April 21, 2013 -- This just in from the "It Couldn't Possibly Get Any Worse" Department: The first wave of checks from the bungled foreclosure abuse settlement landed in mailboxes around the country this week, but when people tried to cash them, a number of them bounced. I don't know about you, but if someone who worked for me screwed up something like a $3.6 billion payout, I'd fire them.
Let's face it. The biggest bank regulator in the U.S. is an abject failure. Worse, it's costing us oodles of money, and not just from bounced checks. The Office of the Comptroller of the Currency spent the past decade doing really dumb things (and in many cases nothing) while homeowners got hammered, our economy tanked and billions of taxpayer dollars were squandered.
Enough is enough. Memo to the OCC: Either earn your keep or face the consequences.
Bounced checks notwithstanding, the agency's latest affront to taxpayers is of course the entirely inadequate foreclosure abuse settlement. Its failure to win justice for homeowners that were cheated out of their homes is unacceptable.
The problems began in 2010 with the "robo-signing" scandal, in which several large financial institutions instructed their employees to falsify thousands of documents every day to speed the foreclosure process.
There should have been an immediate criminal investigation, and there wasn't. There should have been a perp walk at some point, but there wasn't. Instead of pressing the U.S. Attorney to prosecute, the OCC and the Federal Reserve created an independent foreclosure review. The mandate of this review was "simple enough," said Comptroller of the Currency Tom Curry: "fix what was broken and compensate those who were harmed."
The review did neither. First the Comptroller's office punted authority for the reviews to "independent" consulting firms, many of which had large contracts with the same banks they were supposed to review. The result: After blowing through nearly $2 billion in two years, the consultants still had millions of cases left to review, and no idea whether their findings were reliable, according to the Government Accountability Office.
Rep. Carolyn B Maloney (D-NY), no shrinking violet, was far too kind when she said, the final settlement was "too little, too late."
Another way of characterizing the settlement: the big banks got away with it -- yet again.
Effectively, after screwing around for more than 24 months, the Office of the Comptroller simply waived a white flag and acquiesced to a settlement in which 13 of the largest mortgage servicers agreed to pay $3.6 billion to homeowners. That may sound like a lot of dough, but it's not.
Because Mr. Curry rubber-stamped a truly flawed process and then, under pressure to provide relief to aggrieved homeowners before the Second Coming, he stopped the process prematurely. As a result, we have no idea how many Americans were victimized. So instead of settlement dollars going only to real victims (which would be the equitable solution for both them and the banks), with a few exceptions, the reparations will be divided between all 4.2 million homeowners who were eligible for review. By my calculations, that's less than a thousand dollars per (in many cases former) homeowner. It's beyond insulting. It's an outrage.
Some members of the U.S. Senate are not amused. First among them is Sen. Elizabeth Warren (D-Mass.), who grilled the OCC during a recent hearing over the settlement's paltry compensation.
"So I just want to make sure I get this straight. Families get pennies on the dollar in the settlement for having been the victims of illegal activities or mistakes in the banks' activities," she said.
Sen. Warren also criticized the OCC for essentially aiding and abetting the banks to cover up their conduct by failing to deliver evidence of wrongdoing to consumers who may be considering private lawsuits against the banks.
"You have made a decision to protect the banks but not to help the families who were illegally foreclosed on," said Sen. Warren.
This type of behavior is nothing new for an agency that arguably played a crucial role in helping greedy financial institutions destroy the economy. Back in the early 2000s, state regulators began enacting laws and promulgating regulations banning predatory mortgages. These loans, effectively designed to fail, as has been amply documented, were highly profitable for banks, which reaped billions of dollars upfront in sales and securitization fees but had little interest (forgive the pun) in whether the loans were ever repaid.
The OCC then used its federal powers of preemption to supersede state laws. Whether or not the move was intended to protect bank profits, former Chairman of the House Financial Services Committee Spencer Bachus's (R-Ala.) statement comes to mind. Remember? He's the one who said, "Washington and the regulators are there to serve the banks."
If that weren't bad enough, the OCC conveniently failed to promulgate any meaningful rules against predatory lending of its own. Even after this failure fueled the fire of runaway mortgage speculation that caused the 2008 global financial meltdown, the OCC proceeded in 2011 to claim a blanket right to preempt state consumer protection laws, defying the intent of Congress as expressed in Dodd-Frank. The agency continued its war of obfuscation by forbidding banks from handing over meaningful foreclosure and modification data to state regulators.
What we have here bears many of the hallmarks of a rogue agency -- or at best an incompetent one. Despite repeated claims by Comptroller Curry and others that the OCC has learned lessons from its countless mistakes and will improve in the future, it continually fails to protect consumers.
How many chances can we give the OCC? How long can we afford to spend $1 billion a year on an agency that seems to be resolutely committed to not doing its job?
Compare the OCC's performance to that of the Consumer Financial Protection Bureau, which already has a strong record of actually protecting consumers from fraud and promoting a healthier, more efficient banking system.
In less than two years of existence the CFPB has taken action against bank kickbacks to mortgage brokers and lenders, and made steps to more intelligently and effectively regulate payday, auto and student lenders, and debt collectors -- not to mention the hundreds of millions of dollars the agency has collected for consumers harmed by deceptive practices. And it has done all of this on a budget projected at $447 million next year -- half of the OCC's budget.
The CFPB has proven itself to be efficient, competent, responsive and smart in all the ways the OCC has been inefficient, incompetent, comatose and dumb. Both agencies receive their budgets from fees paid by the financial institutions they regulate, but only one is doing its job.
For more than a decade the Office of the Comptroller of the Currency has floated in its own parallel universe, ignoring -- or worse, failing to expose -- evidence of lawbreaking by major banks. It seems to me that the best way to encourage them do a better job is to put some of their skin in the game. So perhaps the next organization the OCC should fine is itself -- for the offense of failing to accomplish its core mission and in so doing, exposing the American consumer to great harm. Then, perhaps, we should take that money, and hand it over to the CFPB, which has a better shot at accomplishing what the OCC is either unable or unwilling to get done.
Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.