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Making ‘Too Big To Fail’ Banks Help Poor Borrowers

Economy Memo Pad

Making ‘Too Big To Fail’ Banks Help Poor Borrowers


Predatory lenders are folding fast in New York State, thanks to a savvy banking regulator who takes his duty to protect the public as seriously as his duties to the financial industry — and knows how to use the law to get quick action.

Nine of 35 predatory lenders closed their operations in the Empire State after banks cut them off from using the automated bank money transfer system to collect debts from borrowers’ bank accounts, the trade paper American Banker reported on Thursday.

It seems likely that more predatory outfits will fold their operations in the days ahead, not just in New York, but around the country, because the handful of “Too Big to Fail” banks operate in every state and so threatening them in New York effectively is a nationwide law enforcement strategy.

Amazingly, all it took was a single letter, showing that regulation and enforcement need not be costly to taxpayers.

For years, consumer groups like the National Consumer Law Center and the Center for Responsible Lending have fought to get official action against lenders who flout usury and other consumer protection laws.

The lenders have fought them all the way, often relying on obscure legal and regulatory rules that would require the offices of state consumer and law enforcement agencies – their budgets already stripped to the bone by anti-regulatory politicians – to commit resources they no longer have. So we got more words than real actions from many agencies that are supposed to enforce consumer protection laws.

For consumer advocates the biggest problem has been indolence by the regulators. Those who get paid to enforce the finance laws often work hard instead to curry favor with the regulated because that is the well-worn path to lucrative employment after leaving the public payroll.

The hero of the remarkably effective law enforcement strategy that caused so many payday lenders to abruptly quit in New York, with repercussions across the nation, is Benjamin Lawsky, a former federal prosecutor in Manhattan who is now superintendent of banking for the state.


Lawsky simply sent a letter August 5 explaining the law to licensed banks and to NACHA, the National Automated Clearinghouse Association. The clearinghouse is how banks move money around digitally. Predatory lenders use the system to reach into the checking accounts of customers, to withdraw money to repay loans.

David Cay Johnston

David Cay Johnston won a 2001 Pulitzer Prize for his coverage of taxes in The New York Times. The Washington Monthly calls him “one of America’s most important journalists” and the Portland Oregonian says is work is the equal of the great muckrakers Ida Tarbell, Lincoln Steffens and Upton Sinclair.

At 19 he became a staff writer at the San Jose Mercury and then reported for the Detroit Free Press, Los Angeles Times, The Philadelphia Inquirer and from 1995 to 2008 The New York Times.

Johnston is in his eighth year teaching the tax, property and regulatory law at Syracuse University College of Law and Whitman School of Management.

He also writes for USA Today, Newsweek and Tax Analysts.

Johnston is the immediate past president of the 5,700-member Investigative Reporters & Editors (IRE) and is board president of the nonprofit Investigative Post in Buffalo.

His latest book Divided: The Perils of Our Growing Inequality an anthology he edited. He also wrote a trilogy on hidden aspects of the American economy -- Perfectly Legal, Free Lunch, and The Fine Print – and a casino industry exposé, Temples of Chance.

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  1. docb August 30, 2013

    Nothing like explaining the law and making them, the shysters, follow it! We need more of this.

  2. Bill Thompson August 30, 2013

    Thank you Mr. Lawsky it’s great when the Law works for people and not the corporations.

    1. dpaano August 30, 2013

      That’s the way it’s SUPPOSED to work…..not sure why it can’t work with everything! We can always dream……

  3. lechtenberg August 30, 2013

    Mr. Lawsky allows me to hold on to some hope for our country.
    Clear thinking, like he and Elizabeth Warren have shown, is exactly what we need in government.

  4. Lovefacts August 30, 2013

    This should have happened in years earlier when the first hint of trouble first surfaced in the early 2000s. We’ve had nothing but trouble from the moment Glass–Steagall was repealed. Here’s hoping Elizabeth Warrant can get a new/current version of the Glass–Steagall law passed. Our economic way of life, our very economic survival depends upon people and businesses trusting the banks. If they don’t, they economy and the worlds may collapse.

  5. wesley rasmussen August 30, 2013

    The man has absolutely NO future in a Tea Party / Republican run government scheme.

    1. Allan Richardson August 30, 2013

      But he has a great future in an ANTI-TP government!

    2. THS_Warrior August 31, 2013

      How about his future as a target for scorn from crazy people like Ted Cruz?

    3. R-Cynic August 31, 2013

      I agree. He has morals and integrity, as well as a sense of civic duty. He’d never fit in.

  6. Allan Richardson August 30, 2013

    There is a petition on the internet to recruit volunteers for a plan to make foreclosures more difficult against underwater homeowners. The plan involves THOUSANDS of petitioners, using the petition manager as an agent, filing ONE DOLLAR mortgages against each homeowner, because the PRIMARY mortgage holder, the bank, must legally notify all other mortgage holders before foreclosing, which would cost more than the mortgage itself. The manager advises that none of the volunteers could foreclose either, since they would face the same requirements as the bank, while the petition manager would be designated as each volunteer’s legal agent to remove those liens when the homeowner wants to sell.

    It sounds good, except that I would want the petition manager (who would match up homeowners in trouble with volunteer “dollar lenders” — who would not actually have to send a dollar to the homeowner, but are invited to donate to the cause) to be held accountable in some way for the personal information of the homeowners and the volunteers, so as to prevent identity theft and foreclosure by the petition circulator. Also, could the banks sue everyone involved for “collusion” or “conspiracy?”

    If anyone has seen this petition, and has some legal knowledge, please comment.

    1. Jim Myers August 31, 2013

      Who will pay the filing fees in order to add these “mortgages” to the properties?

      1. Allan Richardson August 31, 2013

        Good question. The website does not explain it. The more I think about it, the more it sounds like a scam to me. In case anyone is thinking about it, the website uses the acronym BLERS. Since a dollar mortgage cannot be filed by completely automated means, and takes the time and labor of civil servants in some county clerk’s office, it seems doubtful that more than a dozen per county would get filed before the filing agent would be contacted by authorities. So more likely, the promoter is just phishing for personal data from homeowners in trouble and from good Samaritans to commit identity theft. Like the phony “car breakdown” lure to rob, carjack and murder people wanting to help.

        1. Jim Myers September 1, 2013

          I see there is someone who understands a little bit about the process..

          Thanks for the comments.

  7. THS_Warrior August 31, 2013

    Long ago this nation’s wealthiest people were given permission to operate banks, which were created to be part of this nation’s money supply. Banks are required to be members of (or at least use) the Federal Reserve System and in return were given extraordinary powers that include the unlimited ability to create new money by lending some of the money the people put on deposit at the banks for “safe-keeping.”
    Underlying this brilliant American scheme was the now-discredited economic theory that assumes that all wealthy people who continue seeking more wealth will necessarily have to create business opportunities that will require labor and thus will create more jobs for poor and working class people, thereby expanding the need for more banks and increasing the nation’s collective wealth. That plan worked for quite awhile.
    However, as do most if not all brilliant human schemes, that “utopia” has disappeared. Wealthy American bankers, all greedy by nature, have became super-wealthy and are abandoning the nation that allowed them to become super-wealthy. The 12 biggest banks and their greedy shareholders no longer want to do anything to help the poor people or the working class become more self-sufficient. All the super-banks want to do now is to earn even more profit for their insatiable greedy shareholders. The nation’s banks earned more profit in the last quatrer than ever before; time to revoke their charters or force them to become non-profit organizations like credit unions are.

  8. Lisztman August 31, 2013

    Bravo, Mr. Lawsky!
    (Once in a while something works properly here in NY…)

  9. diverdown48 September 2, 2013

    Too big to fail is a lie. Banks may be too big to jail but the jerks who run them aren’t. Whoever heard of putting a bank in jail. People go to prison every day. Throw a couple of CEO’s in prison and banks miraculously will start obeying the laws.
    People can be jailed if they knew or should have known the law was being broken. If you are the CEO of anything you should have known what was going on or its jail time for you.


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