Should FDIC Continue Loss-Share Agreements at Too Big Too Fail Bank?

UPDATE: According to CRC calculations, the FDIC has already paid out more than $1 billion to OneWest under the shared loss agreements, with another $1.4 billion expected to be paid out before 2019. See CRC’s fact sheet to read more about it: OneWest Loss Share Fact Sheet

OneWest Bank Merger

The California Reinvestment Coalition, as part of its “5 Days of Unanswered Questions about the CIT Group/OneWest Bank Merger” today focused on the loss-share agreement the FDIC extended to the wealthy investors who bought IndyMac Bank.

no info to public

In response to a FOIA request that CRC submitted to the FDIC, the regulator responded that our request for a fee waiver was denied, in part because “the subject matter of your request is not now of interest to the general public.”

Under the loss-share agreement, the investors in OneWest Bank have to absorb the first 20% of loan losses (approximately $2.5 billion) related to foreclosures from bad loans that IndyMac originated. Once that threshold is met, the FDIC pays for 80% of the next 10% of losses, and 95% of losses beyond that.Something doesn't smell rightCRC’s detailed letter to the Federal Reserve Bank of New York includes a preliminary analysis of the merger and a long list of concerns about the proposed merger. Another 30 organizations, CRC members and allied organizations, sent letters to bank regulators, asking for an extension on the comment period and for regulators to hold hearings in Los Angeles.Paulina Gonzalez, executive director of CRC, explains: “We asked Joseph Otting and John Thain about the amount of money OneWest Bank has received from the FDIC under the loss-share agreement, but they refused to answer us. Given the history of these two banks, we could see why they may be embarrassed at disclosing how much of a government subsidy they’ve received, but the public has a right to know this information.”Kevin Stein, associate director at CRC, adds: “We submitted a FOIA request to the FDIC, asking how much money has been paid out under the loss-share agreements. CRC is a nonprofit and we believe this information is important for the general public to know, so we asked for a fee waiver. We were shocked to hear from the FDIC that they denied our fee waiver in part because: ‘The subject matter of your request is not now of interest to the general public.’ Since when is corporate welfare related to the financial crisis not of interest to the general public?”

On Day Two, CRC members are asking regulators the following questions about the loss-share agreement:

  1. How much money has the FDIC paid to OneWest under the shared-loss agreement related to the purchases of IndyMac Bank, La Jolla Bank F.S.B., and First Federal Bank of California, F.S.B.?
  2. What is the basis on which the FDIC will decide whether to allow the transfer of the loss share agreement from OneWest Bank to CIT?
  3. Beyond the 2011 audit that the FDIC won’t share with the public, has an independent audit been conducted of OneWest bank’s adherence to the loan modification requirements included in the loss share agreement? Will an independent audit be completed before the loss-share agreement is transferred to the new bank?
  4. Under the loss-share agreement, the FDIC is authorized to complete quarterly audits of OneWest’s compliance with the loss-share agreement. During the past 22 quarters since the loss-share agreement was created, how many quarterly audits have been conducted by the FDIC?
  5. Will the FDIC make the results of the audit available to the general public?Is the FDIC concerned that OneWest’s foreclosure record may be at odds with the loss-share agreement? According to RealtyTrac Data, OneWest Bank has foreclosed on over 35,000 Californians, including over 2,000 foreclosures based on reverse mortgages serviced by OneWests’s subsidiary, Freedom Financial, a reverse mortgage lender/servicer.

Tomorrow’s questions for regulators will focus on the foreclosure track record of OneWest Bank in California.

Austin Powers

Additional Context:

CRC’s FOIA Request to the FDIC about the loss share agreements is available here.

The FDIC’s initial response denying CRC’s request for a fee waiver is available here.

American Banker noted (OneWest Makes Money, But Making Friends is the Harder Part, Feb 23, 2010) that: “in less than a year, private equity buyers of IndyMac Bank…. have turned a $1.6 billion profit…Yet thriving on a mess that has already cost tens of thousands of IndyMac borrowers their homes is an awkward situation, and not just for the team of billionaire backers including George Soros, John Paulson and Christopher Flowers…But it’s the terms of the FDIC deal that have yielded the bank’s outsize earnings. OneWest paid $13.9 billion for IndyMac’s assets – a 23% discount to their face value that more than covered OneWest’s $2.5 billion “first loss” obligation.”

For a copy of CRC’s letter to the Federal Reserve Bank of New York opposing the merger, click here: CRC letter to FRBNY

FDIC denied FOIA request

Learn How Wall Street and Cash Investors Are Outbidding First Time Homebuyers, Displacing Tenants, and Changing Local Communities  

Bloomberg Picture of REO

Cropped version of Bloomberg News graphic of REO to Rental. See the full picture here: http://www.bloomberg.com/infographics/2013-12-20/blackstones-big-bet-on-rental-homes.html

Have you been following the news about the approximately 200,000 homes that Wall Street investors have purchased to create portfolios and then securitized the income and sell bonds?  Does that sound alarmingly familiar to the “create portfolios of mortgages and securitize the payments and sell bonds” profit scheme that brought our economy to its knees?  Are you also worried about the impact this is having on communities?

If so, tune into The Power is Now show on September 23rd at 8:30AM to hear host Eric Lawrence Frazier, MBA as he discusses this issue with two experts.  Click on this link to hear the show and join the conversation.

Maeve Elise Brown is the executive director of Housing and Economic Rights Advocates (HERA), a nonprofit law firm in Oakland, California.  Kevin Stein, associate director of the California Reinvestment Coalition, a nonprofit coalition that advocates for better access to banks.

They will discuss how all-cash investors have elbowed first-time homebuyers out of the market, displaced long-term tenants, and changed the fabric of local communities.

If you’re interested in learning more about this problem and what possible solutions are, check out the resources below.  The letter below was drafted by Maeve Elise Brown at HERA and Kevin Stein at CRC, with input from other allies and CRC members.  The letter outlines the problems created by the REO to Rental scheme, how the government is exacerbating the problem through mass sell-off’s of delinquent mortgages to investors, and how the problem could be addressed by regulators and policymakers.

80 Organizations Ask Federal Gvt. to Address Investor Cash Flooding Into Neighborhoods

Regulators Should Act Now to Protect First-Time Homebuyers, Renters, and Communities

March 4, 2014-California: Eighty organizations are calling on federal regulators to address first-time homebuyers being outbid, tenants being displaced, and neighborhoods undergoing dramatic changes as private equity and investor cash continues flooding into local housing markets, buying up homes. These problems have been worsened by banks withholding REOs from the market and federal housing agencies conducting bulk sales of foreclosed homes and distressed mortgages. One portfolio of single-family rental homes was securitized this fall, though both Fitch Ratings and Standard and Poor’s refused to grant AAA ratings to the securitization, citing numerous uncertainties with this new business model.  Read the rest of the press release here.

 Some more recent press coverage you might be interested in:

Another Shadow in Ferguson as Outside Firms Buy and Rent Out Distressed Homes (NYT: Sept. 3, 2014)

Federal Program Helps Keep Some Delinquent Borrowers in Their Homes (NYT: Sept. 2, 2014)

And press coverage about the letter signed by 80 organizations, urging regulators to act now:

 

Game of Homes The letter sent by 80 organizations expressing concerns about issues with private equity landlords is cited.  Rebecca Burns, Michael Donley, and Carmilla Manzanet. In These Times. March 31, 2014.

Single-family rental home giants form trade group in Washington The letter sent by 80 organizations to federal regulators, including HUD, SEC, CFPB, OCC, Federal Reserve, and FHFA about issues created by private equity and other investors is cited. Tim Logan. Los Angeles Times. March 26, 2014.

Consumer groups seek bond oversight The letter sent to 80 regulators about single family homes being purchased by private equity firms and other investors is cited. Yahoo Finance Australia. March 24, 2014.

Blackstone’s Home Buying Binge Ends as Prices Surge: Mortgages The letter signed by 80 organizations expressing concerns to national housing and bank regulators is cited. John Gittelsohn and Heather Perlberg. Bloomberg. March 14, 2014.

Ninja loans reborn in similar form The concerns outlined by 80 organizations about private equity and investor landlords is cited in this article.  Kevin Stein from the California Reinvestment Coalition is interviewed, as is Maeve Elise Brown, from Housing and Economic Rights Advocates.  Radio New Zealand News. March 10, 2014.

Could a Wall Street firm be your landlord? The letter sent by 80 nonprofit organizations to federal regulators is cited on a show that also includes an interview with Representative Mark Takano about his concerns with the REO to rental model.  A new report from the Center for American Progress about rental securitizatoin is also featured. Ari Melber. The Melissa Harris-Perry Show. March 9, 2014.

First-Time Buyers Being Shut Out In Growing Numbers First-time homebuyers are prevented from purchasing homes when they are forced to compete with all-cash investors. The letter from 80 organizations to the SEC, HUD, CFPB, Federal Reserve, OCC, and FHFA is cited. Mike Wheatley. RealtyBizNews. March 7, 2014.

Want to buy a foreclosure? You may have to compete with a hedge fund Maeve Elise Brown, Executive Director at Housing and Economic Rights Advocates (HERA), outlines the concerns housing advocates have with private equity groups and other investors purchasing large numbers of single family homes.  Brown cites a letter sent by 80 organizations to federal regulators, asking for their assistance in addressing the impacts on tenants, homeowners, and communities. Mark Huffman. ConsumerAffairs. March 6, 2014.

Shut Out of the Housing Market? First-Timers Dwindle The letter sent by 80 organizations to federal regulators is cited. RealtorMag. March 6, 2014.

REAL ESTATE: Where are the boomerang buyers? A letter that 80 organizations sent to the SEC, HUD, CFPB, Federal Reserve, OCC, and FHFA is cited.  The letter calls on regulators to address the impact of private equity firms and other investors flooding into local housing markets and buying up homes. Debra Gruszecki. The Press-Enterprise. March 5, 2014.

Housing Activists: Rental-Property Bonds Might Herald Next Housing Bust The letter outlining concerns by 80 organizations about investor and private equity money pushing out first-time homebuyers, displacing long-term tenants, and changing communities is cited. Dan Weil.MoneyNews. March 5, 2014.

Regulate Wall Street home buying, consumers plead Eighty organizations signed onto a letter, expressing concerns about the impact on first-time homebuyers, long-term tenants, and communities as private equity and investors purchases large numbers of homes with the intention of securitizing the rents from these single family homes. Kim Miller. The Palm Beach Post. March 5, 2014.

78 Groups Urge Scrutiny of Wall Street Cash in Local Housing Markets The letter sent by the California Reinvestment Coalition, Housing and Economic Rights Advocates, and 78 other organizations is cited at approximately 14.25 into the program. Amy Goodman. Democracy Now. March 4, 2014.

California advocates want to put the brakes on REO-to-rental A letter sent by 80 organizations to the SEC, HUD, CFPB, Federal Reserve, OCC, and FHFA outlining concerns about private equity groups and investors buying up homes is cited, as are specific concerns and recommendations to the regulators. Trey Garrison. HousingWire. March 4, 2014.

Wall Street Has Found Its Latest Dangerous Financial Product, Activists Warn A letter sent by the California Reinvestment Coalition, Housing and Economic Rights Advocates, and 78 other organizations is cited.  In the letter, the nonprofit organizations ask federal regulators for help with investor and private equity cash pushing out first-time homebuyers, displacing long-term tenants, and changing communities. Benjamin Hallman and Jillian Berman.HuffingtonPost Business. March 4, 2014.

 

Bankers Sell Overdraft Without Understanding It

Overdraft Fees

Banks make tens of billions of dollars in revenue every year on overdraft fees so it’s no surprise that many banks pitch it as a service to potential customers. However, most bank customers may not realize that there are a number of rules about overdraft. Another surprise is how poorly bankers themselves understand how it works and how confusing their explanations are when asked  about it by customers.

 Most people hate overdraft fees. In fact, 68% percent of those polled by Pew Charitable Trusts said they’d rather be declined at the register than overspend and get hit with overdraft fees. In 2010, federal bank regulators required banks to make overdraft optional: account owners are to be given the opportunity to opt in if they want it, and opt out any time after that if they don’t. But over half of those who are currently enrolled don’t remember signing up.

CRC and our colleagues at three other organizations across the country (Reinvestment Partners in North Carolina, New Economy Project in New York, and Woodstock Institute in Illinois) sent “mystery shoppers” to major banks to see how overdraft was presented to potential bank customers in four cities. You can read the full report here: HOW BANKS SELL OVERDRAFT: RESULTS OF OVERDRAFT MYSTERY SHOPPING IN FOUR KEY STATES

The results of the mystery shopping show:

  1.  In all four cities, banks’ explanations of overdraft programs were highly inconsistent, and often unclear and incorrect. The inconsistent and erroneous information bank personnel provided to mystery shoppers raise concerns about banks’ training of staff and sales practices and suggest that banks may not be giving people the information they need to understand overdraft programs and make informed choices
  2. Bank employees often did not clearly or correctly explain how overdraft fees are triggered.The misinformation made it difficult or impossible for shoppers to understand the real costs of overdraft and make informed decisions.
  3. Bank employees frequently did not explain the opt-in requirement for ATM and debit courtesy overdraft, and led people to believe that it was an automatic account feature, raising serious concerns about whether the large banks are complying with federal regulations.
  4. In two of the cities, bank branches visited in predominantly non-white neighborhoods had limited staff availability and long wait times, in stark contrast to well-staffed branches in predominantly white neighborhoods. The poor service clearly affected the quality of assistance provided to customers in non-white neighborhoods.

The four organizations urge federal banking regulators and the CFPB to:

  1.  Prohibit overdraft feeson all ATM withdrawals and debit card transactions.
  2. Limit the fees a bank may charge for overdrafts to an amount commensurate with the actual cost of the transaction to the bank and proportional to the actual amount overdrawn.
  3. Prohibit banks from reordering transactions to maximize overdraft fees.
  4. Prohibit banks from providing financial incentives to branch or bank employees for the sale of overdraft products to customers.
  5. Create a uniform standard for how banks should verbally describe overdraft products and fees.
  6. Require training of bank employees on the verbal explanation of overdraft standards and conduct periodic reviews of training and compliance.
  7. Limit the number of times a financial institutions may impose any type of overdraft charges to once a month, or a maximum of six charges in a 12-month period, whichever comes first.

Community leaders protest sale of 20 local Banco Popular Branches in Los Angeles

Banc of California Press Conference Picture

Editor’s note: On September 4, 2014, Banc of California announced a new, public Community Benefit Plan.  Read more details about the plan here: CRC Announces Support for Community Benefit Plan by Banc of California as Part of Banco Popular Branch Acquisition

Earlier this week, prominent local Los Angeles leaders gathered at a downtown Banco Popular and held a press conference, urging a bank regulator to postpone the sale of the 20 branches until more information is given to the community about the acquisition. Banc of California, headquartered in Irvine, is trying to buy 20 Banco Popular branches which are located in Los Angeles and Orange counties.

In its application to buy the branches, Banc of California said that it would eliminate three checking account features at Banco Popular, including cash incentives for opening new accounts, interest rate bonuses on savings when customers maintain their checking accounts, and a debit card reward program.  Community advocates criticized the proposed cuts, saying that these features help people to open and maintain checking accounts, which can be the first step in building a financial history.

Community leaders are deeply concerned that Banc of California has not provided much detail in its community reinvestment activities since its last CRA exam, which examined the bank’s activities from January 2010 to December 2011 and earned the bank a “satisfactory” rating.  Since that time, the bank has grown considerably, and given its larger size, the bank’s next Community Reinvestment Act will be more extensive. Despite the nearly 2 ½ years that have passed since that exam, the bank did not provide much information in its acquisition application.  The bank noted a recent investment in a Community Development Financial Institution as well as the fact that bank staff volunteer with local nonprofits.

The Office of the Comptroller of the Currency is the bank regulator that will decide whether or not to approve the bank’s acquisition application.

Paulina Gonzalez, executive director of the California Reinvestment Coalition, an umbrella organization with over 300 organizational members throughout the state, explains: “While other large banks develop their CRA plans with input from the community, Banc of California has not. While other large banks make their community reinvestment goals public, Banc of California has not. The FDIC and the Federal Reserve have both required this type of transparency in recent bank mergers and acquisitions, and we expect no less from the Office of the Comptroller of the Currency.”

The comment period for the public to weigh in on the bank’s acquisition was recently extended by the Office of the Comptroller of the Currency (bank regulator) to August 19th.  The comment period was extended because the bank originally published its announcement in the Orange County Register and New York Times.  The California Reinvestment Coalition pointed out to regulators that current Banco Popular customers may have missed the notice.  The new notice was published in La Opiniónand Los Angeles Times.

The California Reinvestment Coalition, an umbrella coalition of over 300 organizations throughout California, is urging the Office of the Comptroller of the Currency to postpone or deny Banc of California’s application until the Banc is more transparent with the community.

Picture from Press Conference: Banco Popular Protest

Picture of 20 branches to be acquired: 20 Branches.

Letter from California Reinvestment Coalition to Bank Regulator, opposing merger: CRC letter

The Banc of California Acquisition application can be downloaded here: Banc of California application

If you’re interested in learning more about the Community Reinvestment Act, read this article:

The Community Reinvestment Act: A Law That Works

If you’d like to learn more about this recent proposed acquisition, these articles give more context.  Please note, some of the American Banker articles require a subscription to view.

Communities Deserve Transparency in Bank M&A In this Op-Ed, Paulina Gonzalez, executive director of the California Reinvestment Coalition, explains why CRC is opposing Banc of California’s proposed acquisition of 20 Banco Popular branches. Gonzalez cites a lack of CRA transparency and questions how the  Office of the Comptroller of the Currency can review the proposed acquisition when Banc of California has provided few details on bank activities that would qualify for credit under the Community Reinvestment Act. BankThink.July 24, 2014.

East L.A.’s Pan American Bank gets $6-million bailout from other banks In this article about 16 community and regional banks investing in Pan American bank, opposition to Banc of California’s proposed acquisition of 20 Banco Popular branches is cited. E.Scott Reckard.Los Angeles Times. July 23, 2014.

Fusión bancaria podría eliminar programas para latinos Prominent Los Angeles community leaders gathered at a local Banco Popular branch to speak out about the lack of transparency in Banc of California’s community reinvestment plans. Araceli Martínez Ortega.La  La Opinión. July 22, 2014.

Banc of California expansion opposed by advocates for minorities, low-income CRC’s concerns about Banc of California’s lack of a public Community Reinvestment Act plan are cited in this article. Paulina Gonzalez, executive director at CRC, explains the importance of transparency in building trust with customers. Josie Huang. Southern California Public Radio. July 22, 2014.

Advocacy Group Secures Review of California Branch Deal When Banc of California announced its intention to acquire 20 Banco Popular branches, it published notice in theOrange County Register and the New York Times. In CRC’s letter to the OCC opposing the acquisition until Banc of California is more transparent in its plan for the branches and community, CRC members expressed concern that current Banco Popular customers may not have seen the notice. This article explains that the Office of the Comptroller of the Currency required Banc of California to re-publish the notice in local media, including the Los Angeles Times and La Opinión. The OCC also extended the comment period on the proposed acquisition 30 days, until August 19th. Chris Cumming. American Banker. July 18, 2014.

Banc of California, Advocacy Group Spar over CRA Plan CRC’s opposition to Banc of California purchasing 20 Banco Popular branchs is cited in this article. Paulina Gonzalez is quoted about the bank lacking a public community reinvestment plan. Chris Cumming.American Banker. July 17, 2014.

Banc of California Expects OK of Branch Purchases CRC’s support for Banc of California to release a public reinvestment plan prior to its acquisition of 20 Banco Popular branches is cited. Andrew Edwards. Los Angeles Business Journal. July 15, 2014.

Activists Oppose Banc of California Acquisitions CRC’s opposition to Banc of California’s acquisition of 20 Banco Popular branches is cited in this article. Andrew Edwards. Los Angeles Business Journal. July 14, 2014.

Banc of California Acquisition of 20 Banco Popular Branches Opposed

Editor’s note: On September 4, 2014, Banc of California announced a new, public Community Benefit Plan.  Read more details about the plan here: CRC Announces Support for Community Benefit Plan by Banc of California as Part of Banco Popular Branch Acquisition

The California Reinvestment Coalition, a nonprofit coalition of over 300 membership organizations located throughout California, is urging the Office of the Comptroller of the Currency to not approve Banc of California’s acquisition of 20 Banco Popular branches located in Los Angeles and Orange County.   The full text of CRC’s letter to the OCC is included below.  If you would like to view Appendix A (a chart of related transactions) or B (a letter from Richard L. Lashley to Banc of California CEO Steve Sugarman), you can view them in the PDF of the complete letter here.

July 11, 2014

Office of the Comptroller of the Currency

Attn: Louis Gittleman

District Licensing

1225 17th St.  Suite 300

Denver, Colorado 80202

Re: Opposition to Banc of California’s proposed acquisition of Banco Popular branches, request for extension of the comment period, request for public hearings

Dear Mr. Gittleman:

The California Reinvestment Coalition (CRC) is a membership organization whose mission is to advocate for fair and equal access to banking and financial services for California’s low-income communities and communities of color.   CRC’s members consist of over 300 organizational members working in these communities across the state of California.  CRC files these comments in opposition to the proposed acquisition of 20 Banco Popular Branches by Banc of California (Banc). We believe there are significant concerns and unanswered questions with this proposed acquisition, and these questions raise doubts that this merger will create a sufficient and clear public benefit.  We call for the OCC to extend the comment period, hold hearings on Banc’s application, and deny its application until a strong CRA plan, which has been subject to meaningful public review,  is in place and financial and managerial concerns are addressed.

Banc of California Refuses to Provide Community Members with a CRA Plan: Low Income Communities and Immigrant Communities Worry About Loss of Services

Banc of California’s proposed acquisition is of particular concern to CRC and its members because Banc of California fails to provide details related to CRA qualifying activity in its application to acquire Banco Popular branches.  The bank’s application does not include plans for future CRA qualifying activity, and except for one recent investment, does not provide a history of the bank’s record of CRA qualifying activity.

Banco Popular’s business model has focused on meeting the banking needs of a largely Latino, Asian, and immigrant customer base.   Preserving this business model is especially important given that it serves communities that have been historically underserved by financial institutions. Latinos represent 37% of Banco Popular’s deposits in the 20 branches Banc seeks to acquire, and HMDA data for Banco Popular shows that 42% of its mortgage home loans were to Latino borrowers and 68% of these loans were made in neighborhoods of color.[1]   While 7% of Banco Popular deposits come from branches located in low income census tracts, 0% of Banc’s deposits come from branches in low income census tracts.   Even more strikingly, only 25% of Banc of California’s branches are located in majority minority zip codes, while 85% of Banco Popular branches are located in majority minority zip codes.[2]  Given that Banc of California’s business model has NOT historically focused on a minority or low income customer base, more specifics related to historical and planned CRA activity by Banc are especially important.

Banco Popular

Banc of California

Percent of branches located in majority minority zip codes

85%

25%

Percent of deposits from branches located in low income census tracts

7%

0%

Note:  Latinos represent 37% of Banco Popular’s deposits in the 20 branches that Banc of CA seeks to acquire[3]

For Banc of California to take over Banco Popular’s presence in these communities, it must be prepared to provide needed services in a fair and CRA-compliant manner.  In historically underserved communities, where trust of financial institutions is already low, a public CRA plan can provide the foundation for the building of trust, partnerships, and ultimately a successful business model.

Given the lack of information related to CRA activity provided in Banc’s application and given its ongoing refusal to provide the public with a plan for its CRA activity, we are concerned that the bank does not have a strong CRA program in place and that it will fail to meet the credit and CRA needs of these communities.    Although we applaud Banc of California’s recent investments in Clearinghouse CDFI and its financial literacy and marketing partnership with the University of Southern California, a strong and full CRA Plan with clear benchmarks is still warranted.  CRA plans provide a level of transparency to communities on a bank’s planned CRA activities and inform affected communities and regulators about how the Bank intends to meet community need in the future, and not just before a merger application.

CRC hopes to help Banc succeed at serving community needs.   If Banc of California has a strong plan to serve the community, it should be proud to share it.  We urge the OCC to hold public hearings to solicit input from underserved community members and to ensure that this input informs a meaningful CRA plan that identifies and addresses local community needs.   Currently the bank’s record is not sufficient for the OCC or the public to determine whether or not the bank will meet the community’s credit needs.

There is precedent for this type of regulator action, in recent mergers by Pac West Bank and Umpqua Bank, both the FDIC and the Federal Reserve urged CRA Plan transparency.  The FDIC facilitated a meeting between the applicant and community groups which resulted in the discussion and development by PacWest of a CRA Plan, with input from community groups. The Federal Reserve made the development of a CRA Plan a condition of merger approval for Umpqua, which did reach out to stakeholders for input in the development of, and comments on drafts of, its plan. We expect that the OCC will do no less than the FDIC and the Federal Reserve to ensure that banks applying for approval of mergers have public CRA plans in place to ensure that community credit needs will be addressed prior to any consideration of an acquisition or merger.  All banks have a responsibility to serve their communities and need to be held accountable through clear CRA benchmarks and timetables.

Latino and Immigrant Communities Did Not Receive Meaningful Notice of Proposed Acquisition

Publishing a notice of the proposed acquisition in the OC Register and New York Times, as Banc did, does not provide meaningful notice to the communities served by Banco Popular.   Both Los Angeles and Orange County, where many of Banco Popular Branches are located, have a rich diversity of ethnic press that serve the area.   The largest Spanish language newspaper in the nation, La Opinion, is distributed in all six southern California counties.  The Chinese Daily News, The Korea Times, and other Asian newspapers also have wide circulation in the communities served by Banco Popular.   In order to provide meaningful opportunity for input by the historically underserved population served by Banco Popular, we are requesting a 30 day extension to the comment period, and more targeted outreach by Banc.

Lack of transparency around Banc’s mortgage lending and CRA activities

As indicated, the application has little information about Banc’s CRA activities. In the past, CRC has raised questions about the Banc’s mortgage lending, with its use of nontraditional mortgage products, as well as the practices of Banc’s wholly owned subsidiary, the Palisades Group, which purchases distressed loans and is in a position to work with homeowners facing foreclosure. We believe the public should have the opportunity to review and comment on Banc’s mortgage lending performance, especially as no such information was provided to the OCC as part of the public portions of the application.  To this end, pursuant to 12 C.F.R. Part 203, Appendix A, CRC formally requests copies of 2013 Home Mortgage Disclosure Act (HMDA) data for Banc of California, and all of its lending subsidiaries and affiliates.  We are specifically asking for the LARs in California, to be given in data format, or other format that can easily be imported into the CRA Wiz program.  We are requesting that Banc provide this data without charge, and within 30 days mandated by the above-cited regulation. We also request, and urge the OCC to review, loan modification, re-default and foreclosure data for Banc of California and affiliates, including the Palisades Group.

Similarly, on April 19, 2014, CRC submitted to Banc a list of fourteen CRA-related questions, a list that we have posed to several banks in the past without controversy. We asked the Banc to respond by late May. The Bank has yet to respond and has given no indication that it will respond to these basic questions about its CRA performance that other institutions had no problem disclosing.  If the bank is serious about its plans to grow in California, then we believe it should take its community reinvestment plans seriously, as other large and small banks have done in California.

In contrast to the sparse public record of Banc’s CRA activities, Banco Popular’s most recent Performance Evaluation demonstrates a commitment to its communities. Specifically, BPNA received “High Satisfactory” for its lending; “High Satisfactory” for its investments, and “Outstanding” for its service activities in California. The evaluation notes a “relatively high level” of community development lending, including “excellent” multifamily lending in LMI tracts in its Los Angeles-Long Beach-Santa Ana MSA assessment area, and nearly 200 community development loans to support the development of over 1,000 units of housing affordable to LMI tenants and for other community purposes during the exam period.  Small business lending in LMI tracts in BPNA’s Los Angeles-Long Beach-Santa Ana assessment area was likewise deemed “excellent.” BPNA received a “High Satisfactory” under the investment test, with 78 qualified investments and $444,000 in charitable contributions made in its Los Angeles-Long Beach-Santa Ana assessment area during the exam period. Finally, BPNA’s regulator found that the Bank was “a leader” in providing community development services in its Los Angeles-Long Beach-Santa Ana MSA, earning the Bank an “Outstanding” rating under the service test.

The lack of transparency in this application, the emergence of Banc as a Large Bank for CRA purposes with enhanced expectations, and BPNA’s record of CRA activity serving its communities, all support the call for Banc to disclose a CRA Plan for how it will serve BPNA’s clients and constituents, as well as the call for an extension of the comment period so that the record can be augmented and so that the OCC has enough information upon which to base its decision.

Financial and Managerial Resource Concerns

Several areas related to Banc of California financial and managerial operations require further investigation by the OCC.  Key findings by the California Reinvestment Coalition, using the CAMELS rating system include:

  • Banc exceeds the regulatory requirements on capitalization and has demonstrated a current ability to access capital markets.
  • Banc’s asset quality as measured by reserves for loans is significantly different than that of Banco Popular’s U.S. Mainland operations.
  • Certain key ratios measuring management performance show underperformance compared to Banc’s peers.
  • Earnings have been volatile in the past five years.

Capital Adequacy

As of March 31, 2014, both Banc of California, Inc. and Banc of California, NA exceeded the regulatory requirements to be considered “well-capitalized.”[4]  In addition, Banc has demonstrated that it is capable of accessing capital markets.  However, earning fluctuations discussed later in this letter, if continued in future periods, could eventually erode capital.

Asset Quality: Loan Portfolio Performance

Banc of California’s reserves for loans as of the first quarter of 2014 was .59%[5], far below that of its peers.   Banc’s own stated peer group median had a reserve for loans of .89%.[6]  This may indicate that Banc considers its portfolio to be better performing and/or less risky than the portfolio of its peers.  This is especially interesting given the rapid growth rate of Banc’s loan portfolio (96.7% grown from 2012-2013; 59.1% from 2011-2012), much of it fueled by acquisitions.[7]  In the absence of tightened credit policies or the routine carving out of Non-Performing Loans (NPL), Other Real Estate Owned (OREO), etc. a rapidly growing loan portfolio would be expected to involve a proportional growth in loss reserves.   We urge the OCC to investigate whether Banc of California is holding adequate reserves to cover its current loan risk.

Possible Disparities between Banc of California and Banco Popular’s Credit Products and Account Services

Although the proposed Banco Popular acquisition carves out NPL, examining Banco Popular loan portfolio performance can provide some insights into possible trends in the markets and customer base which Banc is seeking to enter.  As of the first quarter of 2014, Banco Popular’s U.S. Mainland operations showed total reserves for loans of 1.91%.[8]  This is more than triple that of Banc’s first quarter reserves for loans of .59% and higher than Banc’s peer group median of .89%.  The differences in reserves held by these two institutions indicate that the two banks have very different business models given their customer base.   Disparities between existing underwriting, credit administration, and/or risk identification practices between Banco Popular and Banc of California could signal a significant challenge to implementing a successful acquisition.   In addition to the challenges this can pose to the acquisition, Banc needs to have a strong strategy in place to ensure that it will continue to meet the credit needs of the communities served by Banco Popular.   This has not been demonstrated to date.

In its application, Banc of California reports that it will discontinue the following services currently offered by Banco Popular:

  • New account cash incentives
  • Interest rate bonuses on savings when checking account is maintained
  • Debit card reward program

These services are important for low-income community members because they encourage saving and the opening and maintenance of bank accounts for a population that has been historically unbanked.

In its application, Banc notes that it will review other services provided by Banco Popular to evaluate whether to continue offering them.  Regulators should ensure that the discontinuation of services will not negatively impact the population served by Banco Popular.

Disparities in services and products offered to customers indicate different business models and corporate culture between these two banks exist.  Studies have shown that managing differences in corporate culture is important to successful mergers and acquisitions, and that the lack of synergy between two entities can be central to their failure.

Following comprehensive research performed in recent years and the accumulated experience in many mergers, it is known that, in essence, the main factor that influences

the managers and the workers, primarily in the acquired company, is the degree of the management/organizational culture differences between the two merging organizations.

When the difference of the management culture is considerable, the merger is fated for failure.[9]

Significant differences in corporate culture appear to exist here.  For example, as pointed out above, there is a large disparity in loan reserves between Banco Popular and Banc.  This raises the question of if and how Banc of California is planning on serving Banco Popular’s low income, Latino, Asian, and immigrant customer base that may not have the assets or creditworthiness to secure more traditional and less risky home loans.  The OCC should confirm that Banc of California has an array of mortgage products that are accessible to Banco Popular’s traditional customer base, and that these Banc mortgage products are affordable, safe, and sustainable for these same customers.   In order to serve the banking needs of the communities which it is proposing to enter, Banc will likely have to assess its current procedures, practices, and product offerings for possible changes that balance community needs with risk tolerance.    A public CRA plan provided by the bank, as well as adequate reserves to account for the needs of the market it seeks to enter could help assure the community that Banc has a viable plan to do so.

Management Performance

Management actions can and do affect the overall safety and soundness of a bank.  Assessing its capability and performance involves considering items such as:  The willingness to serve the community’s banking needs; the avoidance of self-dealing; and the effectiveness and appropriateness of management information and risk monitoring systems, in consideration of the institution’s size and complexity.  Understanding these factors will allow the analyst to understand whether management demonstrates the ability to identify, measure, monitor, and control significant risks.  As stated earlier in this letter, the bank’s repeated refusal to provide the community with a CRA plan raises concerns about Banc’s willingness to serve community banking needs.  In addition to requiring a strong CRA plan from Banc, we urge regulators to examine issues signaling underperformance and earning volatility, we also urge a thorough investigation of the Banc’s potential for self-dealing (discussed in more detail later in this letter).

Efficiency Ratios Underperforming Peers

The proposed Banco Popular branch acquisition will more than double Banc’s current network of 18 branches.  Although Banc’s current management team has overseen six acquisitions in three years, in some ways the benefits of these acquisitions have yet to be realized.  Banc’s efficiency ratio is significantly higher than its peers (a lower efficiency ratio is generally considered better, for comparable institutions): 92.14%[10] versus a peer group median of 67.75%[11].  Banc’s efficiency ratio has been above 85% since 2011[12].  The efficiency ratio is a measure of what a bank must spend in order to make one dollar.  So Banc’s peers by comparison, only have to spend 68 cents for every dollar in revenue, whereas Banc must spend 92 cents for every dollar it makes.    This high efficiency ratio may be explained in part by the significant “non-recurring” charges incurred by each acquisition.  However, Banc has indicated in press releases that it continues to explore more opportunities, for example in the San Fernando and San Gabriel Valleys, and Northern California (OC Register, 4/23/14).  Therefore, additional non-recurring charges, and the negative effects on the efficiency ratio, should be anticipated.

Other performance ratios also show underperformance when compared to Banc’s peers.  Return on Average Assets (ROAA) provides insight on how effectively management can generate income from the bank’s available assets.  Banc’s 0% ROAA compares to a peer median of 1.08%.[13]  Since banks tend to be highly leveraged, 1% is considered a benchmark for the banking industry.

Return on Average Equity (ROAE) is another way to assess profitability.  It is especially useful during periods where shareholder equity undergoes significant changes in value, as happened for Banc between 2012 and 2013.  An acceptable ROAE allows banks to attract capital from private investors.   Banc’s ROAE was slightly negative at -.3%[14], compared to a peer median of 9.17%[15].

Related Party Transactions

A diagram detailing the related party transactions by Banc of California has been included as Appendix A to this comment letter.

A letter by Banc of California’s largest shareholder, Richard J. Lashley, a principal at PL Capital LLC, to Banc CEO Steven Sugarman, filed as part of a June 9, 2014 SC 13D SEC filing, raised concerns about related party transactions stating:

I am also concerned about the significant amount of related party transactions engaged in by you, your family and other related parties (e.g. as outlined in the most recent 10-K and proxy including the purchase of CS Financial which was an entity controlled by Mr. Seabold and individuals related to you; the unusual transactions various Sugarman related parties relating to allocation of the CS Financial purchase consideration; the consulting payments to Jason Sugarman; Mr. Seabold’s previous management agreement while he was on the board; etc.).  (sic) [16]

In the same letter, Mr. Lashley goes on to say that Institutional Shareholder Services ranks Banc in the lowest decile for corporate governance and that ISS’s most recent analysis for the 2014 Annual Meeting cited concerns over the size of the 2013 Stock Option Plan.  CRC believes that this warrants further investigation by regulators.

We are also concerned about a host of other issues raised in the letter by Mr. Lashley, a copy of which is attached for your review as Appendix B.

History of Volatile Earnings

Several of the performance ratios analyzed in the management section also apply here.  In addition to those ratios, Net Interest Margin (NIM) is the spread between interest income from loans and investments, versus the interest paid on deposits or borrowed funds.  NIM is used to understand the result of the institution’s implementation of its lending, investing, and liquidity strategies.  Banc’s NIM as of the first quarter 2014 is in line with or slightly better than that of its average peer.  However, when taken as a whole with other performance ratios, there is still cause for concern as to whether future earnings can support operations, capital, and liquidity.

Non-Interest Income Grows Exponentially

In what indicates a significant change in Banc’s business model, Banc’s non-interest income has grown steadily, both as a percentage of income and in absolute numbers.  In 2009, Banc had $1,813,000 in non-interest income or 4% of its revenue; by 2013, non-interest income had grown to $96,743,000 or 45% of its revenue. [17]   Although non-interest income helps insulate banks from interest rate fluctuations (Banc’s greatest source of market risk), there is also research that shows that non-interest income has a larger effect on individual bank risk, and that fee-based activities are associated with earnings variability.[18]

We urge further investigation into the rapid growth of non-interest income and potential impact on bank risk, as well as analysis of this growth in relation to its potential impact on customers, especially low income customers currently served by Banco Popular.    Bank fees have historically impacted low income customers the most.

Banc’s History of Volatile Earnings

Net income has been volatile since 2009, fluctuating between profits and losses.  Between 2012 and 2013, profit declined by 98.77%.[19]  Although Banc currently exceeds regulatory minimums for capital adequacy, these earning fluctuations shown in the chart below, if continued in future periods, could eventually erode capital. [20]

Banc of CA 1

Liquidity

Banc’s loan to deposit ratio (LTD) has been declining for several years.  As of Q1 2014, Banc had an LTD ratio of 77.09%[21], compared to peer group median of 92.84%[22].  This might signal excess unused liquidity.  In other words, Banc may not be effectively using its assets to generate income.

Because liquidity is critical to the ongoing vitality of any bank, liquidity, management is among the most important activities that a bank conducts.[23]

This could negatively impact liquidity and capital in future years, as strong earnings contribute to capital maintenance and support operational strength.  Macroeconomic trends also affect the LTD ratio, e.g. demand for credit, prevailing interest rates, and regional variations.

Conclusion

As previously mentioned, CRC wants Banc of California to succeed.  However, our definition of success includes a robust ability to meet the needs of the underserved communities that is CRC’s mission to advocate for.  This letter is aimed at helping to ensure this critical outcome, no more and no less.

Given the concerns raised in this letter related to the financial and managerial resources of Banc of California and the bank’s continued refusal to provide a CRA Plan, we urge the OCC to conduct hearings, extend the comment period, engage in an in depth investigation of Banc’s safety and soundness, and finally that it require a strong CRA plan which has been subject to meaningful public review and a strategy for serving Banco Popular’s customer base.

If you have any questions about this letter, or wish to talk further, please feel free to contact me at 415-864-3980.

Sincerely,

Paulina Gonzalez

Executive Director

 

Cc:          Comptroller Thomas Curry

Barry Wides

 

 

[1] CRA Wiz

[2] http://www.city-data.com/

[3] Banc of California’s OCC application to purchase Banco Popular branches

[4] Banc of California SEC Filing 10Q for first quarter 2014

[5] Banc of California SEC filing 10Q for first quarter 2014

[6] http://www.snl.com/irweblinkx/peer.aspx?iid=4074352

[7] Banc of California SEC filing 10K 2013

[8] Banco Popular U.S. Mainland Operations SEC filing 10Q for first quarter 2014

[9] The Financial Times.   The M&A Paradox: Factors of Success and Failure in Mergers and Acquisitions.  January 16, 2014.

[10] Banc of California SEC filing 10Q first quarter 2014

[11] http://www.snl.com/irweblinkx/peer.aspx?iid=4074352

[12] Banc of California SEC filing 10K 2013

[13] http://www.snl.com/irweblinkx/peer.aspx?iid=4074352

[14] Banc of California SEC filing 10Q 1st quarter 2014

[15] http://www.snl.com/irweblinkx/peer.aspx?iid=4074352

[16] Banc of California Form SC 13D Filed 6.09.14 pg 10 exhibit 2

[17] Banc of California SEC filing 10k 2013

[18] The dark side of diversification: The case of US financial holding companies.  Kevin J. Stiroh , Adrienne Rumble.

Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, USA  Received 11 February 2004; accepted 15 April 2005

[19] Banc of California SEC filing 10k 2013

[20] Banc of California SEC filing 10k 2013

[21] Banc of California SEC filing 10Q first quarter 2014

[22] http://www.snl.com/irweblinkx/peer.aspx?iid=4074352

[23] DSC Risk Management Manual of Examination Policies 6.1-17 Liquidity and Funds Management (12-04) Federal Deposit Insurance Corporation

The Payday Lender Hall of Shame

Editor’s note: The CFPB, a federal agency, has proposed new rules for payday, car title, and high-cost installment lenders.

BUT, they need to hear from consumers- that means you! We have an easy-to-use page where you can weigh in- it only takes a minute and will help bring about important consumer protections with these loans. Please share a line or two in the comments box about why you care about this issue and want to see strong federal reforms.

PS: You do NOT have to be a payday, car title, or installment borrower to sign the petition.

 

Cartoon - Shark Infested Waters

Ever wonder why people are concerned about payday loans and some of the companies that make them?  Is it the high interest rates? The debt traps they create for their customers?  Their shady collection tactics?  The amount of money they spend lobbying state legislators in order to protect their profits instead of their customers? Maybe it’s the extra fees they don’t disclose? All of the above?

We’ve compiled excerpts from a few of the articles that highlight some of the worst practices of payday lenders below.  You may also enjoy our compilation of newspaper editorials against payday lenders (click here).

If you are a customer with a complaint about your payday lender, we suggest filling out a complaint with the Consumer Financial Protection Bureau (click here).  The online process is fast, and it’s important for the CFPB to hear when companies are breaking the law, especially since they’re writing rules for payday lenders this year.

A graphic from the Ace Cash Express training manual confirmed advocate suggestions that the payday loan industry profits the most off of people who continualy renew their loans because they can’t afford to pay them off.  The end result?  The consumer pays hundreds or even thousands of dollars for a loan that was originally only a couple of hundred dollars.

ACE Cash Express

 

 

“Over the next five years, those five short-term loans of $500 each would cost him more than $50,000 in interest.” KC man pays $50,000 interest on $2,500 in payday loans (Donald Bradley, Kansas City Star, May 17, 2016)

For her part, Mitchell said she’s done with payday loans, noting that she tells her 12-year-old daughter to stay clear of the products. “I would starve before getting another payday loan,” she said. “I just think it’s robbery.” 1,000% loans? Millions of borrowers face crushing costs (Alain Sherter, MoneyWatch, April 25, 2016)

Judge: $1,820 repayment on $200 loan ‘unconscionable’

Monday’s ruling by Vice Chancellor J. Travis Laster involved a loan that Gloria James of Wilmington took out in 2013 to pay for food and rent. James, who was earning $11.83 an hour as a part-time housekeeper at the Hotel DuPont, went to a storefront business called Loan Till Payday. It is run by National Financial LLC, a Utah company that specializes in small-dollar, high-interest loans. She obtained what the business called a Flex Pay Loan, requiring her to make 26, biweekly, interest-only payments of $60, followed by a final payment comprising both interest of $60 and the original principal of $200. The total repayments added up to $1,820, equating to an annual percentage rate of more than 838 percent. “That level of pricing shocks the conscience,” wrote Laster, who said the loan could be rescinded because it was “unconscionable.” He also concluded that National had violated the federal Truth in Lending Act. (Randall Chase, AP, March 14, 2016).

Report of Examination gives look inside payday lender’s alleged wrongdoing                    Banking examiners say the over-charges are actually “double-charges” the lender collects by requiring a post-dated check from the borrower for the loan amount and fees when a loan is made. The lender gets the double-charge by processing the check through the Automated Clearing House, a nationwide electronic network for credit and debit transactions, while also collecting an in-store cash payment from the customer, according to examiners. All American had an “unwritten” policy of not refunding customers for overpayments, unless and until the customer specifically requested a refund, examiners say. (Ted Carter, Mississippi Business Journal Feb 18, 2016).

As regulators put a price tag — $1.32 billion — on what Scott Tucker’s payday-lending enterprises have squeezed out of poor people, a grand jury convenes  On January 20, the FTC asked a federal judge in Nevada to find Tucker and his companies liable for $1.32 billion. That sum, the FTC says, equals what Tucker’s customers have overpaid above the disclosed costs of their loans since 2008 alone. The FTC’s request to the judge was accompanied by thousands of pages of evidence, unsealed for the first time, that show how Tucker made his money, what he spent it on, and how he has attempted to shield himself from the glare of authorities. (Steve Vockrodt, The Pitch News, Feb. 2, 2016)

EZCorp settles federal payday lending complaint: The $10.5 million charge will be included in the company’s financial statements for the year ended Sept. 30. EZCorp also agreed to forgive all outstanding payday and installment debt, which had already been written off for financial purposes, the release indicates. (Christopher Calnan, Austin Business Journal, Dec 16, 2015).

Justices crack down on high-interest usury The court rejected defendants’ expert witnesses’ view that an 11,000 percent – or even an 11 million percent – interest rate would be acceptable in New Mexico because there is no usury statute.  (Marshall Martin, guest column for Albuquerque Journal, September 1, 2014)

High-Interest payday loans called predatory, but regulations die In Iowa Legislature Contributions from the payday loan industry amounting to over $83 million have poured into state campaigns across the country, according to data from the National Institute on Money in State Politics. The institute shows Iowa legislators have pocketed more than $360,000 from donors associated with the payday loan industry since 1998. (Lauren Mills, Iowa Watch, August 10, 2014).

Payday loan firms drove Samantha’s dad to suicide. But even death didn’t stop them hounding him He killed himself last November, too embarrassed by his debts to seek help. Giving evidence, Samantha told the inquest that after his death her father was sent more than 1,000 texts from loan companies demanding repayment.She has no idea how many texts Ian received before he killed himself, because he’d deleted his phone’s history, but she can’t believe they only started afterwards. She also found letters from payday lenders at his home demanding immediate repayment of outstanding arrears. One, delivered two days after his death, threatened court action and bailiffs unless he paid up.

ACE Cash Express paying $10 million to settle debt collection probe When a consumer “exhausts the cash and does not have the ability to pay,” ACE “contacts the customer for payment or offers the option to refinance or extend the loan.” Then, when the consumer “does not make a payment and the account enters collections,” the cycle starts all over again — with the formerly overdue borrower applying for another payday loan, the bureau said.   (Barry Shlachter, Star Telegram, July 10, 2014)

Will the Government Finally Regulate the Most Predatory Industry in America?  “Jones was almost lucky compared to Thelma Fleming, another Baton Rouge resident who pawned her jewelry, had her checking account shut down and lost her car trying to keep up with a string of loans she took in order to make ends meet after she lost one of her two jobs. “For me, it was devastating,” she said. “It got the best of me to the point where I considered suicide.””  (Zoë Carpenter, The Nation. June 27, 2014).

Payday loans may help, but at what price? “Almost half the borrowers are the people who are have fixed incomes, so they’re never going to have any more than they had this month,” Cook said. “Once they start down the payday loan route, they’re really trapped.” (Eric Schwartzberg, Journal-News. June 23, 2014)

Judgment Day for Payday Lenders  In a 2012 report, the watchdog organization Public Campaign found that the payday lending industry had spent more than $1 million during the previous decade to influence Missouri’s elections. In 2011, the legislature had voted to “cap” the APR for payday loans at 1,656 percent. “Members who voted for this pro-industry bill,” according to the report, “received nearly three times more payday money on average … than members who voted in opposition.” (Theo Anderson, In These Times, June 16, 2014)

McDaniel Files Suit Against Online Payday Lenders McDaniel’s suit says that the defendants issued short-term loans to Arkansas consumers with varying interest rates, but all loans had interest rates that were extraordinarily higher than the 17 percent limit set by state law. One loan had an annual rate of 782.14 percent. Others were 640 percent and higher. ( McDaniel Press Release, June 9, 2014)

Fast loans often come with high price tags  The company Hill used, Progressive Debt Relief, charged him a $25 fee for every $100 he borrowed. When Hill fell behind on monthly payments, the company, which required Hill to submit his bank account number before he could get any money, was able to draw the entire amount of the loan from Hill’s account. “They cleaned me out,” he said. (Susan Sharp, FME News Service, June 8, 2014)

Race-car driver’s payday lending business ‘deceived borrowers’ In a typical case, the company would tell someone borrowing $500 that they would only have to repay $650. But in reality, the company would rely on confusing language deep in the fine print to automatically renew loans borrowers thought they were paying off, the judge ruled. So a $500 loan could actually cost the borrower $1,925.  Navarro noted that the company’s own training material encouraged employees not to explain the true cost of the loan to borrowers.  (David Heath, Center for Public Integrity, June 6, 2014)

payday lobbyist

Payday Lenders Pay Premiums Of course, those weren’t the only ways Cash America and other payday lenders tried to elude the reach of federal investigators. As CREW chronicled in earlier reports, including Payday Lenders Pay More, released in 2011, the payday lending industry ramped up lobbying and campaign contributions over the past several election cycles while unsuccessfully attempting to ward off federal oversight and derail the Dodd-Frank Wall Street Reform and Consumer Protection Act. CREW’s latest analysis shows the industry is still spreading money around in hopes of limiting federal regulation of payday lending.  (David Crockett, Citizens for Responsibility and Ethics in Washington January 14, 2014)

Payday loan managers with Las Vegas ties to pay $100,000 in penalties The managers of an illegal payday loan business with operations in Las Vegas have been ordered to pay $100,000 in penalties and forfeit more than $1 million in outstanding loans, according to a final settlement announced by California regulators.  (Chris Sieroty, Las Vegas Review-Journal, December 25, 2013).

truth in lending crackdown on payday

Banks Must Stop Financing High-Cost Consumer Lenders Some of the retail storefront payday lenders financed by these banks lend those dollars back out to the community at rates of as high as 500%.This type of behavior is a net loss that outweighs many of the good things that banks do elsewhere in communities. (Adam Rust, BankThink Blog, December 16, 2013)

Cashing Out: The Usury Suspects, Part 2 “On average, repeat customers account for 40-50% of the Company’s annual loans,” the overview reads. “The Company’s average customer will borrow ~$1200 (~3 loans) and repay ~$2350 over a 4-year timeframe. Margins on loans to repeat customers average 150% higher than loans to new customers.”  To translate: The average person who takes out a loan from Kimball and Furseth ends up paying back double what he or she initially borrowed. Factor in the 500,000 loans that Evergreen Capital Partners says it has issued since its inception, and a picture emerges: Operators and investors can get pretty rich with a business model like this.  (David Hudnall, The Pitch, December 10, 2013)

How KC’s wealthiest enclaves became a shadowy nexus of predatory lending Over the next five years, Tucker, through CLK, is believed to have pioneered many of the shadowy hallmarks that now define the online payday-loan industry, such as constructing byzantine trails of front companies and merging with Indian tribes to provide his businesses with regulatory immunity. (Only the federal government can sue businesses on tribal lands. That makes it difficult for states to prosecute Tucker when his companies lend at interest rates surpassing the caps they have in place.)  (David Hudnall, The Pitch, December 3, 2013)

Payday lender Cash America fined over claims of robo-signing, gouging military members Problems at Cash America came to light when the bureau conducted its first exam of the company in 2012. Before the visit, examiners told the company to retain documents and call recordings for review. But bureau agents learned that employees were instructed to shred files and erase calls. Employees confessed that managers had also coached them on what to say to examiners, according to the compliant.  (Danielle Douglas, Washington Post, November 20, 2013).

payday vultures I Applied For An Online Payday Loan. Here’s What Happened Next “Once you made that application, you basically sent up a red flag with them that you are someone in need of this money, and you need it on a short-term basis,” he told me. “That’s when the vultures come out.” (Pam Fessler, NPR News, November 6, 2013)

 The Payday Playbook:  How High Cost Lenders Fight to Stay Legal Outrage over payday loans, which trap millions of Americans in debt and are the best-known type of high-cost loans, has led to dozens of state laws aimed at stamping out abuses. But the industry has proved extremely resilient. In at least 39 states, lenders offering payday or other loans still charge annual rates of 100 percent or more. Sometimes, rates exceed 1,000 percent.  (Paul Kiel, Propublica, August 2, 2013, part of the Debt Inc. Lending and Collecting in America series)

Usury Cartoon RJ Matson St. Louis Post Dispatch Jan 12 2012

To stay up to date on financial justice issues in California, especially as they relate to low income communities, and communities of color, you can follow the California Reinvestment Coalition on our Facebook page, via TwitterGoogle+, watch our movies on our YouTube Channelsign up to receive our newsletter and action alerts, and of course, visit our website.