This should be considered a deadly weapon, in light of banks' runaway abuse of overdraft fee policies. (Photo: flickr.com)

Overdraft fees across the board have attracted the interest of Congress lately. Many have said that the way in which overdraft fees are assessed by banks and credit unions is predatory and dishonest. Charging the same high fee for each infraction – even if is for 1 cent – and then charging an additional fee for each day a customer’s account is overdrawn makes it nearly impossible for  already cash-strapped consumers to raise their heads above water.

In a recent case before California’s Supreme Court (Paul Miller et al. v Bank of American, NT & SA No. S149178), the ruling from Kruger v. Wells Fargo Bank (1974) 11 Cal.3d 352, 356 [113 Cal.Rptr. 449, 521 P.2d 441] (Kruger) was put to the test for Paul Miller, a retiree who depends upon Supplemental Social Security for his income (since 1992). Funds are directly deposited into his Bank of America checking account (since 1994). At the time that the direct deposits began, Miller was promised by Bank of America employees that those deposits would “be safe from debits or charges” unless he authorized otherwise.

But Overdraft Fees Came Calling

First, Bank of America accidentally deposited $1,799.83 in Miller’s account. They realized the error and reversed the credit, but not until Miller had made some charges. B of A also failed to give Miller notice of the deduction. The result was that his balance dipped below zero. Overdraft fees followed, which depleted a social security payment. For reference, Bank of America’s NSF fees at that time ranged from $14 to $32 per transaction. Up to five NSF fees could be processed against a checking account per day, with a maximum of $160 in overdraft fees allowed.

Miller pointed out that depleting his social security payment made it impossible for him to pay his rent or living expenses. Yet Bank of America told their long-time customer that he’d have to repay the part of the erroneous credit that he’d spent, but that he “could open a separate checking account for his SSI deposits that would not be used for repayment.” Miller did this, but a few months later the bank twice dipped into this new account to cover the overdraft fees. Both times Miller complained and the money was credited back to him.

And the Same Thing Happened Again

Although he did so infrequently, Miller occasionally overdrew his checking account. Each time, Bank of America hit him with overdraft fees that automatically deducted from his social security income. Bank employees who’d previously assured Miller that no deductions could be made from social security deposits without authorization now claimed that such funds received no “special treatment.”

Interestingly, during trial, a Bank of America executive responsible for checking products at Miller’s branch testified that Bank of America “could develop the capability to identify accounts into which public benefit funds are directly deposited, and could bypass charging NSF fees to those accounts.”

Why Didn’t Bank of America Take the Customer-Friendly Route with Overdraft Fees?

The same executive testified that “in order to prohibit certain account holders from overdrawing their accounts (which would eliminate the Bank’s need to recoup overdrafts or charge NSF fees), the Bank would have to ‘bounce’ more checks, withhold check deposits for the maximum allowable period of four days instead of one or two days before the Bank would make the funds available for withdrawal, eliminate point-of-sale purchases (but not personal identification number (PIN) transactions), and restrict automated teller machine (ATM) withdrawals from non-Bank ATMs.” The executive also stated that larger transactions would be processed before small – regardless of when the transactions occurred – because Bank of America felt larger transactions were “more important.”

More Important for Whom?

Any consumer who has felt the barbed sting of overdraft fees knows that the reordering of transactions is a way that banks stack the deck against consumers. Bank of America claimed in the Miller case that “the Bank’s practice of processing larger transactions before smaller ones results in the same total amount being overdrawn from a particular account.” Yes, but as Mr. Miller’s team clarified, doing so “increases the number and amount of NSF fees imposed.”

Miller would have none of that. His complaints alleged such things as “fraud, negligent misrepresentation, and intentional infliction of emotional distress, as well as violations of Code of Civil Procedure section 704.080; the Consumers Legal Remedies Act (CLRA), Civil Code section 1750 et seq.; the unfair competition law (UCL), Business and Professions Code section 17200 et seq., and the false advertising act, Business and Professions Code section 17500 et seq.” That’s a lengthy list of charges. How would Bank of America fare?

Nearly $300 Million at Stake in Overdraft Fees Alone

The California trial court found that fraud, negligent misrepresentation, CLRA, UCL, and false advertising claims were all viable issues that could be tried. A class was even certified that included “[a]ll California residents who have, have had or will have, at any time after August 13, 1994, a checking or savings deposit account with Bank of America into which payments of Social Security benefits or other public benefits are or have been directly deposited by the government or its agent.”

By the numbers, Bank of America had 1,079,414 such accounts in 2003. They received more than $800 million in government benefits via direct deposit. From January 1994 to May 2003, Bank of America took “at least $284,211,273 in NSF and other overdraft fees from accounts containing Social Security direct deposits.”

What Did the Jury Find in the Miller Case?

The jury found that Bank of America violated the CLRA by “falsely represent[ing] that it ha[d] the right to use Social Security funds from direct deposit accounts that receive government benefits including Social Security funds to pay overdrafts, insufficient fund[s] fees, . . . and money claims it has against class members.” Thus, the jury awarded $75,077,836 in compensatory damages for the class action. Each member also received $1,000 in statutory damages. Finally, Miller received $275,000 for emotional distress.

However, the Court of Appeal later reversed the trial court’s judgment, holding that Kruger did not apply. This is apparently still under review at this time.

What is the Kruger Argument?

Essentially, Kruger stated that a bank “may not exercise its right of setoff against deposits which, derived from unemployment and disability benefits, are protected from the claims of creditors.” But the Appeals Court found that the 1974 Kruger ruling “only applied to cases in which government payments were redirected to pay debts outside the bank.” Overdraft fees, by that logic, are internal debts.

The Office of the Comptroller of the Currency (OCC) sided with Bank of America’s ability to honor overdraft fees in the event of insufficient funds. They claimed that banks can do this without infringing upon 12 United States Code section 24, par. Seventh, or 12 Code of Federal Regulations part 7.4002 or 7.4007 (2009). (Letter, at p. 1). Overdraft fees are considered account maintenance, rather than creating a debt that the bank later collects.

The Consumer Loses Again

Runaway overdraft fees continue to plague consumers who can ill afford them. This is not to say that consumers should not be responsible for their expenditures, but in the case of Miller, I would argue extenuating circumstances. Until this is settled in California court – and until Congress forces banks to curtail abusive overdraft fee practices – the old phrase “buyer beware” still applies. At least there’s no deception with payday loans…

Bank of America says it will sell First Republic Bank, but BofA assures the public that the purpose of the sale is not to meet the government’s capital requirements. The San Francisco Chronicle reports that in May the government ordered Bank of America to raise $34 billion after it conducted a stress test.

Bank of America says it had raised $40 billion by July. Bank of America is selling First Republic Bank to a group of investors. In the group are First Republic’s management and funds managed by Colony Capital and General Atlantic.

How much is First Republic Bank worth?

Bank of America would not disclose the selling price for First Republic Bank. However, experts say book price for First Republic would be in the $1 billion range. First Republic Bank’s main business is providing personal banking services such as debt consolidation and asset management for “high-net-worth individuals.”

First Republic Bank also gives out commercial and business real estate loans and was a pioneer in the “jumbo home loans” business.

The road to be sold

First Republic Bank hasn’t been owned by Bank of America long. In fact, Bank of America has only owned First Republic Bank since January, when Bank of America bought Merrill Lynch.

The sale of First Republic Bank actually returns it to the state it was in not long ago. Merrill Lynch purchased First Republic Bank from shareholders in September 2007.

First Republic Bank future

Not much will change for First Republic Bank’s current customers. The Chronicle reports:

Jim Herbert, First Republic’s chairman and founding chief executive officer, and Katherine August-deWilde, president and chief operating officer, will continue in their current positions along with the rest of the management team, BofA said in a press release.

Besides personal financial services,  First Republic also takes deposits and gives loans to individuals.

Banks have suffered through the recession with huge mortgage industry defaults, but a new fear that credit cards will do the same is looming. Ken Lewis, Bank of America CEO, stated he believes that despite the government’s $700 billion rescue program, it will be “an awful year” for credit cards and companies that issue them.

It’s estimated there are almost $76 billion in credit card loans, and more than half of that debt is held by Bank of America, JPMorgan Chase and Citigroup.

The charge-off rate

Already setting the stage for disaster is the banking industry’s estimate that  their charge-off accounts have reached a historic high of 7.73 percent. Most experts anticipate that figure will increase, as the unemployment rate is still dangerously high.  This rate is commonly accepted as the most accurate indicator of future losses in the banking, mortgage and credit card industries.

Analyst Mike Taiano believes that the charge-off rate could be higher than 10 percent by year’s end. “With the economy the way it is, most consumers are still struggling. … Though there are some indicators that we are through the recession, there is still a long way to go to recover,” he said.

Bracing for the loss

Unlike the recession of the ’80s, when unemployment rates ran high also, this generation brings its own set of problems. First, new proposed legislation is set to allow consumers to request their banks reduce their mortgage debt if they have filed bankruptcy. Experts are fearful that this will cause more people to file bankruptcy so they can default on credit cards and other outstanding debts.

On the brighter side

David Robertson, publisher of the Nilson Report, stated that it’s “encouraging” that banks are adept at maneuvering recessionary periods after “years of practice.” When facing credit card losses, they know what cautionary actions to take.

For example, banks are slashing limits already and raising interest rates to bring in as much revenue as possible.  They are also working their customer service teams exceptionally hard, encouraging communication with customers. American Express is a leader in the mitigation process and recently offered their credit card holding customers a $300 cash-back return if they paid their account balances off and the closed their accounts before April.

Citibank

There is also news that Citibank is joining the ranks of a banks coming up with strategies to mitigate loss.  The company is looking to work out a joint venture for its private credit card division that serves retailers, as a way of moving out of the credit card business altogether.  However, experts say Citibank is alone in wanting to distance themselves from the credit card industry.

Most banks know they will have a difficult time attracting a completely new set of customers and would rather work hard to keep the ones they have, while easing their own risk.  Stuart Gunn, director of Bridge Strategy Group, stated: “If you want to be the retail bank of choice, it means you have to have CDs, debit cards, home equity loans and credit cards. Do you really want to exit one of the major lines of business?”

Banks are bracing for their next big hit—defaulting credit cards. The mortgage world has taken its toll on the banks. Bank of America CEO Ken Lewis already warned Congress that despite the billion-dollar bailout, banks will have an “awful year” because of the credit card industry.

Of almost $76 billion in credit card loans, almost $46 billion came from Bank of America, Citigroup and JPMorgan Chase. These large banks have all taken to using questionable tactics to futher mitigate their risk. Some credit cards companies have raised interest rates without notice. Some companies have increased their fees. The companies are using whatever they can to bring in revenue, in hopes of minimizing their loss.

Credit card charge-offs

At the end of last year, bank industry charge-offs, which are loans a bank has rendered uncollectable, reached a historic high of 7.73%. As the unemployment rate increases, analysts project this number to continue to increase along with it. “More people out of jobs, mean more people are going to default on their loans,” states industry analyst Crane Barker. “History has shown us that the charge-off rate typically climbs to 1 point above the unemployment rate…and most people expect the unemployment rate to keep rising throughout 2009.”

History and unemployment

In the 1980s there also was a recession and the jobless rate reached 10.8%. Some people are claiming that the bank got through that recession and banks will get through this one. Unfortunately, no one denies that there are other outside factors that make the jobless rate more detrimental to the economy in 2008, than it was in the 80s. First of all, in the 80s people were not as invested in credit cards or loans as they are now. That day’s lending totals were only a fraction of what they are today. In 1982 there was $70.5 billion in outstanding credit. Today that number is $1 trillion.

How banks will cope

David Robertson, publisher of the Nilson Report, stated that “banks’ credit operations have become much more adept at adjusting to tough economic times after years of practice, including the downturn that followed the dot-com bubble earlier this decade.” Credit card companies are using new and innovative methods of managing the loss. American Express made the decision to pay its cardholders $300 bonuses if they paid off their balance and closed their accounts. Citigroup is working on a joint venture for its credit card division, a division that serves retailers, that would open the door for the company to get out of the credit lending business altogether. Although these banks are shifting their missions with regards to credit, Stuart Gunn, director of Bridge Strategy Group, stated, “If [banks] want to be the retail bank of choice, it means they have to have CDs, debit cards, home equity loans and credit cards. Do you really want to exit one of the major lines of business?”

Banks recovery

Post recession, banks will have to change their ways of lending, but regardless of what happens retail credit cards are a big business. If used properly, credit cards bring in billions of dollars. And the reality is that business and individuals have become dependent on lenders for credit. With the right tools and tweaking, banks can return to the giants they were by still offering credit, but with safeguards built right in.

What is this “MAC clause” business everyone is blogging about? Does it have to do with Apple computers? Macaroni and cheese? A department store cosmetics line?

Unfortunately, a MAC clause isn’t as much fun as any of those things. Unless, of course, your large financial institution stands to gain or lose from the acquisition of another large financial institution. In other words, if you are Bank of America or Merrill Lynch. Particularly if you are Bank of America, you might find a MAC clause a lot of “fun.”

MAC clause defined

The MAC in MAC clause stands for Material Adverse Change. According to a financial expert who made a very studious-looking PDF that I found online:

MAC clauses are a common means of allocating the risks presented by adverse business or economic developments occurring between the signing and the closing of an acquisition agreement.

So basically, Large Financial Institution No. 1 agrees to purchase Large Financial Institution No. 2, and they sign the papers. And we’re not talking about a quick, online cash advance here. We’re talking about a very lengthy process that involves lots of paperwork. So, after they sign paperwork and sometime before the parties declare, “OK, this deal is final,” something happens that changes the value of FI2 or the financial position of either company.

Bank of America and Merrill Lynch

So, of course, in the real, non-hypothetical world, Large Financial Institution No. 1 is Bank of America, Large Financial Institution No. 2 is Merrill Lynch, and adverse business developments are adverse business developments, and the economy is the economy.

Bank of America is saying that it was pressured into agreeing to buy Merrill Lynch, and financial analyst Mark Fightmaster reports:

CEO Ken Lewis threatened to use a MAC clause to kill the agreement to buy Merrill Lynch because he wanted to get a lower price, according to the Financial Times. New e-mails reveal how he was then pressured to proceed with the deal.

So, we have e-mails showing B of A was pressured to buy Merrill Lynch. However, do we have proof of a material adverse change?

One man’s opinion

Well, Federal Reserve Chairman Ben Bernanke, for one, apparently doesn’t believe that a material adverse change has occurred. Either that or he believes that even if it did occur, it has nothing to do with Lewis’ threat to use a MAC clause. The Financial times reports:

Bernanke called Lewis’s MAC-clause threat a “bargaining chip” and a “foolish move,” before he stated that “the regulators will not condone it.” An e-mail from top executives at B of A said they “want the transaction to go through but have to protect their shareholders.”

The end

Until then,  you can go back to Googling “Tiger Woods Hawaii House,” “Chad Johnson face tattoo” and “prickly shark.” Oh yeah, I know what you’re up to.

Small businesses are still looking to installment loans to carry them through until the rocky economy stabilizes. The U.S. market has made it difficult for small business owners to find funding. Many are closing their doors, as they feel the crunch of the recession. However, there are a greater number of hopeful business owners who are looking for ways to wait the economy’s downturn out, and once again flourish as a result.

Bank of America

Bank of America saw a profit in Q1, which is the good news, although their stocks fell 17%, which is the bad news. Analysts say the profit created was a benefit of unusually strong bond trading, however this is not expected to last, and cannot be relied upon, as the loan industry reorganizes.

Some banks are seeing a profit, but that can no longer be interpreted from a solely “good/bad” perspective. Because of the economy, there are many other factors when assessing the banking climate. One analyst, Bart Narter stated, “Bank of America is no longer exclusively a retail bank and there can be more fluctuations.”

Looking deeper into the finances of Bank of America shows a more accurate picture. They did increase revenues, however troubled loans and under-performing assets increased from $7.8 billion last year, to $25.7 billion this year. They also lost another $1.8 billion on card services. CEO Ken Lewis stated, “Credit is bad and we believe [it] is going to get worse before it will eventually stabilize and improve…whether that turn is later this year or in the first half of 2010, I’m not going to hazard a guess.”

When banking giants recognize credit problems, that means they will be less and less likely to extend loans until the market regains stability. Small businesses will need to look for alternative ways to procure funding, such as personal financing, installment loans and selling of assets. Bank failures put small businesses in precarious positions.

How the stimulus factors in

Bank of America received $45 billion in funding from the Treasury Department’s rescue package. Despite a huge stimulus, the debt accrued by the bank is enormous. Using the money wisely to aid in handling debt will be key to their bounce back. One advantage is that they own 17% of the common shares of the Chinese bank and analysts expect that to bring in an additional revenue of $27 billion. It’s this “extra” money that will ultimately make the recovery more efficient, and more expedient.

They also added a provision to their financials, citing a $13.4 billion estimate of credit losses for Q1. This proves that large banks like Bank of America are in no way immune to the credit disaster and growing unemployment rates. In anticipation of future losses, the bank also set aside $6.4billion as an additional reserve of funding.

Small businesses are on their own for funding

In the past when a person needed money, they went to the bank. That is no longer the case as every entity within the banking industry is suffering to maneuver through the recession. Despite huge stimulus advances, banks are still trying to recover as best they can and prepare for the damage still to come.

No one has a true idea of what is still around the corner as the economy is revived and no one can tell how much damage is still waiting to be suffered. All that is for certain is that small businesses and consumers will have to look to funding options outside the bank’s walls, such as installment loans, families and sales of collateral, until the banking disaster is over.

Despite outcry from shareholders and protests at Bank of America’s annual shareholder meeting today, Ken Lewis will retain his position as CEO of Bank of America.

The rest of the board will also remain in their current jobs. For details on protests, read my earlier post.

Thou doth not protest enough

Though shareholders were up in arms because of the purchase of failing Merrill Lynch, Bank of America spokesman James Mahoney says all of the board’s 18 members were re-elected by “a comfortable margin.”

Groups such as the California Public Employees Retirement System fund and companies including Egan- Jones Proxy Services called for Lewis to quit and voted against his re-election in the shareholder’s meeting. Nevertheless, the Bank of American board will remain unchanged, and the bank will continue business as usual, including mortgage loan modification and cash advances.

Root of the controversy

The shareholders were angered by the purchase of Merrill Lynch late last year because of a lack of disclosure on Lewis and the board’s part. The Bank of American board failed to inform shareholders of the dire financial situation Merrill Lynch was facing before it held a vote on the matter.

Since the beginning of 2009, the value of Bank of America shares has fallen 42 percent. Because of this, though Ken Lewis defended his choice to buy Merrill Lynch and insurance giant Countrywide, shareholders were not convinced it was a wise decision.

About Ken Lewis

Lewis has been Bank of America CEO since 2001. According to Bloomberg.com:

New York Attorney General Andrew Cuomo revealed this month that Lewis had testified then-Treasury Secretary Henry Paulson may have threatened to remove the bank’s management and directors in December if the lender tried to back out of buying Merrill.

Lewis said at the shareholders meeting today that Bank of America feared significant damage to the bank and destabilization the financial system if it went public with the information about Merrill.

Bank of America stock

Over the past 12 months, Bank of America shares have plummeted 79 percent in value. However, after news of the board members remaining in their positions, the stock went up 5.3 percent today before the market closed.

Defending decisions

Ken Lewis has repeatedly stood behind his Bank of America’s decisions to purchase Countrywide and Merrill Lynch.

The acquisition of Merrill Lynch is “beginning to pay off,” and the takeover of the brokerage and Countrywide, the biggest U.S. home lender, were not “mistakes to be regretted,” Lewis said.

I haven’t seen any widely reported or specific evidence that the purchases are paying off or how. Lewis insists that despite the large declines in share value since these acquisions, more than 42 percent, the losses would have been worse without ownership of the other two companies.

Will Goldman Sachs stay standing?

As I reported in Turner Radio Network Part 1, the U.S. Treasury has said that the bank stress test results are not in yet. However, Turner Radio Network published on its blog what it says are the results of the tests conducted on the 19 biggest banks in the United States.

The report says that 16 of the 19 banks are technically insolvent, so if installment loans or other types of loans go into default the banks could go under. It has specific numbers for five giant financial institutions that have credit exposure that exceeds their capital.

By the numbers

Here are the results of the study regarding total credit exposure to derivatives, according to Turner Radio Network:

1. Bank of America: credit exposure to derivatives 179 percent of its risk-based capital
2. Citibank: 278 percent
3. JPMorgan Chase: 382 percent
4. HSBC America: 550 percent
5. Goldman Sachs: 1,056 percent

That means Goldman Sachs’ credit exposure is more than 10 times its capital.

Facing failure?

Turner Radio Network says that JPMorgan Chase, Goldman Sachs, Citibank, Wells Fargo, Sun Trust Bank and HSBC Bank USA are in danger of collapse. The report says there are “serious questions” about whether these six banks can continue in business.

The report also says “1,800 regional and smaller institutions are at risk of failure despite government bailouts.”

The end of the world as we know it?

The end of the report summarizes its findings pretty well, so I’ll quote it directly:

The debt crisis is much greater than the government has reported. The FDIC’s “Problem List” of troubled banks includes 252 institutions with assets of $159 billion. 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in prior quarter.

Put bluntly, the entire US Banking System is in complete and total collapse.

According to the blog Dollars and Sense, Bank of America has wronged America once more. Perhaps a lineup change is needed. B of A hasn’t been able to hit its way out of a paper bag lately. They’re shelling out multimillions for sports marketing, so their employees must all still have jobs, right? Wrong. Plus, Kenneth Lewis’ black hole is now preying upon the “unbanked” and others who depend upon cash advance loans at times.

The BoA branch in the Dollars and Sense author’s part of town is engaging in open class warfare. The elegant, executive-chic area for big-account investors is conveniently located at street level. If you’re a run-of-the-mill customer, you have to go down a flight of stairs and into a “dingy and low-ceilinged space reminiscent of a welfare office.”

Wait… it gets MUCH better

The author, who is not a Bank of America account holder, went into the nether-regions to cash his paycheck. Despite the fact that the check drew upon a Bank of America account and was made out to the author, the bank required him to pay a $6 fee. To make matters worse, he was required to leave them with a fingerprint – “for security.”

They already charge $3 for out-of-network ATM users. While I don’t agree with it, I can see how they might justify that.

How Bank of American and other megalithic banks can be allowed to nickel-and-dime anyone anymore is beyond me. Alternatives exist. Bank of America is being sued and is losing, all because of their practices. With so many people locked out of mainstream banking and big banks reeling during these difficult economic times, you’d think they’d work a little bit harder to draw customers.

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The more things change, the more banks and their CEOs remain the same.

Ben Klayman reports for Reuters that Bank of America CEO Kenneth Lewis defended his bank’s multimillion-dollar spending on sports marketing. He claims the profits are worth the investment in sales and profits, but I say that’s more of a long-term investment. People are losing their jobs right NOW while you continue to throw money around that could feed their families. It would be a humanitarian cash advance…

I’ve got a nice New York Yankees checking account for you…

Bank of America (wisely!) doesn’t reveal what they spend on sponsorships. According to Klayman, revenue comes from “sales of sports-themed consumer banking products, as well as providing financial services to sports leagues and teams.”

Bonuses, perks and other spending have become a political hot button during these difficult times, even though they were once considered commonplace and acceptable. Billions of government (taxpayer) bailout dollars will tend to change minds, it seems.

Get in the game!

“Obviously, there are lots of business executives who just really enjoy having access to the teams and the athletes,” Lewis said. “For the record, I don’t. I really enjoy going to the mountains for the weekend with my wife.”

Great, Ken. But you’ve let the cat out of the bag. This has as much to do with the corporate spiffs as it does making money later! Bank of America has sponsorships with the National Football League, Major League Baseball and NASCAR, as well as individual NFL and MLB  teams. It’s also a NASCAR race title sponsor and sponsor of the Chicago marathon. Lots of events for your executives to enjoy while you go hiking!

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U.S. Rep. Barney Frank on Monday said (see http://abcnews.go.com/Business/Economy/WireStory?id=7040710&page=2) Bank of America Corp. must provide more details on $6.9 billion in bonuses the company paid in 2008. Because the bank got quick loans from the government, officials say it must disclose who got what.

Bank of America accepted large amounts of bailout money, and Frank and others are saying taxpayers have a right to know the details of how the company is using its money.

Ordered to the court

New York Attorney General Andrew Cuomo has headed the fight to reveal the details behind the bonuses. The case wound up in state court. A representative for Bank of America said to the judge that the company would suffer “grave harm” if it had to reveal bonus data.  Bank of America said it would be an invasion of privacy, and it was worried that competitors would attempt to poach its staff members.

No longer a company

Bank of America bought Merrill Lynch last year as the company faced bankruptcy. Of the bonuses now on Bank of America’s budget sheets, $3.6 billion was awarded to Merrill Lynch executives before Bank of America bought out the company.

House Financial Services Committee Chairman Frank says the company must provide details on every bonus of $1 million or more. Bank of America has gotten $45 billion from the Troubled Asset Relief Fund.

Transparency

Barney Frank

Cuomo has been charged with assuring that all institutions that accept bailout money disclose their finances and make all bonuses and salaries public.

Cuomo is even trying to find out whether B of A broke securities law regarding public disclosure of executive pay. A New York state judge will hold a hearing March 13 to determine whether the company must disclose the information.

You knew banks had you over a barrel with overdraft fees. Now it is time to rejoice. A giant will have to pay for their misdeeds.

A recent class action heard in California Superior Court based on “allegations of misconduct relating in part to its assessment of certain fees in relation to debit card transactions” will result in a settlement payment by Bank of America. The Settlement Fund will receive $35 million from the banking giant, to be divided amongst members of the action.

The lawsuit claims BofA “encouraged its customers to use Bank of America debit cards and increased the number of fees charged to customers using Bank of America debit cards through the order in which such transactions are posted and the account balance information it provides.”

Unconscionable

The lawsuit also claims that Bank of America “authorizes debit card transactions that will result in overdraft fees; fails to warn customers that specific debit card transactions may result in overdrawn accounts; posts debit card and other transactions in high-to-low order; and provides account balance information to customers that is not current, accurate or as advertised.” In addition, the lawsuit claims that Bank of America’s customer agreements are “unconscionable, and that Bank of America does not provide customers with copies of account agreements until after they open their accounts.”

Payday loans include much less hassle.

Bank of America denies these claims and contends that its actions have been in accordance with state and federal laws and its customer agreements. Even though BofA admits no wrongdoing in the settlement, it is clear outside the rigid constraints of court that they’re guilty.

Other banks in on the skullduggery

According to the settlement record, customers of Fleet Bank, LaSalle Bank, LaSalle Bank Midwest, and U.S. Trust Company may also be Settlement Class Members. For additional information on the settlement and if you think you may be entitled to join the Settlement Class, use the link to the Class Action Web site found above.

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At what point will the government step in and take control of failing banks? That’s a question that a lot of Americans have been wondering about lately, and all we’ve known up to this point is that President Obama has made reference to a “stress test” that will be the determining factor.

Now the wait is over. The Treasury has revealed what the “stress test” will entail.

Their eyes are on you

David Ellis of CNNMoney.com reports that Obama’s plan to monitor and judge the health of America’s 19 largest banks was hinted at when the White House introduced its financial recovery plan. Designated banking regulators will watch banks like Citigroup, Bank of America and JPMorgan Chase and “estimate firmwide losses for the next two years if economic conditions worsened and the bank’s ability to absorb such losses.”

The Office of Thrift Supervision and the FDIC specifically will address asset performance – which shall include loans and securities like collateralized debt obligations – and judge it under two scenarios. The first would look at consensus economic expectations, while the second would assume a worst case scenario where unemployment went above 10 percent and home prices went down another 20 percent over the following two years.

Do-it-yourself first

Depending upon how the banks rank in these scenarios, the government will know which ones need the most help and perhaps additional stimulus. However, if it is determined that a bank needs help, they are first given six months to find private backing. If that fails, then the government will step in and buy convertible preferred shares. In time, the banks would have to convert that into common stock, which would boost capital to the necessary degree.

To avoid investor panic, the government said they won’t reveal the names of banks that require extra help, but how will they honestly be able to hide it? If they look for public funds, the cat’s out of the bag…

The money will be there… but only if they LEND

If banks are going to receive more funds, they’re going to have to increase lending. Credit must flow. After too many banks hoarded TARP money, it’s clear that this must be rigidly enforced before bank executives put their mark on the funds. Not changing their outlandish spending habits didn’t go over well with the public, either.

Good news! News of the stress test caused share prices to go up at Bank of America, JPMorgan Chase and Wells Fargo. Only Citibank went the other way. All of this is good news in the minds of investors, however, who fear complete government takeover. That could be on its way, despite President Obama’s denials…

I wonder how much money Wall Street executives made during the Great Depression.

OK, truth is, Wall Street executives will not need payday loans. But they might feel like they’re scrambling for extra cash now that President Barack Obama has put a limit on bonuses and salaries at banks that receive bailout money. Don’t worry, they won’t starve. They are allowed to take home $500,000 a year.

Kudos to good sense

So, the president is saying that the government can’t use the hard-earned money of middle- and low-income families who do need payday loans to support millionaire and billionaire bank executives. Is it just me, or is someone making sense around here?

Not-quite-so-high life

Top dogs whose banks get bailed out will still be making more money than I’ll ever see. In fact, they’ll still make more than the president, whose salary is $400,000 per year. But they’ll still be cutting corners like us “regular people” because for many it will be a huge pay cut. For instance, Bank of America head Kenneth Lewis made $20 million in 2007. In 2008 his bank borrowed $45 billion from the Bush administration. If his bank gets more bailout money this year, he’ll have to settle for a piddly half a million.

Banker pay versus payday loans

Just a quick comparison on “how the other half lives.” The average amount people borrow for payday loans is about $500. That is .001 percent of $500,000. It’s only slightly comforting to know that total includes bonuses.

“If the taxpayers are helping you, then you’ve got certain responsibilities to not be living high on the hog,” Obama said Tuesday.

Ah, there’s the catch

I was a little dismayed to learn that these rules only apply to banks who take bailout money from the Obama administration. The banks who already got hundreds of billions of dollars from the Bush administration don’t have to follow the rules unless they come back for more bailout money from Obama. So it’s possible that Kenneth Lewis could still take home another $20 million while those of us who are, um, “living low on the hog?” are contemplating payday loans.

Related articles

• Obama Looks To Boost Middle Class (cbsnews.com)
• Wall Street Execs Defend Bonuses (gothamist.com)
• Obama calls on banks to lend (telegraph.co.uk)
• The GOP Grapples with Obama’s Charm Offensive (time.com)
• Some Banks Say `No Thanks’ to Bailout (abcnews.go.com)

Citigroup Center in New York

Your online payday loan store keeps you up to date on financial news.

Several weeks ago, a congressional watchdog panel came down hard on the Treasury for its use of the first $350 billion in bailout money. The panel accused the Treasury of not keeping track of how banks were using the money. One bank has taken matters into its own hands, and has issued a report on how it spent its share of the Troubled Asset Relief Program funds.

To read about the congressional panel’s criticism, check out this article by your online payday loan store.

Citigroup issues quarterly progress report

Citigroup received $45 billion in bailout money from the Bush administration last year. The bank’s quarterly report reveals that it used $36.5 billion in TARP funds for home loans and various other loans, including $1 billion in student loans and $2.5 billion for business and personal loans.

The bank used $27.5 billion to help stabilize the housing market. It spent most of it purchasing mortgages, and about $8.2 billion went to giving new home loans to customers with good credit. A survey published this week says lending at most banks is still pretty tight, even with government aid.

More banks to follow suit

Bank of America says it will also include its TARP spending when it files its quarterly reports. B of A received $45 billion in bailout money. There is no word on when the bank will file its reports.

Wells Fargo has not filed a full report of its fourth quarter activity. However, the bank has said that it “paid a $371.5 million quarterly dividend to the U.S. Treasury in exchange for the $25 billion that the Treasury Department invested in the bank last fall,” according to CNN Money.

Check back with your online payday loan store for more financial news.

Three days after receiving $25 billion in federal bailout funds, Bank of America Corp. hosted a conference call with conservative activists and business officials to organize opposition to the U.S. labor community’s top legislative priority.

Participants on the October 17 call — including at least one representative from another bailout recipient, AIG — were urged to persuade their clients to send “large contributions” to groups working against the Employee Free Choice Act (EFCA), as well as to vulnerable Senate Republicans, who could help block passage of the bill.

…Donations of hundreds of thousands, if not millions, of dollars to Republican senatorial campaigns were needed, they argued… “If a retailer has not gotten involved in this, if he has not spent money on this election, if he has not sent money, they should be shot. They should be thrown out their (expletive deleted) jobs,” (Home Depot founder Bernie) Marcus declared.

So Bank of America and AIG have it in for the Employee Free Choice Act, eh? Seems to me that executives at these and similar organizations are taking a stance against American families (other than their own). It seems that these misbegotten, self-serving executives are looking to build their own power base – SO THAT THEY CAN REMAIN BEHIND THE WHEEL AND CONTINUE TO RUN AMERICA’S ECONOMY INTO THE GROUND WHILE THEY FROLIC IN THE SALONS OF EUROPE AND BUILD LUXURY HOMES ON MARS! Do they have faxless payday loan service there?

In the meantime, the same banks and elite organizations are dead set on taking away the public’s right to a payday loan. Priorities are so far out of whack here that one would hope that President Obama can bring some sense to the matter. Do you have that kind of faith in our new President?

Accountability is a burden that has to be shouldered by every responsible adult, whether it is handling your finances well through payday loans or keeping up with your budget.  You also have to be accountable in the workplace.  If you don’t discharge your duties correctly and in the manner prescribed by policy, then you will be held accountable for your actions, just like in any other area of your life, like getting a ticket for speeding.

However much that your average person may be an upright individual that will do the right thing as often as not, there are some that seem to think that the rules just don’t apply to them, and a lot of them are the heads of the companies that so many Americans work for.

Bank of America holding up the standard

The banking and finance industries were hit hard in the past few months, with some of the largest banks and finance and investment firms collapsing.  One of the biggest shockers was the closing of Washington Mutual, later picked up by JP Morgan Chase, and then the collapse of Lehman Brothers, the investment and finance powerhouse.  One of Lehman’s competitors narrowly avoided the same fate by quickly arranging a buyout by Bank of America, Merrill Lynch.

Merrill Lynch’s takeover was put together by the CEO, John Thain, in a quick effort to keep the company going in one way or another and keep it out of bankruptcy.  He asked for a bonus of $10 million right after the buyout, claiming that it was his efforts that kept the company from closing, which he withdrew when it was made known that selling the company is not the same as actually running it well enough to make a profit, and the company could have used some payday loans to keep it from being sold.

After the takeover, Bank of America announced that Merrill Lynch had not disclosed just how heavy their losses had been.  Despite the $20 billion in bailout funds that Bank of America received, it was discovered that Merrill Lynch, which had been a finance and investment powerhouse, had lost over $15 billion in the last quarter alone, and was over $100 billion in debt.  After the takeover was completed, there was a mutual agreement between Thain and Bank of America CEO Ken Lewis that he should resign, which he did.

Accountability is Key for anyone

Look at it this way – if you have a $100,000 mortgage on your home, and you stop paying on it but take out payday loans to cover your credit cards instead, you are going to get hit with a foreclosure or seizure.  Not taking care of your finances leads to disaster, which having to sell an enormous firm such as Merrill Lynch is, and the fact that the books were somewhat fudged so he could pull a fast one is some highly dishonest stuff.

However, resignation is still preferable to what happens in other places – two people in China who were convicted of adding a dangerous chemical to watered down milk to make it seem quality were sentenced to death for the offense.  Just remember, if you come up a bit short due to a sudden turn of events, you don’t have to sell your home off – you can get payday loans to cover a temporary gap.

December is already delivering another brutal blow to the American economy as 20 companies announced more massive cuts. This comes just after Novembers landslide of nearly 500,000 layoffs – that many more people couldn’t get payday loans if they needed them.

More Jobs Lost. A Record Trend Forming.

Being in this place stinks!

Employees everywhere are hunting for payday loans as layoffs continue to rise and state unemployment benefits run dry.

This month continues on the heals of last month with it’s share of layoffs around the nation. Monday we started with layoffs from Fortune 500 company “Dow Chemical” who eliminated 5,000 positions and closed 20 plants. 3M also reported 1800 cuts.

On Tuesday, 14,400 more jobs were reportedly lost as Sony, Danaher Corp, Wyndham Worldwide, National Football League, and Principal Financial Group eliminated position within their companies.

The trend continued last Wednesday with the announcement of another 2200 planned job cuts by Office depot and the British mining company Rio Tinto’s 14,000 jobs cuts worldwide.

On Thursday, bank of America got in on the action announcing to cut 35,000 jobs over the next three years.

Then on Friday we had the company Chemtura, cut about 500 people from its staff and Fairchild Semiconductor announced its’ plans to cut 1100 jobs.

Half Million Jobs Lost in November, More Expected in December

Together 81500 jobs were lost. Decembers total stands at an astonishing 115,416 jobs lost and may prove to be worse than Novembers where 533,000 jobs were lost. November marked the largest loss since 1974.

Rich Yamarone, director of economic research said the following;

” it’s going to be the longest recession we’ve had in post World War II history.”

Bernard Baumohl, chief economist at the Economic Outlook Group said

“Generally companies like to make their cuts by the end of the year,the job market will continue to deteriorate for the next couple of months,”

Job losses of up to 600,000 a month are expected and numbers may exceed 600,000 depending on the speed of the sinking economy. If job losses keep their current pace, 2008 could show the worst job losses since 1945. Over 2.75 million jobs were lost in 1945.

Unemployment Expected to Rise Through 2010

The current unemployment rate which currently stands at 6.7% is expected to rise through 2010 to an estimated 8.5 to 9%.

Depending on the auto bailout, things could get even worse. Currently congress is looking into making provisions for the auto companies from the 700 billion dollar bail out bill that was passed in October.

The rise in unemployment claims have left several states calling for emergency funds. Michigan in lieu of the automakers collapse has nothing left in it’s trust fund for unemployment benefits. Michigan has been borrowing money since 2006 from the feds and has done their best to pay off the loans but since last January they have accrued $473 million of debt covering unemployment costs. These costs will be passed to the states employers who will have to pick up the tab.  You can’t get payday loans that big!

Ohio also is running dangerously low on funds with the rise of claims this year which are 40% higher than last year. They currently have a balance of only $304.6 million dollars in reserve. It is speculated that $2.3 billion will be needed to withstand even a moderate recession.

Aid Not To Be Found

With these two states and many others feeling the crunch of rising unemployment rates, many are expected to run to the federal government for aid however, the feds don’t have much left to give after the Octobers Bailout Bill.

What’s to happen from this point forward is any body’s guess but things don’t look like they will be getting better for some time. Whispers of another great depression continue to get louder as more and more people are finding themselves looking for payday loans.

Merrill Lynch executive seeks bonus for failing his company

Merrill Lynch CEO John Thain is currently seeking a bonus for 2008 in the amount of around $10 million.  This is after Merrill Lynch and Co. barely avoided bankruptcy and company failure by selling their company to Bank of America to avoid slipping away.  Merrill Lynch took a nosedive over the fiscal year in the wake of the collapse of the mortgage market, losing billions in the process.  The Merrill Lynch executive staff determined that the best course of action was to sell the company’s shares to Bank of America to avoid closing their doors.  According to a recent article in the Wall Street Journal¸ Thain’s reasoning and justification for the bonus is that his actions, or selling the company, was the best option that they had on the table to avoid even more unpleasant alternatives since they weren’t getting government payday loans, and therefore because the company did not go bankrupt, he therefore deserves a healthy bonus to his already ample income as CEO for his prevention of the company going into insolvency, even though it is doubtful that at this point he needs extra money.
New York Attorney General Andrew Cuomo has termed his request as “nothing less than shocking.”  The board of directors appears to be in agreement with him, and is resisting the request for the bonus.  A bonus for an executive should be when the company turns a large profit, creates more jobs and revenue, instead of just merely not going bankrupt.  It seems that his pay should be docked, and not augmented.  Perhaps the employees of Merrill Lynch should get a bonus for putting up with such arrogant behavior from their management team.  The amount of executive compensation in Wall Street and other large companies has become an item of much media scrutiny of late, as many executives continue to receive large bonuses every year in addition to ample salaries regardless of how well their companies do or not.  It seems odd that people be rewarded for failure rather than for success, since the rest of us, including lower level Merrill Lynch employees, would be punished or stripped of our employment for failing to produce

The only way a person can be rewarded for failure

It seems as though the executive class of Wall Street are the only people who can get rewarded for not doing their jobs.  If we, us normal folks, were to miss a mortgage payment, we would get hit with penalties, interest, and fees.  If we don’t do what we are supposed to do for our employers, we would get disciplined, and if it happened enough times, terminated for noncompliance.  If we fall short in our financial obligations, we take extra measures to make up for a temporary shortage, like getting payday loans to cover if we have a sudden expense.  These Wall Street wizards look for extra cash for shorting their shareholders and employees.

Graffiti of President Obama

A recent Associated Press article by Stephen Ohlemacher entitled “Despite Obama’s Election, Stubborn Racial Disparities Exist” brings to mind a common misconception banks, credit unions and the media have about companies that specialize in payday loans: that they target poor people and minorities.

Witness America in its post-Obama election glow

(As a means of setting the scene for the racial group pay day loan companies supposedly exploit…)

Now that a black president has been elected, has racism or racial discrimination been wiped away, as if a magic wand was waved on November 4?

Certainly, Obama’s election has generated excitement among black Americans. After generations of struggling for equality, many see a light at the end of the tunnel. Yet when the facts are absorbed, it becomes clear that racial disparities persist.

Ohlemacher cites Kari Fulton, a 23-year-old black activist who worked to register and turn out young black voters in the presidential election. Fulton admits that “Election Day was just the beginning. People don’t expect President Obama to be a superhero. We have to solve our own problems.”

The problems are indeed significant

Here are some sobering facts the AP reporter relates about the current playing field for African-Americans… similar numbers hold true for other minority groups in America:

• About a quarter live in poverty – nearly three times the rate for whites
• Black adults are less likely than whites to have college degrees and more likely to be in prison
• Blacks are less likely than whites to have health insurance and, on average, they don’t live as long as whites
• The income gap between black and white has barely changed in 30 years, with a typical black household making only 62 percent of the income of a typical white household

National Urban League President and CEO Marc Morial is well aware of the disparity. His civil rights group publishes a book called “The State of Black America” that points this out in cold, hard numbers each year. He told Ohlemacher that “a mere election does not change the abject conditions for African-Americans or the 230-plus years of racial injustice.”

Obama himself has admitted that “we have a long way to go.”

It is true that Obama’s campaign inspired young blacks to vote and get involved in the campaign. The efforts of young activists like Kari Fulton play no small role in this. Lobbying government for more jobs in poor neighborhoods and better, more affordable health care are not only issues that Obama is deeply concerned with for all people, but issues that he encourages everyone to work toward.

Are African-Americans or other minorities targeted by payday loan companies?

Socioeconomic equality for African-Americans is not yet the standard in America. That being the case, critics of payday loans are quick to jump on the idea that consumers in economic straits such as theirs supposedly will have low credit scores. Consumers with low credit scores, critics assume, will jump at the chance to obtain unsecured credit when financial need comes knocking. Thus, they also assume that payday loans are aimed squarely at such consumers, in order to trap them in a “cycle of debt.”

Yet the evidence does not support this. Groups like the Community Financial Services Association (CFSA) have brought together clear outside research which indicates that no fax payday loan customers come primarily from America’s middle class. In other words, hard-working adults who may fall just short of having savings or disposable income to fall back on in an emergency.

Here are some of the findings presented to the CFSA:

• Most no faxing payday loan customers earn between $25,000 and $50,000 annually
• Sixty-eight percent are under 45 years old; only 4 percent are over 65, compared to 20 percent of the population
• Ninety-four percent have a high school diploma or better, with 56 percent having some college or a degree
• Forty-two percent own their own homes
• The majority are married and 64 percent have children in the household
• One hundred percent have steady incomes and active checking accounts, both of which are required to receive a payday advance

If you’re curious who reported these findings to the CFSA, just click the link below. It’s The Credit Research Center, McDonough School of Business, Georgetown University, Gregory Elliehausen and Edward C. Lawrence. Payday Advance Credit in America: An Analysis of Customer Demand. April 2001.

When it comes to payday loans, critics frequently miss the mark. Consumers from all walks of life who appreciate quick, discreet, convenient cash assistance during a financial snafu use them. If anything, the media should turn their attention to organizations that badly take advantage of the public trust and defraud consumers, like this well-known bank. That’s where media outrage should be directed.