The OTS did issue a Cease and Desist order against AmTrust Bank in November 2008 for Unsafe and Unsound Banking Practices; this was for poor financial ratios. On March 17 2009 Bill Dedman of MSNBC reported that AmTrust Bank had 30 % more troubled loans than capital and reserves. Last year the Plain Dealer reported AmTrust bank with a 7 % delinquency in loans. This by the way is the largest bank to have a ratio over a 100.

AmTrust bank sued in January 30, 1985 (Cleveland Ohio Case # 85-86378) for the manipulation of mortgage interest calculation which they settled in September 2007 for a cash payment of 14 million dollars which involved some 27,000 borrowers. I cannot find where the OTS ever cited the AmTrust Bank for this Truth in Lending Violation and in March 2009 the OTS refused to answer if they ever cited this bank. The Government has publically stated that the OTS is lax in their enforcement of the rules.

The OTS has no credibility, but with out a doubt has culpability. A better way to describe the Office of Thrift Supervision is the Congressional regulatory agency that has made misfeasance an art form.

Michael LittleBig
Cleveland Ohio

I will remind people that the credit card industry went so far as to conduct psychological clinical trials (!!) in order to design the most repellent and confusing forms possible.

There is a very good reason why they’ll fight the creation of the CFPA tooth and nails. If the hate it so much, it is because we, the consumers, would gain form it.

Can you decipher a credit card contract? You can’t! Prof Warren has hundreds of very smart students and colleagues at Harvard who tried it as an exercise. None of them could deconstruct all the 31 pages (!!) of a “plain vanilla contract.

By the way, what’s wrong with adopting basic standards for contract? Isn’t it how it is supposed to be? Why should they be ever more complex for a product which basic characteristics are the same as they were 30 years ago? To stimulate citizens’ sense of responsibility perhaps?

While we’re at it, where did you get the idea the CFPA would “pre-approve specific types of transaction”? All it is designed to do is to make the information about said transaction UNDERSTANDABLE. Pray tell how this would be a bad thing?

I can only conclude that, carried away by a pidgin-libertarian type of ideology, you fail to see what the true intended scope of the CFPA; leveling the playing field between consumers and financial institutions. What’s wrong with that?

Professor Warren makes a very important point here which is often overlooked, and whose importance is often underestimated.

I can tell you as a successful businessman, entrepreneur, and salesman that without sufficient government regulation (which is in many cases not that possible, but still often is highly possible) a business or salesperson can be at a substantial, or huge, disadvantage against competitors who are willing to do deceptively harmful or poor value things to customers. Often these things are very profitable because the customer cannot find out he was harmed, or received a poor value, until long after the sale, if ever.

Such unethical competitors, without government regulation or supervision, can drive out of the business the ethical ones. Leaving only, or predominantly, unethical, or ethically willing to compromise, competitors. They may be the only ones who can survive against competitors who have the advantage of these unethical means, which again can in many cases be a big advantage in luring customers and increasing profits. CEOs who don’t use these measures and thus have much lower profits will have a hard time keeping their jobs and reputations (for making money). And don’t try giving me long run arguments; often these unethical methods maximize profit over the long run too. Moreover, how often do you see CEOs evaluated over decades. Usually a few bad years, especially much worse then their competitiors, even if those competitors are much less ethical, puts them in substantial danger of losing their super high paying jobs and never getting other ones nearly as high paying or prestigious.

This is clearly horrible for consumers, efficiency, and total societal utility. Much of the innovation and choice is in clever ways to better and more deceptively rip-off the customers.

For more on this, see my post, “More precisely, it’s “Guys who LOOK nice finish first”, at: http://richardhserlin.blogspot.com/2008/10/more-precisely-its-guys-who-look-nice.html .

Yes and no. Of course they were influenced but I sincerely do not think they lied. They are just made up of fallible human beings, which is why it is so crazy to give them so much power. Currently there are more financial courses on learning to analyze the possible change of credit ratings for a borrower than there are on learning to analyze the borrower… that is how crazy it is getting to be.

“I’d guess that half of the people who ended up with non-traditional loans were speculators” or “just plain financially illiterate.”

This is like the burglar blaming his victim for his actions. If they had not left the window unlocked, I would not have stolen from him or her. I simply could not help pushing loans with detrimental terms on someone too “financially illiterate” to know that I screwed him or her.

Making such loans to people that as you describe, were “financially illiterate,” would be considered illegal usury in all 50 States and in many foreign countries if the intent of that person were to knowingly take advantage of someone’s lack of knowledge to their financial detriment, to enrich one’s own financial condition. If everyone were sophisticated or smart enough to avoid being conned, swindled, defrauded, etc…, then these words or the meanings thereof would not exist, nor would any laws against such conduct.

A case of the pot calling the kettle black – I would speculate that someone calling people that took non-traditional loans speculators or simply plain financially illiterate, are speculating that half the people with non-traditional loans were speculating that they could “refi” later and that the “other half were just plain financially illiterate.”

A dose of reality – non-traditional loans were making lenders’ “fat and comfortable lives even fatter and more comfortable” (TJ). There is no law or rule against making loans with better terms to people that would not qualify under this system for better terms – this goes to competition – there was none. Unless of course, figuring out how to screw people without them knowing until it is too late is what is meant by competition.

Lenders/bankers have stated that they pushed refinance as a means to mitigate borrower apprehension regarding significantly unfavorable loan terms in these non-traditional loans. Lenders/bankers have stated that they saw no reason why the borrower would not simply refinance before such loan terms kicked in. They have stated that they simply could not imagine equity crashing through the floor, thereby making it impossible for most to “refi.”. With this said, it would seem that the bankers or lenders are equally guilty of speculating that the borrower would simply “refi.”

You make a good point on CC companies. Similarly, it seems insane, but pay option ARMs actually *earned money* for banks since deferred interest on mortgages (when people did not even pay interest) was added to principal and was counted as an *increase* in assets, counted as income!

Of course, without regular monitoring of the loans, a massive increase in risk of mortgage default went unnoticed until things started breaking.

http://www.fdic.gov/quicklinks/consumers.html

http://www.fdic.gov/consumers/consumer/moneysmart/index.html

http://www.fdic.gov/consumers/consumer/predatorylending/