Thursday, March 21, 2013

FDIC Settlement Policy May Be Too Lenient on Big Banks

Did you know that many of the banks responsible for the financial crisis may be getting a break?  According to a recent article in the Los Angeles Times, the Federal Deposit Insurance Corporation (FDIC) is increasing its focus on settlements with these big banks, shying away from lawsuits and other punitive actions that could act as a deterrent in the future.  And what’s worse?  The FDIC is keeping a lot of its settlement news on the down low.  The government’s most recent $54 million deal with Deutsche Bank includes a “no press release” clause, which requires that the FDIC never mention this settlement unless it’s responding to a “specific inquiry” concerning the terms of the agreement.

The FDIC’s Recent History
In fact, the FDIC has dealt similarly with a number of other bank settlements since the mortgage meltdown.  The Los Angeles Times suggests that this is evidence of a “major policy shift” from past financial crises, “when the FDIC trumpeted punitive actions against banks as a deterrent to others.”  These prior punitive actions were taken against banks involved in the “savings and loan debacle in the late 1980s and early 1990s,” including: American Savings & Loan Association of Stockton in 1988, First RepublicBank Corp. of Dallas in 1988, Sunbelt Association of Dallas in 1988, and Lincoln Savings in 1989.
Regarding the trend toward settlement, the Los Angeles Times acquired more than 1,600 pages of FDIC documents through the Freedom of Information Act.  In these papers, the Times found that the banks with whom the FDIC has settled have been implicated in serious acts of fraud and negligence, including providing reckless loans to homeowners and falsifying documents.
On top of this, these settlements may be more costly than the punitive measures taken previously.  While some of the largest bank failures occurred in the late 1980s, 471 banks have failed since 2007.  These failures have left the FDIC deposit-insurance fund with losses totaling nearly $92.5 billion.  Through its settlements (in lieu of lawsuits or other measures), the FDIC only collected $787 million for bank failures between 2007 and 2012.  As you can see, this is a mere fraction of its losses.     
So what does this mean for consumers?  Many of us want to see the banks responsible for the mortgage meltdown held accountable, regardless of whether we’ve been immediate victims of the financial crisis.
What is the FDIC and How Does it Impact Homeowners?
The federal government describes the FDIC as an entity that “preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions.”  In order to do this, the FDIC identifies and monitors potential risks to its deposit insurance funds, thereby “limiting the effect on the economy and the financial system” in cases of bank failure.
The FDIC is involved in a number of actions that affect consumers every day.  It supervises banks for “operational safety and soundness,” and it ensures that banks comply with consumer protection laws that affect our credit ratings and ability to secure loans.  For example, it oversees banks’ compliance with the Fair Credit Billing Act, the Fair Credit Reporting Act, the Truth-In-Lending Act, and the Fair Debt Collection Practices Act.
In its dedication to consumer protection and dealing with the foreclosure crisis, the FDIC insists that it is “working vigorously to help consumers . . . avoid unnecessary foreclosures” and to put a stop to fraudulent “foreclosure rescue scams.”  It provides information for individual homeowners, as well as for community-based organizations.  Yet, its new policy to settle with banks, rather than to hold them more saliently accountable, should concern consumers.
While FDIC spokesperson David Barr indicated that the recent policy of “settlement first” is nothing new, many consumer advocates insist that the FDIC should be criticized for “their reluctance to make examples of Wall Street firms by taking them to trial.”
If you have been a victim of the mortgage meltdown, you may have a claim.  Speak to an experienced foreclosure defense attorney today to discuss your case.
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