When in Doubt: Commit Forgery?

This week, Linda Tirelli, a lawyer representing a client in a foreclosure case with Wells Fargo came across a very disturbing piece of evidence: a company manual instructing the bank’s staff in how to forge documents to proceed with foreclosures.  The manual instructs employees how to process [mortgage] notes without endorsements and obtaining endorsements and allonges.  In essence, if employees lacked the documents needed for foreclosure, they were instructed to make them up.  As Tirelli stated to the Washington Post:

“This is a blueprint for fraud,” said Tirelli, who attached a copy of the manual as evidence in the lawsuit filed in U.S. District Court in White Plains, N.Y. “The idea that this bank is instructing people how to produce these documents is appalling.”

The disclosure of the manual has been duly reported in the business sections of major media, but has not made a huge splash.  It’s shocking that the media and the public are this numb to the latest revelations of fraudulent behavior by megabanks.  Two years ago, several banks paid a settlement of $25 billion for their fraudulent conduct in robo-signing mortgages (although much of that money never actually benefited the people who lost their homes).  Apparently, the money paid by Wells Fargo for its portion of the settlement was not enough to deter ongoing wrongdoing.  The bank is so emboldened by the failure of the US government to truly crackdown on bank fraud that it was actually willing to create a manual for engaging in fraud.

How is it possible that 5 years out from the financial crash, the steps taken by the federal and state governments to address widespread fraud and abuse in the financial sector are sorely lacking?  In a letter to the Justice Department sent on the same day that the Wells Fargo fraud manual was disclosed, three members of Congress – Elizabeth Warren, Elijah Cummings, and Maxine Waters – asked Eric Holder why the Justice Department was not prosecuting mortgage fraud more aggressively.  The letter calls out the fact that even though $200 million was appropriated to the FBI to investigate mortgage fraud between 2009-11, the FBI ranks investigating mortgage fraud as its lowest priority.  When nearly five million families have lost their homes due to the financial crash brought about by Wall Street, and when many of these homeowners lost their homes through suspect foreclosure proceedings, it is an outrage that the Justice Department is failing to take mortgage fraud more seriously.

What can we do as individuals?  One important step to take is stop banking with megabanks.  If you have a bank account with Wells Fargo, go to our Break Up With Your Megabank site to find community development banks and credit Unions that support people and communities instead.  If you have a credit card with Wells Fargo, use our Take Charge of Your Card site to get a card with a responsible bank or credit union instead.

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Why a Central Banking System Doesn’t Work for Everyone

Green America’s Take Charge Program urges consumers to support smaller, local financial institutions in lieu of megabanks. Here are a few reasons why local banks and credit unions benefit smaller communities across the country. 

Since the early 20th Century, The United States has relied heavily on its centralized banking system. Represented by the Federal Reserve and top-tier financial institutions, (such as Citi and Bank of America), a centralized system is one in which a single entity regulates a state’s currency, money supply, and interest rates. The Federal Reserve has many responsibilities, including regulating and supervising private banks, protecting the credit rights of consumers, and issuing the nation’s currency.

The role of large, wealthy private banks is important in understanding how the central banking system works. The Fed is not controlled by the government, but rather by a group of governing board members who are often employees of private megabanks. Private banks give the board information related to their particular economic situation, and Federal Reserve policy is based on their suggestions. In turn, Federal Reserve policy largely influences to whom, and by how much banks should lend their money.

www.freefoto.com, Ian Britton

The centralization of banking benefits wealth concentration and increases risks

Research suggests that “high-ability entrepreneurs” tend to gravitate towards a central banking system. Essentially, wealthy individuals and institutions enjoy the connectedness that a centralized system offers. Pooling together the resources of powerful entrepreneurs, however, increases the risk of losing all of that money by making poor lending decisions. Large, wealthy banks are able to spend more on screening potential borrowers so that they have the lowest chance of losing a large amount of money. Even so, due to their sheer volume of lending, a megabank’s ability to evaluate the underlying credit-worthiness of their borrowers is compromised at such a large scale. Despite their best efforts, risk is always present.

On the other hand, as a part of a decentralized system, banks face lower screening costs. Community investment banks and credit unions focus primarily on the specific regions they serve. Local banks spend less on the evaluation of potential small-scale borrowers, in part because of the modest needs of their customers and in part because they have less to lose by lending in the first place. As such, local banks can consider factors other than the bottom line, like a project’s potential benefit to or impact on the surrounding community or environment.

The difference in risk management costs leads to what researchers call a spatial bias. Think of New York City, where some of the largest banks in the nation are headquartered. Communities surrounding the central banks benefit from their proximity to the hub. After all, it’s much riskier to lend money to someone across the country than it is to lend to a neighbor. But what about the communities that are nowhere near a banking center? Credit-worthy businesses and consumers in these areas often have a hard time obtaining financing from megabanks, which prevents smaller communities from growing.

The higher risk faced by lending megabanks also steers their preference toward larger borrowers. It is less costly to screen one large entity seeking a loan than many small individual requests for risk. The problem is, large borrowers often need financing for some of the most damaging activities, like dirty energy and sub-prime mortgages (which helped trigger the economic malaise of the past 5 years). In addition to making those involved quite wealthy, these activities can have serious societal consequences – consequences that small, regional, low-impact borrowers would not likely cause.

Local Banks support what Megabanks Don’t

Areas with limited access to capital are best served by community investment banks and credit unions to finance homes and build infrastructure. These communities have relatively little to offer towards the megabanks’ record-breaking profits, and they frequently emerge as losers against investment opportunities considered to be “safe bets” by large banks.

What is particularly troubling about the influence megabanks have on our central system is that there is ample room for abuse – we have seen countless examples of megabank misconduct, and we know that the forces at play can be damaging to both the environment and communities.  For example, many large banks were recently fined billions of dollars for their role in the mortgage fraud that precipitated the Great Recession and are currently being sued by the FDIC for their role in manipulating LIBOR (an international interest rate).

Given this misconduct, we, as everyday consumers of financial services like modest lines of credit and checking/savings accounts, should support community investment banks and credit unions outside of the centralized sphere. Instead of supporting coal mining or questionable mortgage-lending practices, the fees paid for your bank’s services could go directly back into your own world, supporting community development and environmental protection projects. Unless your megabank can offer you something your local financial institution cannot, the decision to Take Charge should be a no-brainer.

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Finally – Debt Trap Payday Loans from Banks on the Way Out!

There’s good news for the longer term financial well-being of cash strapped individuals. Several major banks targeted by Green America and our allies – Wells Fargo, Regions Financial, US Bank and Fifth Third – are all phasing out short term loans that have had interest rates of up to 365%. These loans, known as “deposit advance loans” or more commonly as “payday loans” have trapped people in ongoing cycles of debt resulting in ever more borrowing.

Last spring Green America wrote to the Office of the Comptroller of the Currency (OCC) and to the Federal Deposit Insurance Corp. (FDIC) calling attention to the problem of bank payday loans. This product is exploitative when offered by storefront payday lenders, and no less exploitative when offered by a bank. Green America was pleased that the Comptroller of the Currency Thomas Curry went on record saying: “We have significant concerns regarding the misuse of deposit advance products.” Similarly, when financial regulators issued new proposed guidance on bank payday loans, FDIC Chairman Martin J. Gruenberg stated that: “The proposed supervisory guidance released today reflects the serious risks that certain deposit advance products may pose to financial institutions and their customers.”

Research from the Consumer Financial Protection Bureau found that more than 50% of bank payday loan borrowers took loans totaling at least $3,000 and of these borrowers, more than half paid off a loan only to take out another loan within just 12 days.  We also know that more than a quarter of payday loan borrowers are senior citizens.Clearly the need for low dollar loans to individuals needs to be met with financial products that foster financial stability rather than increased indebtedness.

We now urge the Federal Reserve to set forth the same guidance as the OCC and FDIC have issued and we urge the Consumer Financial Protection Bureau to take action to restrict harmful payday lending. If you are fed up with the practices of many mega-banks you can switch your banking to a financial institution that actually supports communities. Learn more at:  www.BreakUpWithYourMegaBank.org

Growth in Socially Responsible Investing & Banking

A new report by US SIF, the association for socially responsible investment (SRI) professionals and institutions, shows that assets in SRI continue to rise in the United States. More and more investors are clearly realizing that their long-term financial well-being is best served through investments in companies that pay attention to their social and environmental impacts and that have sound corporate governance. Likewise, use of banks and credit unions dedicated to community development is also on the rise. These are great signs for moving our economy in the direction needed!

The new research tracks an increase of 22% in SRI from 2009 to 2011, bringing professionally managed SRI assets to in the US to $3.74 trillion as of December 31, 2011. The findings, announced yesterday in the 2012 Report on Sustainable and Responsible Investing Trends in the United States, indicate that SRI now constitutes 11.23% of all US, professionally-managed assets. Significantly, community development banks showed an increase of 74% and community development credit unions showed an increase of 54%.

If you have not yet switched to a community development bank or credit union – now is the time to join the increasing number of people using financial institutions that support people and the planet! Visit www.BreakUpWithYourMegaBank.org for tips on how to “break up” with your conventional bank and find a better bank that meets your needs while supporting communities from coast to coast. We’ve added even more banking options to our GreenPages Online – so also check-out greenamerica.org/go/banking to find a bank or credit union that works for you!

Citi’s Sandy Weill Now Sees Problems with Banks Too Big to Fail

In what the Huffington Post today called “a stunning reversal,” Sandy Weill, the former Citigroup CEO, now believes that the mega-banks need to be broken-up into smaller banks for the financial system to work properly.

Now that vast sums have been lost, people’s lives impoverished, and legislative efforts to better regulate banks have been weakened, Weill, the long-time champion of the “too big to fail” system says “What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, and have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”

This comes years too late, of course, following economic devastation for many and ridiculous levels of wealth-building for the few.

But it’s still a good time to break-up with your mega-bank if you are using one – and to switch to a community development bank or credit union. Pledge to move your money – and find new banking options – at www.BreakUpWithYourMegaBank.org  You’ll be glad you did!

Chase and Wells Fargo: giving you more reasons to break up

This week, megabanks gave their customers yet more reasons to break up with them and support community investing institutions instead.

JP Morgan Chase CEO Jamie Dimon answered questions in front of the Senate Banking Committee yesterday, and admitted that his bank made mistakes regarding billions of dollars of losses from trades.  Dimon has even admitted that some of the activity involved may have been illegal.  The Senate Banking Committee unfortunately went pretty light on Mr. Dimon.  That’s a shame, because as Richard Eskow points out in the Huffington Post, Dimon’s action raises a number of troubling issues, including: 1) why is Mr. Dimon on the Board of Governors of the Federal Reserve Bank of New York, when his firm is benefitting greatly from this entity?  Isn’t that a major conflict of interest?; 2) Doesn’t Mr. Dimon owe his shareholders an apology for going along with risky practices when he has a duty under Sarbanes Oxley to ensure that the bank’s risk mitigation strategies are sound?; and  3) since Chase has been implicated in foreclosure fraud, shouldn’t they be making a commitment to helping America’s many homeowners who are underwater?

In addition, JP Morgan Chase’s recent losses raise the significant question of why is Chase (as well as other megabanks) gambling with FDIC-insured dollars?  As William Greider points out in The Nation, banking reform should have ended the practice of banks gambling with FDIC-insured funds.  But, banks and their regulators have found convenient loopholes to allow megabanks to once again take enormous risks that could lead to another bailout.  Of course, Chase and the other megabanks campaign relentlessly against increased banking regulation and shower Congress with exorbitant campaign contributions to make sure effective regulation never happens.

Wells Fargo made the news this week owing to an affidavit of a former loan officer, Beth Jacobson, who describes how she and fellow employees steered African American borrowers to subprime loans regardless of their credit.  Ms. Jacobson, who now seeks to help homeowners who are underwater on their mortgages, also describes how she provided mortgages to people who could not afford to repay them.  The story was headline news in the Washington Post and is getting picked up all over the web.  While the number of lawsuits against banks continues to rise, the question still remains: why doesn’t the US Government break up the mega-banks, prosecute high-level banking executives, and create a truly sound financial system?

With election season coming up, it’s a good time to press candidates on where they stand on real banking reform.  And, if you haven’t done so already, it is always a good day to break up with your megabank.

$26 Billion Settlement With Mega-Banks

Attorneys General from all 50 states recently announced a $26 billion settlement with the largest home mortgage servicers in the nation – Bank of America, JP Morgan Chase, Citigroup, Ally Financial and Wells Fargo (all which qualify for our Mega-Bank Hall of Shame) – for improper foreclosure practices.  While $26 billion sounds like a lot of money, it is a drop in the bucket compared to the fact that Americans collectively owe $700 billion more on their mortgages than their homes are now worth.  In addition, the banks can use the funds to write-down bad mortgages (which they might have done anyway).  Also, while some homeowners will see a bit of relief from the settlement (and some of the worst foreclosure practices will be curbed), millions of homeowners will still face foreclosure in the years to come.  Considering the massive harms that mega-banks caused, and the ongoing harms that resulted, the settlement starts to look puny.

More needs to be done to expose fraud in the banking industry, to hold the responsible executives accountable, and to help homeowners whose lives are being wrecked by the foreclosure crisis.  As a consumer, you can play your part by closing your accounts with mega banks and shifting your funds to community development banks and credit unions instead.  Take action with our Break Up With Your Mega-Bank campaign (www.BreakUpWithYourMegaBank.org) today, and start using your savings to build communities that mega-banks so callously wrecked.