It seems like every time we flipped on the news in 2011, the banking industry was finding a new way to blur the line between good business and reprehensible tyranny. Hardworking people, including war veterans, were kicked out of their homes illegally. Entire neighborhoods of vacant houses were destroyed. Meticulously orchestrated overdraft schemes ripped off consumers for billions. Federal crimes went unpunished.
Though publicists, spokesmen and spin doctors will ensure that many of 2011’s most damning financial headlines are swept into the dustbin of history, for countless Americans the story never ends. Because of one accounting error, or one forged signature, some of them will be forced to endure a financial nightmare for the rest of their lives. Their homes won’t be returned to them. Their credit scores won’t be rebuilt.
The industry will make it easy to forget the past. There will be new credit card offers, new reports showing growth in the market. New mortgages will be issued to young families. Banks and card issuers will dangle the financial carrot in front of our faces, and America will bite, because we always do. But before you take that fateful lunge, take a moment to reflect on the 11 most evil things the banking industry did in 2011.
1. Family Pays Their Mortgage, Bank Ruins Their Lives Anyway
With a litany of wrongful foreclosure cases making the news this year, it was hard to decide which one should make our list. However, we couldn’t think of a better place to start than with the story of the Barnetts. The incident occurred in 2010, but the lawsuit was filed this year.
In 2010, the house that Jason and April Barnett and their three children lived in burned down. The Barnetts were current on their mortgage payments and had homeowners insurance, so they figured that getting their lender to take care of their remaining balance would be simple. It wasn’t.
Instead of using the insurance check to pay off the mortgage immediately, the bank put the money in a suspended account. They then spent two weeks harassing the family for the money they claimed was never sent to them. When April finally sent an insurer-verified fax telling them that the money had been sent, the lender spent another two weeks calling them late at night and at work before finally acknowledging that they had in fact received a check. Unfortunately, the ordeal didn’t end there.
A few days later, the bank sent the couple a letter explaining that they wanted $8,000 for their troubles before they would process the insurance payment. Since the Barnetts refused to pay, it put a “foreclosure” on the couples’ record without informing them, destroying their chances of getting a new home. The stress caused April, who was four months pregnant at the time, to miscarry. Though the Barnetts are currently suing, a resolution has yet to be reached.
2. Card Issuers Falsify Data to Rip Off A Restaurant
In accordance with the new regulations to help prevent mass credit card hacks, businesses that process cards are prohibited from storing more than 10,000 different customer accounts in their databases.
Cisero’s, a popular mom-and-pop restaurant in Utah, had 8,107 different accounts in theirs when a credit card company inspector checked it. That number mysteriously increased to 32,581 a few months later, when the company served the owners with papers suing them for $1.3 million dollars for “noncompliance.” Another major issuer chipped in with a parallel lawsuit for $15,000.
As the ordeal went on, the numbers on both companies’ legal documents continued to change. The variations were so severe that Cisero’s decided to lawyer up and take the matter to court. According to Matt Taibbi’s Rolling Stone report, “The way the numbers kept shifting, as though Visa and MasterCard were simply making them up as they went along, suggested strongly that the whole business was less about merchant fraud and a lot more about just randomly taking money from small business owners who can’t fight back.”
The matter has yet to be resolved.
3. Bank Arrests People for Trying to Close Their Accounts
As part of its war against unfair banking practices, the Occupy Wall Street movement recently decided to hold a “Bank Transfer Day.” Americans around the country were supposed to pull their money out of national franchises and move them to locally owned credit unions. However, when the day finally arrived, many of one major bank’s disgruntled customers found themselves being escorted from the lobby in handcuffs.
Not only were more than 24 people in the bank’s LaGuardia branch denied service, they were actually locked in by security guards and not allowed to leave until the police came to round them up. Though the bank’s official statement claimed that the protestors were causing an intentional disturbance, the videos taken during the arrests suggest otherwise. There was no disturbance. There was no screaming and yelling. It was just a group of customers trying to close their accounts in that lobby. And the bank had them arrested.
4. Same Bank Allows 210,000 Customer Accounts to be Hacked
The same bank that had their customers arrested makes a back-to-back appearance on this list. Their second despicable act? An elementary programming blunder that allowed novice hackers to compromise more than 210,000 customer accounts over the summer just by changing the URL in their web-browser.
To those of you that aren’t exactly tech-savvy, this sort of mistake is so easy to exploit that even grade-school students can do it. According to Consumerist reporter Ben Popken, “Basically after you logged into your account as a Citi customer, the URL contained a code identifying your account. All you had to do was change around the numbers and boom, you were in someone else’s account. Seriously, this is kindergarten level stuff. Really, really stupid.”
Stupid as it may be, the error ended up costing the bank’s customers more than $1.3 million in fraudulent charges and did untold damage to their credit scores.
5. Bank Sues Thousands of Credit Card Customers via Robo-Signed Papers
It was bad enough when the mortgage industry kicked thousands of military families out of their homes using illegal “robo-signed” documents, but a new story suggests that one of the guilty banks has been doing the same thing to its credit card customers. A wave of allegations, including the testimony of a former company vice president, suggested that the bank was using fraudulent “judgment account” papers to collect on customer debt. State courts forced the financial giant to drop more than 1,000 lawsuits around the country.
The evidence against the bank is so damning that the company recently closed their entire credit card lawsuit division. However, industry experts believe that its crimes are only the tip of the iceberg. According to Illinois law professor Robert Lawless, “Credit card collections may have replicated the robo-signing problems in the mortgage servicing industry. Indeed, given that many of the same players are involved and that credit card debt is sold in ways that is similar to mortgage debt, it would be surprising if the debt collection industry did not have robo-signing problems.”
Where there’s smoke, as they say…
6. Bank Tricks Customers Into Paying Exorbitant Overdraft Fees
Wells Fargo made headlines in 2010 when an investigative report uncovered their elaborate scheme to slam customers with huge overdraft fees for trivial charges. Last year, we learned that another major bank had been doing the same thing.
By processing daily transactions from largest to smallest instead of chronologically, the bank deliberately forced their customers to incur more than $4.5 billion in overdraft fees throughout the year. For instance, the bank would process a mortgage payment first in order to drain an account and then charge a customer $35 dollars for purchasing a $3 cup of coffee that they could no longer afford – hence the term “the $38 cup of coffee.” Worse than that, they also shoe-horned customers into an “overdraft protection” program that levied these fees without telling them that they were legally allowed to simply let the excessive transactions fail.
A judge ruled in November that the bank owed its customers $410 million for the amoral scheme. When distributed over the entire customer base, that amounts to about 9% of what the average customer lost to overdraft penalties.
7. National Banks Collectively Murder Free Checking
We thought we scored a victory last fall when the Durbin amendment passed. It finally put a limit on the amount that credit card issuers could charge merchants who processed their cards. That was great news for small businesses everywhere.
We were sort of wrong about that, and for the usual reason. Understand this: the internal machinery of a credit card company is engineered by the same mysterious firm that built the Whac-A-Mole in Satan’s game room. Hammer down on fees in one place and up pops another, way over there. Without business owners to beat up on, banks decided to squeeze their lost revenue from their customers. One of the first banking perks to face the axe was free checking. In 2009, 96% of national banks offered no-fee checking accounts to their customers. That number dropped to 30% in 2011.
On the new fee frontier, customers now have to pay $10 a month for the right to access their own money. Additional fees include charges for using a debit card, charges for speaking to a customer service representative and charges for making a transaction with a mobile banking app. We hope you enjoy it, because the banks certainly do.
8. Banks Respond to the CARD Act by Flooding the Market with Unprotected Cards
2011 was a big year for the small business credit card. Card issuers mailed out millions of applications for these new products, many to people who had and would never own a business in their life. Why?
It’s all about the loopholes. While the 2009 CARD Act defined a very specific set of regulations to prevent predatory distribution of consumer credit cards, the document never mentioned rules protecting business credit cards. As soon as card issuers discovered that they could change contract terms, levy unreasonable fees and raise interest rates as much as they wanted on business cardholders, they began flooding the market with the toxic plastic as fast as they could.
We’ve said it before, and we’ll say it again – be very careful about getting and using a small business credit card.
9. Bank Arrests Its Own Customer for Cashing a Bank-Issued Check
More than one bank had its customers wrongfully arrested last year, as Auburn resident Ikenna Njoku discovered in July. The 28-year-old construction worker was trying to cash a check – a check issued to him by the bank he was standing in – when the teller decided that a black man from Nigeria couldn’t be trusted and held onto it for “investigation.” According to Njoku, the teller “asked me what I did for a living. Asked me where I got the check from, looked me up and down—like ‘you just bought a house in Auburn, really?’ She didn’t believe that.” The next day, the manager of the bank declared the check a forgery and had Njoku arrested. To reiterate, a bank manager declared a legitimate check issued by his own bank to be a forgery.
Njoku spent four days in jail, had his car impounded and, as a result, lost his job. When the bank finally admitted to the mistake, they made no attempt to compensate him for his losses. After a month in impound, his car was sold.
Njoku currently lives with his mother and works a part-time job.
10. Bank Attempts to Foreclose on a Couple That Never Had a Mortgage
It’s one thing to foreclose on a family that is keeping up on its mortgage. It’s something far worse to try and foreclose on a family that never had a mortgage with your company to begin with. (There’s always got to be one uplifting story on a list like this, so we suggest getting the band back together, because this is as good as it’s going to get.)
In 2009, retired police officer Warren Nyerges and his wife Maureen bought a house in Florida. They paid the $165,000 asking price in cash. In 2010, a Wall Street bank initiated foreclosure proceedings against the couple.
As you can imagine, they were surprised. Sgt. Nyerges and his wife pleaded with the financier to drop the case, but the bank was convinced that the couple did in fact have a mortgage with them and that they were excessively behind on their payments.
A few months and $2,534 in attorney’s fees later, a judge ruled in favor of Nyerges, and the bank was ordered to pay all of the couple’s court costs for the trial – an order which the bank promptly ignored. Nyerges and his lawyer called the company for two weeks straight to get them to pay up, but the bank never responded. So Warren and Maureen did the logical thing and foreclosed on them.
On June 3rd, the couple showed up at their local branch with their lawyer, the town sheriff, moving trucks and a notice of foreclosure. About an hour later, the bank’s manager wrote them a check for $5,770 to cover all their costs. Who would have figured?
11. Wall Street Harasses Widows to Illegally Collect on Debt
You didn’t think we could let you end on a high note, did you? The following banking practice is so pervasive and atrocious that we plan to investigate it further in next month’s article.
When a person dies, all of their personal debts are forgiven by the state. This includes their credit card balance and any other money they might owe to big banks. As you can imagine, the banking industry doesn’t like this.
So what do they do about it? They hire debt collection firms to harass family members that they believe can be duped into paying the debt. In the case of 68-year-old Linda Long, a bank’s agents called her as many as 10 times a day to collect on the $16k her husband owed before he died in 2010.
The dialogue from the phone calls is disgusting. That isn’t the only incident, either. Wells Fargo spent weeks pursuing the parents of a college graduate who died from cancer in February to collect on the $6,000 they claim her heirs owe – despite the fact that her parents never co-signed for any loan.
Heartbreaking. Ignorant. Vile. The words that come to mind when attempting to describe this eleventh atrocity sum up many of the banking industry’s practices in 2011. The only thing more depressing than the way our financial institutions chose to treat their customers last year is that many of these actions have carried over into 2012. The housing market is still in the dumper. Consumer faith in lenders is still at rock bottom. Things might get better, but it’ll be a long while before we feel like we did back when the banking industry was “good,” a moment in time that requires a careful sifting of that aforementioned dustbin of history to actually locate.
So, when the financial industry starts telling you that this year will be so much better than 2011, try to remember that they said the same thing last January as well.