How Much Corporate Welfare Have CIT Group and OneWest Bank Received?

corporate-welfare-piggy-bank

POSSIBLE BANK MERGER BREAKS NEW GROUND IN CORPORATE WELFARE

As part of a five-day public awareness campaign, Californians are asking bank regulators, including the FDIC, the Federal Reserve Bank of New York, the Federal Reserve, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, questions about the possible negative impacts of a Too Big To Fail Bank merger that would combine CIT Group and OneWest Bank.

CIT Group Corporate WelfareThe questions on the fourth day focus on the subsidies both banks have already received from taxpayers in the form of TARP money and tax breaks the newly merged bank plans to use after the merger. These subsidies are in addition to the ongoing support OneWest investors are probably still receiving under the FDIC’s shared loss agreements.  In response, community groups are asking how much government welfare one bank can receive.

CIT Group unpaid TARP $2.3 billionDespite these government handouts, the bank plans big payouts to investors, executives, and shareholders, while only offering a meager community benefit and reinvestment plan as part of the merger, and zero plans to repay the $2.3 billion it received from taxpayers under TARP. Ironially, the LA Times reports that OneWest bank has paid out $2.3 billion in dividends as of June 30- the exact same amount of money that CIT Group never repaid to the US Government.

“Once again, we see there are two sets of rules for Wall Street and Main Street,” commented California Reinvestment Coalition Executive Director Paulina Gonzalez. “Bank CEOs and investors will potentially ‘earn’ millions from this merger, despite no clear community benefits from the merger, and despite the fact this merger dramatically increases risks for the US financial system. Americans who are working two or three jobs to keep their head above water will have a hard time understanding how bank regulators would approve a merger that includes a plan for exorbitant executive salaries and planned corporate tax breaks and no guarantees of a clear public benefit.”

Leadership of CIT Group and OneWest Bank refused to tell CRC members how much money they have received from the FDIC (via the Shared Loss agreement), so CRC submitted a FOIA request to the FDIC. Thus far, the FDIC has denied CRC’s FOIA fee waiver request, informing CRC that “The subject matter of your request is not now of interest to the general public.”

FOIA fee waiver denial for OneWest BankThis shocking response from the FDIC flies in the face of intense public interest in the recent This American Life/Propublica story about bank regulators coddling Goldman Sachs and the considerable interest generated by the recent AIG trial about the government bailout of AIG.

Kevin Stein, associate director at the California Reinvestment Coalition, comments: “CIT wants regulatory approval to buy OneWest, which will bring expected corporate profits, billions for investors, and millions for bank executives. It also wants: to not to have to pay back $2.3 billion in TARP money it received from the US Government; to take advantage of merger’s expected profits and use tax gimmicks to lower its IRS bill; to have the FDIC agree to cover certain future losses; and to not offer a meaningful plan to serve and reinvest in the community. Has a merger ever had so much public subsidy, so much private gain, and so little public and community benefit?”

Under the merger application, the CEO of the newly merged bank will receive a $4.5 million annual salary plus over $12 million in stock options, for a potential total of $26 million over the course of three years. Meanwhile, the chair of the merged institution may earn $4.5 million annually working for the bank, though his offer letter allows him to retain his other job of running a private equity fund at the same time.

CRC’s questions for regulators include:

1) Is there a contradiction between a bank arguing that its strong enough to become the first SIFI created, while at the same time holding out its hand for subsidies from the FDIC via the Shared Loss Agreement?

2) Are regulators concerned about the outsized compensation for bank executives under this merger, especially in light of the miserly goals the bank’s leadership has created in regards to community reinvestment activities?

Today is the fourth of five days of questions for regulators about this merger, to review previous questions for regulators, visit these links:

Day 1: Bank Merger Would Benefit Investors, But What About Communities?

Day 2: Advocates Question If FDIC Loss-Share Agreements Should Continue As Part of Bank Merger

Day 3: Community Groups Question OneWest’s Foreclosure Record

Tomorrow’s release will focus on Community Benefit and Reinvestment Plans and how CIT Group and OneWest can improve their current plan.

CRC’s detailed letter to the Federal Reserve Bank of New York includes an analysis of the merger and a long list of concerns and unanswered questions about the proposed merger.

Community Letter to John Thain (CIT Group) and Joseph Otting (OneWest Bank)

Editor’s note: The letter below was sent to the CEOs of OneWest Bank and CIT Group, two banks who have proposed to the Federal Reserve to merge.  The California Reinvestment Coalition and its members and allies are concerned about the proposed merger and outline these concerns in the letter below:

 

September 16, 2014

Joseph Otting

OneWest Bank

 

John Thain

CIT Group

 

Dear Mr. Otting and Mr. Thain:

This letter is meant to suggest a framework for discussing how a combined OneWest/CIT Bank could effectively meet community credit needs by developing a strong and public Community Benefits and Reinvestment Plan with commitments proportional for a bank of its prospective size.

The California Reinvestment Coalition (CRC), based in San Francisco, is a nonprofit membership organization of over three hundred (300) nonprofit organizations and public agencies across the state of California. We work with community-based organizations to promote the economic revitalization of California’s low-income communities and communities of color. CRC promotes increased access to credit for affordable housing and community economic development, and to financial services for these communities.

We believe that strong partnerships with local community organizations, coupled with a strong Community Benefits and Reinvestment Plan that provides a roadmap for the bank’s planned CRA activity specifically geared to Southern California’s low and moderate income communities and communities of color, are essential components to the overall success of the bank’s CRA program and to its acceptance in the community.

We offer the following recommendations in the spirit of CRC and its members working to identify community needs and the appropriate reinvestment benchmarks for a bank of your size.  CRC and its members urge the Bank to agree to a 5 year Community Reinvestment and Benefits Plan that the Bank would file with the Federal Reserve Board as a supplement to your application. Plan components include:

  • The bank will set annual goals for total CRA activity (in the areas of lending, community development investing, contributions and financial services) that exceed 25% of California deposits.
  • The bank will devote at least .30% of deposits annually towards community development investments.  These community development investments could include affordable housing development, small business lending, and equity equivalents to California CDFIs, CDC’s and other non-profit community development funds. No more than half of community development investments should be for tax credits or mortgage backed securities. The bank should set a subgoal for community development investments targeted to affordable projects at or near transit stops that are being developed in LMI communities, and actively provide both residential and commercial loan products that inspire affordable developments.
  • The bank will set aside an initial $30 million philanthropic fund for community and economic development activities that target small businesses and families still hurting from the economic recession. Additionally, starting in year one, the bank will devote at least .030% of deposits annually towards contributions.  Of this amount, 60% or more will be towards housing and economic development activities that support low/moderate income people including organizations providing technical assistance to small businesses, fair housing or mortgage counseling, affordable housing development, and other similar activities.
  • The bank should commit at least 1% of deposits for community development lending that supports the construction and rehabilitation of housing that is deed restricted as to be affordable to very low, and low income households.
  • The bank should develop a one stop construction to permanent loan product for multi-family housing finance.
  • The bank should develop a line of credit for nonprofit housing developers to enable them to acquire properties, including REOs, for the benefit of borrowers, including low to moderate income first time homebuyers.
  • The bank will designate at least one staff person who will work with nonprofit groups representing homeowners seeking to secure loan modifications and/or Keep Your Home California program benefits.
  • The bank will develop a policy to prefer nonprofits and owner occupants in the sale of distressed loans and REO properties.
  • The bank will make available affordable mortgage loan products with flexible underwriting guidelines for families earning less than 120% AMI adjusted for family size. The bank should allow nonprofits, CDFIS and other affordable mortgage loan providers to become brokers through all of its distribution channels.
  • The bank should originate SBA loans to borrowers of color at a percentage that approximates their representation among businesses in the Bank’s assessment or service area, and continue to offer loans in smaller loan sizes.
  • An annual goal of half of the number of CRA-qualified small business loans shall be to businesses with annual revenue of less than $1 million or consist of loans less than $150,000 excluding credit card loans. Small business lending in LMI census tracts should approximate the % of businesses located in LMI census tracts with the bank’s assessment area.
  • The bank should develop a small business loan and technical assistance referral program so that businesses unable to qualify for small business loans from the bank can be referred seamlessly to local CDFIs and other nonprofit providers that may be able to make the loan and/or provide technical assistance in order to help borrowers better prepare themselves to qualify for conventional financing.
  • The bank will participate in the state’s small business Loan Guarantee Program.
  • The bank will develop a strong MWDBE vendor program and set a goal of 30% sourceabale spend, with at least 20% spending with MBE contractors.
  • The bank will ensure that CalWORKs recipients accessing their funds using Electronic Benefits Transfer cards will not be assessed a fee at OneWest/CIT Bank ATM machines.
  • The bank will develop a bank account that complies with CRC’s Safe Money standards.
  • The bank will commit that 30% of new branches established outside of a merger will be located in LMI census tracts.
  • The bank will sign the Plan, make the Plan public and file it with its application to merge.
  • The bank will meet annually with CRC and its members to report on progress in meeting the commitments in its CRA Community Benefit and Reinvestment Plan.
  • The bank will strive to have a diverse workforce that reflects the bank’s customer base.
  • The Bank will commit to having at least one representative from the Latino, Asian American and Pacific Islander, and African-American community on its board of directors within 3 years.

With a strong CRA plan in place, CRC and its members are willing and ready to work with the bank to further the bank’s CRA and overall business objectives.

We look forward to discussing this proposal with you further when we meet in September.  If you have any questions or would like to discuss further, please call Kevin Stein at (415) 864-3980.  We look forward to the ongoing dialogue on behalf of California communities.

Sincerely,

Affordable Housing Clearinghouse

ASIAN Inc.

Asian Pacific Islander Small Business Program

Asian Pacific Policy & Planning Council (A3PCON)

Business Resource Group

California Housing Partnership

California Reinvestment Coalition

California Resources and Training (CARAT)

CAMEO

Community HousingWorks

Community Housing Development Corporation

Community Housing Improvement Program (CHIP)

Consumer Action

East Los Angeles Community Corporation

Fair Housing of Marin

Greenlining Institute

Housing and Economic Rights Advocates

Housing Rights Center

Inland Fair Housing and Mediation Board

Korean Churches for Community Development

LA Voice

Los Angeles Local Development Corporation

Multi-Cultural Real Estate Alliance for Urban Change

Neighborhood Housing Services of Los Angeles County

Neighborhood Housing Services of Silicon Valley

NeighborWorks Orange County

Northbay Family Homes

NPHS, Inc.

Pacific Asian Consortium in Employment (PACE)

Public Counsel

Renaissance Entrepreneurship Center

Sacramento Housing Alliance

Strategic Actions for a Just Economy (SAJE)

Suburban Alternatives Land Institute

Valley Economic Development Corporation

Women’s Economic Ventures

 

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.