Dept. of Justice Sued Over JPMorgan Chase Settlement: How a Housing Counselor Would have Structured the Settlement

chase lawsuit

News broke today that Better Markets, a nonprofit, filed a lawsuit in Federal Court, challenging the Department of Justice’s $13 billion settlement with JP Morgan Chase.

The organization cites concerns about the settlement not being approved by a court, granting civil immunity, and the lack of transparency for the settlement negotiations.

When news of the Chase settlement talks began to leak out in the fall of 2013, the California Reinvestment Coalition, along with 17 members and allies, signed onto a statement asking for the Department of Justice to structure a deal in a way that would benefit communities and homeowners who have been hard hit by the mortgage meltdown.

The organizations who signed onto this letter have helped thousands of California homeowners facing foreclosure, so the recommendations are rooted in their experiences working with these homeowners.

Recommendations include:

1) The amount of the settlement should have matched the amount of money lost due to predatory mortgages and improper foreclosure practices like robo-signing.  Communities of color have been hardest hit by the meltdown, according to a recent report by the Alliance for a Just Society.

2) A settlement should prioritize keeping people in their homes, especially through using principal reductions on people’s first mortgages.  In addition, CRC and our allies called on Chase and any other banks entering into settlements to immediately halt any foreclosure processes until they are able to determine who would qualify for the settlement.

3) As homeowners have sought help with navigating their options with the help of housing counselors and legal service lawyers.  Unfortunately, funding for organizations offering these services is often limited.  Therefore, it makes sense to allocate some funding to the people helping to keep communities strong.

4) Harmful loan servicing practices have to cease.  This is self-explanatory, yet as the Washington Post highlighted last week, (Consumers lodge thousands of complaints about firms that service mortgages) the Consumer Financial Protection Bureau is still seeing loan servicing problems.

5) Affordable housing- California was facing an affordable housing crisis before the mortgage meltdown, and this crisis has only been exacerbated by the meltdown and Wall Street investors who are buying up communities.

6) Since the beginning of the crisis, members of the California Reinvestment Coalition have called on regulators, elected officials, banks, servicers, and policymakers to increase transparency of efforts to help homeowners.  This includes demographic information so that we could see whether or not communities are benefiting equally from the settlement.  This issue was also addressed in a new GAO report titled: “TROUBLED ASSET RELIEF PROGRAM: More Efforts Needed on Fair Lending Controls and Access for Non-English Speakers in Housing Programs” that cited CRC surveys and concerns about unequal access.

7) Strong monitoring and enforcement of the agreement is vital to ensure that the bank actually complies and homeowners actually benefit.

If you’d like to read the more detailed statement and see the 17 other organizations that signed onto the statement, visit the press release: “Lessons from Past Mortgage Settlements Should Guide Department of Justice Settlement with JP Morgan Chase

How much did banks like Wells Fargo and US Bank make off of deposit advance loans?

profits

Last week, US Bank and Wells Fargo, two banks that have offered high-interest, short-term loans to their customers that closely resemble payday loans, announced they would no longer make the loans.

While advocates cheered the news because it means fewer people will be stuck in debt traps of trying to pay back these loans, it has been unclear until now just how profitable these loans are for the banks.

During a hearing held by the Senate Select Committee on Aging, this issue was raised by Senators.  (Hearing Focuses on Direct Deposit Advances, are they different than payday loans?)

Senator Bill Nelson (D-FL), the Chair of the Committee, highlighted the relatively low risk involved in making these loans when the customer’s income is from Social Security. Senator Nelson remarked, “As long as there’s a Social Security Administration, that money will be coming in.”

On Wednesday, the CEO of US Bancorp (parent company of US Bank) revealed just how profitable these loans have been.  The Wall Street Journal (U.S. Bancorp Profit Grows) reports that US Bank’s CEO commented that the bank earned $50 million a quarter from the loans.

Update: A July 28, 2014 article in the Cincinnati Business Courier cites the $30 million that Fifth Third Bank made from these loans in Q2, 2014  (Three reasons analyst says Fifth Third shares should jump)

While all of the banks that make these deposit advance loans have announced they will no longer make them (bowing to regulator and advocate pressure), there are several important pending issues:

1) How will customers who currently have these loans be treated?   One possibility would be to lower their interest rates to 36% APR, a reasonable (if expensive) rate already in place for our active-duty military, and to also extend the loan terms so that people can pay off the loan in smaller payments and rebuild their financial security.

2) Will the banks try to offer a replacement product?  Any new products could be an opportunity for banks to regain customers they are currently losing to storefront payday lenders, check-cashers, and online payday lenders.   If the banks were to provide safe, affordable, alternatives, it could also go a long way towards rebuilding trust with Americans.

If you’d like to learn more about bank payday loans, please visit these CRC resources:

1) Congressional testimony: In July 2013, Annette Smith testified to the Senate Select Committee about her experience paying almost $3,000 in fees as she renewed a $500 Wells Fargo loan over the course of five years.

2) US Bank CRA exam: In June 2013, CRC authored a letter to Office of the Comptroller of the Currency during US Bank’s most recent CRA exam, citing concerns with the bank’s “Checking Account Advance.”

3) Research on Payday loans: A June 2013 report by CRC and national partners in New York, North Carolina, and Illinois, focused on the dangers of payday loans (offered by banks and storefront lenders).

4) Comment on proposed rules: In May 2013, CRC and 62 members and allies sent a letter to the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, providing input on proposed rules about consumer safeguards for these types of loans.

5) Wells Fargo Shareholder meeting: In April 2013, CRC and national partners traveled to Utah to attend Wells Fargo’s annual shareholder meeting, where Annette Smith, a Wells Fargo customer, told the CEO about her bad experience with the bank’s direct deposit advance loan.

6) Wells Fargo CRA Exam: In November 2012 CRC commented on Wells Fargo’s CRA exam, highlighting the direct deposit advance. Over 2,700 people contacted the OCC, calling on the bank regulator to give Wells Fargo a “failing grade” on its CRA exam.

PacWest Acquisition of CapitalSource: California Community Groups Urge Federal Reserve and FDIC to Hold Hearings

CapitalSource Being Acquired by PacWest

California- October 4, 2013–A group of community organizations, led by the California Reinvestment Coalition (CRC), has requested that the Federal Deposition Insurance Corporation (FDIC) and Federal Reserve postpone Pacific Western Bank’s (PacWest) acquisition of CapitalSource Bank. Citing a long list of concerns, the organizations are pressing regulators to hold hearings about the acquisition, extend the public comment period, and impose CRA conditions before the merger can move forward. If the acquisition is approved, the new bank would be the 9th largest in the state, with over $15 billion in assets, and 96 branches in 14 counties stretching from San Francisco to San Diego.

However, community leaders cited a number of concerns to regulators during the comment period which ended on September 24 (FDIC) and September 30 (Federal Reserve).

PacWest’s Poor Community Reinvestment Act (CRA) Evaluations: PacWest’s CRA activities are well below CRC benchmarks for what constitutes good CRA performance. While it is rare for regulators to give a “Low Satisfactory rating,” PacWest received a “Low Satisfactory” rating for each of the Lending, Investment and Service tests in its most recent CRA evaluation. In contrast to other large California banks, the bank does not have Minority-Owned, Women-Owned, or Disability-Owned Business Enterprise program that would create opportunities for these businesses.

Sharon Kinlaw, Interim Director of the Fair Housing Council of San Fernando Valley, urged regulators to give their full attention to the merger: “It appears that CRA activities aren’t a priority for PacWest, which is why we’re urging the FDIC and Federal Reserve to seek community input and make their approval contingent on a plan for the bank to improve its CRA activities.”

In comparison to PacWest, CapitalSource (the bank potentially being acquired) has received “Outstanding” CRA evaluations. Community leaders are concerned that CapitalSource’s strong tradition of investing in communities could be stopped if the bank acquisition is approved.

Glenn Hayes, President and CEO of NeighborWorks Orange County, explained that CapitalSource has been a leader in the communities where the bank is located: “CapitalSource is a consistent community partner, with staff members serving on boards of local nonprofits, providing grants to local organizations, and being a CRA leader at the local level. Unless the regulators require PacWest to strengthen its CRA activities, we’re deeply concerned the bank may end the strong partnerships that CapitalSource worked to create in our communities.”

Allen Baldwin, Executive Director of the Orange County Community Housing Corporation, suggested that regulators consider the impact of the new, larger bank on communities. “For me, this is a no-brainer. If you want to do business in our communities, then it’s important that you reinvest in neighborhoods, for example by providing capital for affordable housing, or lending to small businesses. Based on what we’ve seen from other banks, PacWest has a ways to go before we’d consider them a strong community partner, which is why we’re asking regulators to hold hearings. PacWest has seen value in CapitalSource and some of that value has been created by its very strong CRA programs; programs that should be cloned by PacWest.”

Pac West Bank either doesn’t have plans to improve its CRA performance or won’t disclose it: The California Reinvestment Coalition and ten of its member organizations met with bank leaders in September 2013 to discuss the bank’s plans to meet requirements under the CRA. However, PacWest representatives balked at offering any public plans on how the newly merged bank would meet CRA requirements.

Kevin Stein, Associate Director at the California Reinvestment Coalition, explained: “Instead of rubber-stamping this deal, we think federal regulators should put CRA conditions on this merger so that the newly merged bank doesn’t leave low and middle income communities behind.”

CRC’s additional concerns about the merger include:

• Overlapping branches: PacWest has identified 15 “overlapping” branches, which could lead to bank closures.
• Fresno, Kern, Kings and Tulare counties would be included in the new bank’s assessment area, yet it remains unclear how and if the bank would serve these rural areas.
• PacWest has traditionally relied on making small business loans to businesses with over $1 million in revenue, leaving smaller businesses without access to these loans.

Additional Materials:PacWest 2010 CRA Community Reinvestment Act Performance: LINK
Letter submitted by CRC to Regulators: LINK

Bank Meetings, Payday Lending Ordinances, Obamacare, and Richmond Eminent Domain Case

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October 1, 2013

CRC Cautions Covered California on Financial Firms Making Money off of Health Care Reform
Concerns about predatory lenders exploiting Obamacare led CRC to submit comments to Covered California (the entity responsible for implementing health care reform in CA) about these companies exploiting health care reform to sell prepaid cards (with high fees) to Covered California enrollees. Continue reading…

Long Beach and Sunnyvale City Council Vote to Limit Payday Lending and other Fringe Lenders
Despite state legislative inaction on payday reform two California cities passed ordinances this month to limit predatory payday lenders. Continue Reading…

Positive Dialog at Bank Meetings
CRC members hope two recent meeting with banks will have strong and ongoing impact for much ignored communities. The first was focused on Asian American communities with Asian owned banks organized with the Office of the Comptroller of the Currency (OCC), Federal Reserve and FDIC in Los Angeles. The second was focused on rural community banks and economic development organized with the FDIC in Sacramento. Continue reading…

Wall Street Threatens Redlining if Eminent Domain Moves Forward in Richmond
The Richmond City Council voted earlier this month to move forward on an eminent domain program (Richmond CARES) that is designed to assist Richmond homeowners with negative equity. Wells Fargo and Deutsche Bank sued Richmond, seeking an injunction to stop the program from moving forward. In response to the redlining threat, the law firm Relman, Dane, & Colfax PLLC, filed an amici brief that CRC, the National Housing Law Project, Housing and Economic Rights Advocates, Bay Area Legal Aid, and the Law Foundation of Silicon Valley signed. Continue reading…

New movie from NCRC
“Fleeced” is a new movie about elder financial abuse, and features interviews with CRC staff member Andrea Luquetta as well as Annette Smith, a consumer who has spoken out forcefully against Wells Fargo’s payday loan product. The movie is a joint production between the National Community Reinvestment Coalition and WFYI Productions. Watch the trailer: Fleeced.