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Whitney Tilson Is Angry At Banks And Other Financial Companies


New York State’s financial regulator, Benjamin M. Lawsky, sent subpoenas last week to 16 so-called lead generator websites, which sell reams of sensitive consumer data to payday lenders, according to a copy of the confidential document reviewed by The New York Times. The subpoenas seek information about the websites’ practices and their links to the lenders.

The move is part of an evolving push by state and federal officials to curb payday lenders and their practice of offering fast money tied to borrowers’ paychecks. In August, Mr. Lawsky sent cease-and-desist letters to 35 online lenders ordering them to stop providing loans that violate state usury caps to New Yorkers.

6) Good to see a court victory for Lawsky:

A federal judge has denied a request by two American Indian tribes to stop New York State’s top financial regulator from cracking down on their online lending businesses.

The tribes had argued that Benjamin M. Lawsky, superintendent of the state’s Department of Financial Services, overstepped his jurisdictional bounds in trying to regulate business activity taking place on Indian reservations in Oklahoma and Michigan.

Late Monday, Judge Richard Sullivan, of Federal District Court in Manhattan, issued a ruling dismissing the Indians’ claims. His decision suggests that when tribal businesses use the Internet to reach consumers beyond their reservations’ borders, they lose their federally protected rights as sovereign nations.

“Plaintiffs have built a wobbly foundation for their contention that the state is regulating activity that occurs on the tribes’ lands,” Judge Sullivan wrote. “The state’s action is directed at activity that takes place entirely off tribal land, involving New York residents who never leave New York State.”

In August, Mr. Lawsky’s office began an aggressive campaign against the payday lending industry, seeking to stamp out Internet businesses that offer small, short-term loans at exorbitant interest rates that violate state usury laws. Among the businesses he attacked were several that are run by, or have connections to, Indian tribes across the country.

7) Lest you think it’s just small banks and other financial companies engaging in this behavior, look at this list:

Deposit-advance loans are used by consumers with bank accounts to meet short-term needs such as a medical emergency or a car repair. Banks warn customers that such loans are intended to bridge a short-term cash shortfall and aren't a long-term solution, but critics said banks are promoting unsustainable loans.

Customers who have their paychecks automatically deposited in their bank accounts can request an advance, typically as much as $500, which is repaid when it is deducted from the borrower's next paycheck. Such loans typically have an annual interest rate of 120%.

A handful of banks, including Wells Fargo WFC +0.53% & Co., U.S. BancorpUSB -0.36%Regions Financial Corp. RF +0.11% and Fifth Third BancorpFITB -0.79% offer deposit-advance loans, and regulators have been concerned more banks would start doing so as they are profitable.

Regulators said they are concerned banks don't typically analyze whether deposit-advance borrowers can afford such loans, a departure from banks' traditional underwriting standards for other products. The regulators also said they were concerned such products saddle consumers with unsustainable debts and carry high fees.

The loans “share a number of characteristics with traditional payday loans, including high fees, short repayment periods, and inadequate attention to the ability to repay,” Comptroller of the Currency Thomas Curry said in a statement. “These products can trap customers in a cycle of high-cost debt.”

The only thing surprising here is that ALL lenders of ANY financial product aren’t required to “analyze whether…borrowers can afford such loans”. Why not?!


8) Even if the big banks aren’t directly making the most predatory loans, they’re typically providing the financing to the slimiest companies, as the article by Gretchen Morgenson notes:

The question that the complaint doesn’t answer is this: Who is willing to provide the capital that enables Cash Call to finance what regulators say are predatory loans?

When asked if the office was investigating who was financing the company, Damien LaVera, a spokesman for the New York attorney general, declined to comment. He said the investigation was continuing.

I’ve found a preliminary answer. Documents from a 2007 lawsuit show who was providing financing assistance to Cash Call in previous years. The institutions included Deutsche Bank Securities and a unit of Citigroup, known as the CIGPF 1 Corporation.

9) Lest anyone think the government extorted/railroaded/shook down JPM, read this cover story in the WSJ:

Government officials say their case was built on documents detailing loans so weak they likely didn't even qualify as subprime mortgages, and a cooperating former employee who warned her bosses the bank was vastly overstating the quality of the loans being securitized and sold in the run-up to the financial crisis. Investigators turned up documents detailing mortgages with overstated income, inflated appraisals and skewed loan-to-value ratios—which J.P. Morgan then packaged into pools of loans and sold to investors, Benjamin Wagner, U.S. attorney for Sacramento, said in an interview with The Wall Street Journal.

“We're not blaming J.P. Morgan for the financial collapse, but it's also appropriate for people to look at the conduct we were looking at here and to understand that it was this type of conduct that helped a housing crisis become a global financial crisis,” Mr. Wagner said.

The following narrative of how the settlement was crafted is based on interviews with people involved in the investigation and negotiations.

And then watch this hilarious riff by Jon Stewart: www.huffingtonpost.com/2013/10/24/jon-stewart-cnbc-jpmorgan-chase_n_4155786.html


10) It’s good to see that the scrutiny JPM is under is leading it to stop doing business with the underclass of financial predators (I’ll believe it when I see it though):

J.P. Morgan Chase JPM +1.53% & Co. is looking to scale back lending to pawn shops, payday lenders, check cashers and certain car dealerships as it seeks to tighten controls in a period of heightened regulatory scrutiny, said people close to the situation.

The bank has launched an internal review of its commercial-lending clients that is expected to result in the elimination of relationships with companies that pose a greater risk of fraud or money laundering and are viewed as risky to J.P. Morgan's reputation, these people said.

The process could slice hundreds of millions of dollars from the bank's annual revenue, one of these people said. J.P. Morgan already has culled some clients and is likely to exit from more relationships, another person said. It isn't yet known which companies have been cut off.

The effort is part of a push by the nation's largest bank by assets to improve its oversight in the wake of regulatory pressure to fix a number of problems.

The commercial-banking review is one of many internal initiatives approved by J.P. Morgan Chase Chairman and Chief Executive James Dimon designed to root out risk and compliance problems. It isn't known if regulators played any role in urging J.P. Morgan to examine its relationships with pawn shops, payday lenders and others.

11) Speaking of Jon Stewart, he “Goes After A Peculiar Blackstone Deal And Rips Financial Media For Not Covering It”: http://www.businessinsider.com/daily-show-rips-apart-blackstone-2013-12


In October, Bloomberg's Stephanie Ruhle, Mary Childs, and Julie Miecamp reported that private equity firm Blackstone structured a strange financial maneuver to pay a company to force it to miss a debt payment, thereby triggering a credit default swap to the tune of $15.6 million.

One way to describe this is is, dang, that's brilliant (and legal). Jon Stewart, famed financial skeptic, had a different take on the Daily Show last night.

“Now I'm sure you're asking yourself, ‘Hey, I think I saw something like that in Goodfellas, when they get insurance on a restaurant and then deliberately blow the restaurant up,” Stewart says. “But in Goodfellas, it was illegal. In the financial world, it's above board.”

Later in the segment, correspondent Samantha Bee interviews a reporter at the New York Times, skewering the paper for failing to cover the story. She also meets with members of the


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