American Banker Projects

Credit Card Debt Collection Misconduct — In early 2012, I learned that JPMorgan Chase had quietly shut down its internal debt collection operation, firing most of its in-house collection attorneys. Whistleblowers explained that robosigning, erroneous account records, the sale of bad debt, and weak quality control were behind the shutdown – Chase’s internal computer systems regularly disagreed about how much defaulted customers owed.  The bank fired managers who raised questions about its practices and drew an investigation by the Office of the Comptroller of the Currency. I expanded the investigation to other banks, and found that Bank of America had sold hundreds of millions of dollars of defaulted accounts under contracts which admitted that the bank’s own records of credit card debts were unreliable, and some of the debts might have been paid.  Yet debt buyers still filed collection suits, and most courts blindly accepted them without proof. In at least one incidence found by American Banker, Bank of America sold a nonexistent debt. Two groups of state attorneys general and multiple federal regulators are now looking at major banks’ role in shoddy debt collection practices, and they’ve regularly cited American Banker’s work in court filings.

Force-Placed Insurance — We broke the story of alleged kickbacks in the market for force-placed insurance (a type of property insurance that banks buy to protect the homes of financially struggling mortgage borrowers) in November of 2010. Since then, I’ve written more than 30 stories. Early topics included the commissions banks received without necessarily performing any work, the harm to investors, generous reinsurance deals, and how one major insurer managed to sidestep state caps on insurance premiums. After New York’s Department of Financial Services launched an investigation and other major insurance regulators followed suit, I covered hearings and legal developments. Some major banks have foresworn commissions on the product, and their insurer partners have agreed to lower their prices by hundreds of millions of dollars in some cases. (Internal Wells Fargo documents show that the bank was embarrassed by our coverage and acknowledged that its insurer partners were gouging borrowers.) Later, when the Federal Housing Finance Agency killed a plan to halt the payments (after significant industry lobbying) I got internal government sources to dish on  the FHFA’s decision.

Foreclosure Reviews — Following banks’ robosigning mistakes, the Office of the Comptroller of the Currency and the Federal Reserve announced they would force banks to pursue loan-by-loan reviews of their foreclosures. The process was troubled from the get-go: consumer groups attacked the independence of the consultants running the reviews, the OCC let each bank design its own program, and the reviews were far harder than anyone expected. In November, Kate Berry and I took our own look at the process, finding that the banks’ reviews suffered from a lack of standardization and massive cost overruns. We wrote about the problems in two stories, Foreclosure Reviews: Exorbitant for Banks, Gold Mines for Consultants and Foreclosure Review Pays Consultant $4 for Each $1 to Homeowners. Amid harsh criticism from both banks and consumers, the OCC and the Fed called off the program in place of a faster but less ambitious settlement. After it was over, we did a post-mortem on the review’s failings and looked at the new mechanism for consumer payouts.

Indirect Auto Lending and “Disparate Impact” — Banks provide most auto loans through “indirect lending” arrangements in which they allow auto dealers to underwrite their loans. The problem is that dealers demand what are called “markups” — a greater fee per loan — if they can convince a car buyer to pay an above-market interest rate. In practice, this has historically meant that dealers sell high-interest, discriminatory loans to women and minorities. Banks don’t support this, but they must pay markups or get drummed out of the market. Lenders say they’d welcome a rule from the Consumer Financial Protection Bureau that would ban them from paying markups — but the CFPB’s not writing one. Instead, it’s pursuing enforcement actions against the banks, which even consumer advocates say will be ineffectual.

$6 Billion in Mortgage Reinsurance Kickbacks — Following the mortgage crisis, the Department of justice neglected to pursue HUD’s investigation of a ten-year alleged pay-to-play scheme between banks and insurers. Under the scheme, banks coerced mortgage insurance companies to pay as much as half of their revenues into bank-owned “reinsurance” vehicles that could never lose money. (Documents show one insurer even begged Citigroup to not make the payoff so blatant.)  The state of Vermont – known for lax regulation of captive insurance – gave its blessing to the fake insurance deals, and other regulators failed to take action despite clear evidence that the deals were not arm’s length arrangements. After my stories ran, the CFPB picked up the reinsurance case as one of its first-ever investigations. The CFPB is now bringing cases against the banks that profited from the deals. The Department of Justice has never explained why it dropped the case, which HUD investigators believed was heading to a $600 million settlement when they handed it to DOJ.

Overdraft Fee Litigation — Union Bank Email Shows Overdraft’s Underbelly — The massive checking overdraft litigation case in Florida is plodding along, though Union Bank settled shortly after class certification. Over the opposition of lawyers for Wells Fargo and JPMorgan Chase, I intervened pro se as a party to the case, allowing me to petition he court to unseal documents and exhibits. DIY legal work!

Revolving Door at HUD — Every once in a while, putting in a FOIA actually works. This started with a FOIA after the head of the Federal Housing Administration left his job to work for the Mortgage Bankers Association. We found some embarrassing stuff, then looked at  how the FHA had inflated its enforcement statistics and failed to take any enforcement action against big banks.

Wachovia’s End — An insider’s view of Wachovia’s leadership and the financial crisis precipitated by Lehman’s fall. Cover of U.S. Banker, November 2009.