As readers probably know all too well, the Office of the Comptroller of the Currency has long been the most cronyistic of all bank regulators. So the default assumption when it cranks up an investigation is to assume that it’s just a window-dressing exercise or worse, a stealth bailout of some sort.
Yet the Washington Post tells us that the OCC is widening an investigation into debt collection, where alleged robosigner JP Morgan is the sinner-in-chief. What gives?
By all accounts, incoming OCC chief Tom Curry is serious about trying to reform the agency. And if media accounts and the case filed by California attorney general Kamala Harris against JP Morgan are remotely accurate, JP Morgan’s conduct is so far beyond the pale that the OCC should be able to extract a handsome settlement and, more important, force reforms on the bank and the industry generally.
Now mind you, I’m not optimistic about Curry’s odds of success, and I therefore think the OCC should be shuttered and its responsibilities given primarily to the FDIC. But this situation serves to illustrate how the power dynamics in DC are shifting on bank reform.
There are several reasons why a regulator might be able to take ground on the debt collection matter. It’s not a critical business. It’s a by-product of other consumer lending businesses, and therefore dispensable. It’s not a major profit engine to any bank. It also has so much reputational downside that banks, if they weren’t hopelessly greedy, should thank regulators for pushing them to get out of it. In addition, the consensus is that banks are well out of the woods, and by implication, no longer need the Geithner extreme coddling treatment. The fact that Obama is finally moving forward with trying to replace Ed DeMarco means the Administration thinks its housing policies are succeeding and it therefore can dispose of DeMarco as its chief scapegoat.
Now cynics will point out that the banks wield so much power in Washington that they’ll still fight to keep every profit opportunity just on general principle, to defend their imperial right to make money, no matter how many consumers and laws they run over in the process. But Curry has a lot of reasons to take on this fight.
First is the California AG suit. Federal regulators hate being end-run by states; it makes them look bad. And on top of the California suit, the Washington Post reports that Iowa attorney general Tom Miller is organizing a 50 state effort, a replay of the 50 state attorney general effort on mortgages. Now Miller proved to be all hat, no cattle the last time around. But this is a lower-stakes initiative, as in it does not have the potential to blow up either systemically important banks or a huge asset class. And apparently an additional impediment last time was that the complexities of mortgage securitization was really beyond the expertise of most AGs, while debt collection is a pretty simple business (mind you, I’m also skeptical of these all-inclusive efforts, since Republican AGs tend not to get tough with banks. But the flip side is the Republican holdout on the Federal/State mortgage settlement, the AG from Oklahoma, who said in public that he didn’t think the banks should pay anything, actually extracted more than five times as much on average in terms of payouts to borrower than AGs in other states). And the third-party debt collectors who buy credit card and other hard-to-collect debt from banks are bottom-feeders and don’t have a lot of friends in high places. Cracking down on them would be popular and low risk politically.
Second is that JP Morgan looks more and more like a rogue bank. The OCC was played for a fool in the London Whale matter, and that has to rankle. In addition, Josh Rosner’s analysis of the extent of JP Morgan’s regulatory violations has apparently raised eyebrows in DC. I’m told there is growing recognition that Something Needs to be Done, and the debt collection abuses are a narrow enough matter to be a place to start.
Third, Curry really needs a clean win. He came into office with the embarrassing Independent Foreclosure Review careening out of control. He shut it down quickly, too quickly, with way too many loose ends. Given the fact that the “independent” consultants had racked up ginormous fees without figuring out what banks had done (that was the point, after all), Curry did not have good options. But he was too generous to the banks and the consultants in shutting it down (note it’s also likely that he was not given the straight scoop by his staff and the person in charge of this fiasco abruptly took a lesser job, which many surmise to have been a demotion). Similarly, even though the London Whale fiasco took place under the previous regime, Carl Levin’s hearings revealed the OCC to have again been a patsy. And with Elizabeth Warren and Carl Levin both continuing to hammer away on finance-related issues, the OCC has reason to be concerned about more credibility-destroying press.
But Curry has a big problem, which is the culture he inherited. The OCC has a horrifically compromised bank examination staff. And they’ll be the ones who should have been on top of JP Morgan, and are certain to be defending it instead. Every major bank has examiners that are resident at the bank. That means they quickly start to identify with the people in their workplace, meaning the bankers they supposedly supervise. Think many of them will rat out their friends and drinking buddies?
To make matters worse, of all regulators, the banks’ biggest fixer in DC, Promontory Group, hires heavily from former OCC examiners. Why be tough on a bank when it will annoy your colleagues and torpedo your chance of getting a lucrative sinecure down the road? (The FDIC does a better job of managing against this problem because the FDIC also has to deal with the mess of failed banks, while the OCC never has to eat its bad cooking. And the FDIC also has a cooling-off period before former examiners can take bank-related postings).
So debt collection is an important test case. I’m willing to have Curry surprise me, but if not, his failure would be proof that the OCC is irredeemable and needs to be shut down.
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So what you’re saying, in effect, is that the administration, in the person of Curry, believes that the banks are in good enough shape to now have to act decently towards customers and maybe not break the law as a matter of routine.
This may also signal a shift in the Obama administration towards inching slightly away from 100% pro-corporate policies to some lesser percentage. My own view has been that Washington is far to rigidly gridlocked and gamed to do anything for the public at all–at least in part because the public simply does not care and doesn’t care and has little faith in anything coming out of Washington where there used to be some decency once-upon-a-time. Maybe it can be reborn and reformed.
Crisis of Legitimacy
It serves no purpose to speculate on the inner workings of our federal financial regulators, when it is inherently apparent that the individuals working within them have been demonstrated time and time again to be compromised, corrupt, and inept. We could do no worse than to dissolve the entire regulatory structure and signal to market participants: we are taking a laissez-faire approach; you’re on your own; if anything happens you have no recourse; anything goes. After all, that is essentially what has been happening for the last decade, with no investigations, no prosecutions, no actual regulation. So let’s dispense with the compliments on the emperor’s new clothes, in this case the regulators’ efficacy, and skip straight to the realization that effective regulation has been dead for going on fifteen years. To do otherwise, to speculate about what the OCC, the SEC, the State AGs, or the DOJ do about anything confers legitimacy on them, when everybody knows in advance that the fix is in, and that their actions are as predictable as whether water flows downhill. It’s done folks, finished.
Strikes me that if the OCC is to continue its existence(which I believe it should not), it should implement a 12 month rotation system whereby no one examiner remains in place at a single TBTF for longer than such period with varying rotations so some institutional knowledge always remains part of the team. Such a system would send examiners packing just when they start to get cosy with their TBTF drinking buddies and eliminate the bias that exists with such a relationship. Having lived and worked in DC for quite some time a ways back, it always struck me as a place where common sense would cure many of the ills of bureaucracy…
That’s a good idea. That policy is used by the Royal Thai Police Department in their assignments. Police are assigned to towns or villages for a limited time as an effort to prevent them from developing cozy relations with the regional godfather. It doesn’t work, of course, but it probably does limit the damage somewhat. The higher your rank (the police ranks exactly match those of the armed forces) the shorter the time you can spend in one place. The highest ranks are moved every year as part of a regular promotion cycle.
Incidentally, in Thailand the police are regularly named as the government agency people believe is corrupt (they take annual surveys — the Department of Transportation, which is responsible for road building and maintenance, usually comes in second) but it’s also the agency people turn to when they have trouble. My opinion is that there is probably a higher percentage of honest Thai policemen (really, most of them are) than of honest regulators in OCC.
“the debt collection matter. It’s not a critical business. It’s a by-product of other consumer lending businesses, and therefore dispensable.” Say what? You ever been to the local courthouse to see all the judgements by Capone and other fine institutions? Don’t tell the lawyers this is dispenable, nor to credit card companies or any other role model of American finance. The secret is to extend the credit get the default, and prey. This has been the OCC’s supporting role.
Agreed. Six years post BK Amex is spending considerable time and expense in violation of their own consent order with the DOJ to annoy me with calls and letters to collect a discharged debt from six years ago.
I have another punk lender who found an $11 charge from six years ago and just dinged my credit. Under California, four years is the statute of limitations on a debt, and no legal proceedings can be initiated after the four year window closes.
I will fight them and file a complaint with the CPFB and the CA Dept. of Consumer Affairs. But really. $11? I actually feel sorry for the “hungry mouths” as the Buddhists call those who are so greedy and craven as to ruin someone’s credit over $11. (They’re called hungry mouths because they wander around in eternity with huge stomachs and tiny mouths which are not large enough to satiate them.)
The credit bureaus are the cudgel these a++holes use to collect uncollectable debt. The one-two punch. One ding and you’re toast. My refi went bye-bye.
down2long: Have you checked out debtorboards (sue your creditor and win) website? Lots of handy info. Fed BK judges don’t like their discharge orders willfully ignored – contempt of court, to say the least. My attorney has offered to go after repeat offenders for no retainer – I guess it’s a slam-dunk for him. I keep hoping I will get a repeat offender…
Oh, phuleeze. Have you ever looked at the economics of a retail banking operation?
The debt collection revenues in question are a fly on these elephants’ asses. The practices that the OCC is looking at is when the debts are sold to third parties. Credit card debt goes for one to five cents on the dollar.
Now in aggregate, it still pays for itself for banks to have bank employees sell it to third parties. But this isn’t a meaningful profit driver, not even close.
“A fly on an elephant’s ass”
Now, thar’s a coinage!
Been there, done that, no T-shirt, just a change in employer down the road. But even the secondary market for recovery, not all bad debt is noncollectable. Now if the docs are bad and incomplete, then that goes wholly back to the seller. At the same time, people need a through education into what the FDCPA allows and doesn’t allow.
Here’s my standard reply when someone tries to pull a fast one one me and collect on a debt I don’t own-and it’s also valid if you are responsible.
“To whom it may concern:
If you believe that this collection call is NOT in error, per the FDCPA (15 USC § 1692) you are required to:
Provide proof that I owe this debt that you claim I owe;
Provide a copy of my State and Federal rights concerning this debt including how to dispute this debt;
Provide proof that you are licensed in my state, and provide me with your license number;
To advise me that further efforts are being terminated;
To notify me that you may invoke specified remedies;
To notify me that you intend to invoke a specified remedy.
In addition, per the FDCPA you are hereby notified that any and and all further communications
from your firm must be conducted via the Unietd States Postal Service.
Further attempts to call any of my phone numbers will be considered a violation
of the Fair Debt Collection Practices Act and complaint(s) will be filed with the
State of ‘s Attorney General’s office for violation of
and with The United States Federal Trade Commission for violations of 15 USC § 1692.
Be advised that a complete audit trail of all contacts and correspondence is being captured
and will be provided to The State of and the US FTC, including any and all voice mails left
by your agents.
This is the only notification you will receive from this party.”
In addition, even though Julie was still working there, last summer’s wrist slap of Capone for screwing military service members could have been much bigger news. But that’s what charlatan media is all ’bout. Bury the crisis by front running it with so-called oppositional essay.
By regs, when credit card debt goes past 180 days the institution is supposed to charge the debt off their books and off it goes into the secondary collections market.
The fact that JPM is involved reminds me of what happened during the days of the Bank One/First Chicago NBD merger, where Bank One moved off of a state-of-the-art core processing system (twice-once when they bought First USA, then FCNBD) onto a outsourced processor. During a conversion of those who were golden-handcuffed, one of the folks in IT made a wild statement: when it came to charge-off’s, those in the old FCNBD pool were worth more in the secondary market than the First USA (Bank One) portfolio.
Two weeks later after that little nugget surfaced, Bank One announced losses in the credit card arm that sent the stock down a whopping 20% in one day. When the conversion was completed, 70% of the core data on the FCNBD system as dropped (how they converted the collections systems I don’t know.)
This was in 1999.
Later, Chase and Bank one would merge to form the biggest credit card issuer at the time, and the did another conversion of their core system-this time to an outsourcer (who also sold the IP rights to their platform) to the new JPM.
It seems the spirit of the old First USA lives on.