Current Events

The “Scourge of Wall Street” Leaves the Obama Administration

Christina Latta Henry |  | Current Events

Elizabeth Warren, called by Newsweek “President Obama’s point person for financial regulation,” has resigned just as the Consumer Financial Protection Bureau which she championed came into existence.  She returns to Harvard Law School where she first made her mark with both scholarly research and books for the public on the increasing economic vulnerabilities of the American middle class.

She is universally seen as the brainchild of the Consumer Financial Protection Bureau (“CFPB”), one of the most contentious parts of last year’s landmark financial reform law.  Her advocacy for the CFPB and for vigorous financial regulatory oversight overall made her too controversial to be approved by Congress to lead the agency. She had worked for the last year as an Assistant to the President tasked with gearing up that agency, and left that role at the end of July after the President nominated one of her chief deputies to head CFPB instead of her.

Here are some of Ms. Warren’s own statements so you can judge for yourself whether you agree or disagree with her:

The consumer bureau’s mission is straightforward — make prices clear, make risks clear, so consumers can compare one product to two or three others. … . Fine print is great for those who want to hide something, but not good for families who want to know what they’re getting into.

Los Angeles Times

(In response to Senator Mitch McConnell’s demand that the CFPB be made “more accountable and transparent to the American people”):

Oh, excuse me? Accountable? He wants this agency to be more accountable to the banks. He wants us to have a funding stream that will give the banks lobbying power over this agency. And the second thing he wants with this five-person board, he wants bankers running this place.

New York Magazine

It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner.

Bloomberg

The notion that we need to ask the permission of the big banks about which approach to use [for fixing the economy] is just wrong. Who’s asking the American family which provisions are OK with them? I understand that we need to get the economy back on an even keel, and destroying large financial institutions isn’t going to do that, but neither is destroying the American middle class. We need to be asking, what are the best tools to repair the economy? Not, what are the tools most acceptable to the big banks?

Newsweek

This is America’s middle class. We’ve hacked at it and pulled at it and chipped at it for 30 years now, and now there’s no more to do. We fix this problem going forward, or the game really is over.

New York Times

The Extraordinary Political Twists of the Bankruptcy Decision Allowing Gay Couples to File Bankruptcy Jointly

Christina Latta Henry |  | Current Events

Last time, we looked at In re Balas and Morales, a decision issued by the federal bankruptcy court in Los Angeles that said that a gay couple who had been legally married in California should be allowed to file a joint bankruptcy, in spite of a federal statute (the Defense of Marriage Act, or “DOMA”) that defines the term “spouse” for the purpose of applying federal law, as “a person of the opposite sex who is a husband or a wife.”

This case is truly an extraordinary blend of law and politics:

  1. The opinion of the bankruptcy court, In re Balas and Morales, which is virtually always signed by a single bankruptcy judge, was also signed by 19 other bankruptcy judges. This is an almost unheard of emphatic showing of support for a judge’s decision by his colleagues.
  2. After the opinion was rendered in mid-June, the United States Trustee filed a notice of appeal of the opinion. The U.S Trustee “is a component of the Department of Justice responsible for overseeing the administration of bankruptcy cases.” It had filed the motion to dismiss the jointly filed bankruptcy case, and then, not surprisingly given the controversial and constitutional nature of the issue, it filed an appeal of the opinion. But then on July 3, barely a week later, it withdrew its appeal. Why would it file an appeal and then dismiss it a short time later?
  3. Because the bankruptcy court is merely one battlefield on which the DOMA war is being fought. In a highly controversial move in February, President Obama decided that his Administration would not enforce DOMA. As this article stated:

    Only a few times in history has a President decided his Justice Department will not defend an existing federal law. In those rare circumstances, the House of Representatives can step in and have its lawyers defend the law in court.

  4. Coincidentally on the day before the Chapter 13 case at issue was filed, the President’s decision was made official with a letter from U. S. Attorney General Eric Holder to the Rep. John Boehner, Speaker of the House of Representative stating:

    After careful consideration, including a review of my recommendation, the President has concluded that given a number of factors, including a documented history of discrimination, classifications based on sexual orientation should be subject to a heightened standard of scrutiny. The President has also concluded that Section 3 of DOMA, as applied to legally married same-sex couples, fails to meet that standard and is therefore unconstitutional.

  5. But then why would the U.S. Trustee, an arm of the U.S. Department of Justice, move to dismiss the case in defense of DOMA, and particularly go so far as to file an appeal? I don’t know why it filed the motion to dismiss, but the reason it appealed is a bit more clear. Between the time the bankruptcy case was filed in February and the rendering of the Supreme Court opinion in June, Speaker Boehner set up a “House Bipartisan Legal Advisory Group” (BLAG) to defend DOMA by “tak[ing] legal action on behalf of the House of Representatives.” As the bankruptcy court’s opinion states, “at the last minute [BLAG] orally requested a short continuance of the [scheduled] hearing in order to determine whether to intervene in this case to address the issues” Although this continuance was granted, BLAG did not intervene. The U.S. Trustee apparently filed the appeal because of indications that BLAG wanted to defend the constitutionality of DOMA through this case.
  6. So why the change of mind just a few days later about the appeal? In its July 6 motion to dismiss the appeal, the U. S. Trustee’s attorney explained:

    The [Department of Justice] has advised the [BLAG] of the pendency of this appeal, and the BLAG has responded that it does not intend to appear to present arguments in support of Section 3 of DOMA.

    The BLAG is actively participating in litigation in several other courts in which the constitutionality of Section 3 has been challenged. In light of the decision by the BLAG not to participate in this appeal and the availability of other judicial fora for the resolution of the constitutional question, the United States Trustee has determined that it is not a necessary or appropriate expenditure of the resources of this Court and the parties to continue to litigate this appeal.”

    Within days of this, the U.S. Trustee filed motions to dismiss other similar matters in other parts of the country. So, although usually one bankruptcy judge’s opinion on the unconstitutionality of a federal law would only be legally binding in that federal district, in this extraordinary combination of circumstances it looks like this particular opinion is effectively the law of the entire country. Unless the House Bipartisan Legal Advisory Committee changes its mind. Again.

Bankruptcy Court Permits Gay Married Couple to File Joint Bankruptcy Case

Christina Latta Henry |  | Current Events

You may remember that last month a court in Los Angeles declared the Defense of Marriage Act (“DOMA”) unconstitutional. What was interesting was that this was a bankruptcy ruling. The federal bankruptcy court in Los Angeles, the busiest one in the country, found the DOMA unconstitutional for purposes of determining who may file a joint bankruptcy case:

In this court’s judgment, no legally married couple should be entitled to fewer bankruptcy rights than any other legally married couple.…[T]he court finds that DOMA violates the equal protection rights of the Debtors as recognized under the due process clause of the Fifth Amendment.

The background: Gene Douglas Balas and Carlos A. Morales were married in 2008 during the short window of time when gay marriages were legal in California. The Bankruptcy Code allows a “joint case” to be filed by “an individual . . . and such individual’s spouse.” DOMA defines the term “spouse” for the purpose of applying federal law, as “a person of the opposite sex who is a husband or a wife.” The issue was whether that restriction violated this married couple’s equal protection rights.

To decide this issue, the court asked “whether dismissing the Debtors’ bankruptcy case pursuant to DOMA ‘advances an important governmental interest.’” It listed the following possible governmental interests, along with the reasons it believed that either dismissing the joint filed case or making the debtors file two separate individual ones would not advance any of them:

  • Encouraging responsible procreating and child-bearing (the Debtors have no children, and even if they did, there is no basis in the evidence or authorities to conclude that Debtors’ joint bankruptcy filing would affect Debtors’ children (if any, later) differently from children in other “traditional” joint bankruptcy cases);
  • Defending or nurturing the institution of traditional heterosexual marriage (the Debtors are already married to each other, and allowing them to proceed jointly in this bankruptcy case cannot have the slightest cognizable effect on anyone else’s marriage);
  • Defending traditional notions of morality (the Debtors’ joint bankruptcy filing is in no sense discernible to the court to be a validly challengeable affront to morality, traditional or otherwise, under the Fifth Amendment); or
  • Preserving scarce resources (no governmental resources are implicated by the Debtors’ bankruptcy case different from the resources brought to bear routinely in thousands upon thousands of joint bankruptcy cases filed over the years).

Crony Capitalism and the Financial Crisis

Christina Latta Henry |  | Current Events

It is a question asked repeatedly across America: why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted?

The question, from a New York Times article published in April, is not a simple one. Criminal intent can be difficult to prove, especially in a highly complex financial environment, and there may be sensible reasons for the lack of major prosecutions. But as the article states, “[f]ormer prosecutors, lawyers, bankers and mortgage employees say that investigators and regulators ignored past lessons about how to crack financial fraud.”

Some examples:

  • “As the crisis was starting to deepen in the spring of 2008, the Federal Bureau of Investigation scaled back a plan to assign more field agents to investigate mortgage fraud.”
  • “That summer, the Justice Department also rejected calls to create a task force devoted to mortgage-related investigations, leaving these complex cases understaffed and poorly funded, and only much later established a more general financial crimes task force.”
  • “Leading up to the financial crisis,…regulators failed in their crucial duty to compile the information that traditionally has helped build criminal cases. In effect, the same dynamic that helped enable the crisis — weak regulation — also made it harder to pursue fraud in its aftermath.”
  • “[E]nforcement agencies traditionally depend heavily on referrals from bank regulators, who are more savvy on complex financial matters.” But “regulators have referred substantially fewer cases to criminal investigators than previously.”

The result has been “fraud with impunity,” according to William K. Black, who was the federal government’s director of litigation during the savings and loan crisis in the 1980s. Now a law professor who has testified many times before Congress, in a recent Bloomberg article he argues:

The defining characteristic of crony capitalism is the ability of favored elites to loot with impunity and the failure of regulators to do their jobs. . . . . The two great lessons to draw from this epidemic of fraud is that if you don’t look for it, you don’t find it and that wherever you do look, you do find fraud. The FBI was concentrating on retail banking, or individual borrowers and smaller lenders. But the big problems were being created in the wholesale end of the business, where loans were pooled, packaged, sold and securitized. Because the FBI only looked at relatively small cases, it found only relatively small frauds.

The Credit Bureau VIP List

Christina Latta Henry |  | Credit, Current Events

A lot of our business these days involves disputing credit bureau errors, so we were very interested to read this rather appalling story:

The three major agencies, Equifax, Experian and TransUnion, keep a V.I.P. list of sorts, according to consumer lawyers and legal documents, consisting of celebrities, politicians, judges and other influential people. Those on the list — and they may not even realize they are on it — get special help from workers in the United States in fixing mistakes on their credit reports. Any errors are usually corrected immediately, one lawyer said.

For everyone else, disputes are herded into a largely automated system. Their complaints are often electronically ferried to a subcontractor overseas, where a worker spends, on average, about two minutes figuring out the gist of the matter, boiling it down to a one-to-three-digit computer code that signifies the problem — “account not his/hers,” for example — and sending a dispute form to the creditor to investigate. Many times, consumer advocates say, the investigation translates to a perfunctory check of its records.

We’re old-fashioned enough to believe that anyone who’s been unfairly denied credit or otherwise penalized deserves the VIP treatment from credit reporting agencies.

(Obligatory pitch: Contact us for help straightening out inaccurate or obsolete information on your credit report. We’ve made credit bureaus wish they’d put our clients on the VIP list!)

Senate Report on Financial Crisis Points Finger at WaMu

Christina Latta Henry |  | Current Events, Uncategorized

Just in case you weren’t mad anymore, a new U.S. Senate report called “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse” reveals even more details about how reckless a number of major financial institutions were during the housing bubble:

Singled out for criticism is the Office of Thrift Supervision, which oversaw some of the nation’s most aggressive lenders, including Countrywide Financial, IndyMac and Washington Mutual, whose chief executive was Kerry Killinger. Noting that the agency’s officials viewed the institutions it regulated as “constituents,” the report said that the office relied on bank executives to correct identified problems and was reluctant to interfere with “even unsound lending and securitization practices” at Washington Mutual.

The report describes how two risk managers at the bank were marginalized by its executives. One of them told the committee that executives began providing the regulator with outdated loss estimates as the mortgage crisis widened. After the risk manager told regulators that the estimates it had received were dated, Mr. Killinger fired him.

From 2004 to 2008, for example, the regulatory office identified more than 500 serious deficiencies at Washington Mutual, yet did not force the bank to improve its lending operations, according to the report. And when the Federal Deposit Insurance Corporation, the bank’s backup regulator, moved to downgrade the bank’s safety and soundness rating in September 2008, John M. Reich, the director of the Office of Thrift Supervision, wrote an angry e-mail to a colleague. Referring to Sheila Bair, the F.D.I.C. chairwoman, he wrote: “I cannot believe the continuing audacity of this woman.” Washington Mutual failed two weeks later.

Banksters to Public: Don’t Even Ask About Your Mortgage

Christina Latta Henry |  | Credit, Current Events, Uncategorized

Apparently you cannot even request the name and information of the owner of your loan without getting your credit report dinged. This sobering story from the Huffington Post tells the story of a poor chap who had a 780 credit score that dove to 740 after he simply asked the question of his mortgage loan servicer. (Notably, the credit expert noted in the article, Evan Henricks, is currently working with one of our clients on a credit reporting case. If your credit has been dinged due to no fault of your own, call us!)

Phantom Mortgages and Fraudulent Foreclosures

Christina Latta Henry |  | Current Events, Foreclosure

Christopher Marconi was in the shower when he heard a loud banging on his door. By the time he grabbed a towel and hustled to his front step, a U.S. marshal’s sedan was peeling out of his driveway. Nailed to Marconi’s front door was a foreclosure summons from Wells Fargo, naming him as a defendant. But the notice was for a house Marconi had never seen — on a mortgage he never had.

A long, important Associated Press story this morning about the wrongful foreclosures caused by the banks’ high-speed foreclosure procedures and inadequate record keeping practices. As the story reminds us, these procedures have included fraud as a routine practice:

Depositions from employees working for the banks or their law firms depict a foreclosure process in which it was standard practice for employees with virtually no training to masquerade as vice presidents, sometimes signing documents on behalf of as many as 15 different banks. Together, the banks and their law firms created a quick-and-dirty foreclosure machine that was designed to rush through foreclosures as fast as possible.

Former employees at banks and foreclosure law firms have testified that they also knowingly pushed through foreclosures on the wrong people.

If you receive a notice of foreclosure, contact an attorney immediately so you can take advantage of all your options!

How to Win Customers and Alienate People

Christina Latta Henry |  | Credit, Current Events

“Hello, My name is Stanley with DecorMyEyes.com,” the post began. “I just wanted to let you guys know that the more replies you people post, the more business and the more hits and sales I get. My goal is NEGATIVE advertisement.”

It’s all part of a sales strategy, he said. Online chatter about DecorMyEyes, even furious online chatter, pushed the site higher in Google search results, which led to greater sales. He closed with a sardonic expression of gratitude: “I never had the amount of traffic I have now since my 1st complaint. I am in heaven.”

Interesting New York Times article about a Brooklyn scammer who makes money by exploiting a structural loophole in Google’s page-ranking algorithm. (You will not be surprised to learn that Citibank is wholly uninterested in helping its customers who get taken by this guy.)