the transaction is processed.

            Supposedly, according to the Wall Street Journal, both the Office of the Controller of the Currency and the FDIC are telling their member financial institutions to clean-up their acts and evaluate their relationships as middlemen with these loan sharks and hustlers.  JP Morgan Chase earlier ran from a scandal where they were enabling false charges by larding on numerous hits on accounts with insufficient funds totally thousands of dollars for these shysters.  Chase now claims that it will only hit and charge once. 

            It’s too early to tell whether this is simply drum beating to warn the banks or a serious charge against the bad guys and their ever-so-willing partners in crime among financial institutions, both big and small, but at least if the bugle is blaring, we can finally hope that the troops are coming.


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.