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Should You Be Worried About Troubled Banks?

Troubled Banks

It’s difficult to put your faith – or keep your faith – in your bank when it seems like every other day presents another scandal. And let’s face it – 2013 is definitely shaping up to be the year of the scandals. Between the IRS targeting certain conservatives and the Obama Administration’s lack of proper handling of the Benghazi brouhaha, you’d think any well-known public entity, political or otherwise, would be moving mountains to stay away from the cruel and collective glare of the American people.

Not so with one of the nation’s biggest banks, though. Once again, Wells Fargo is facing public heat, forced to pay fines and is preparing for yet another lawsuit from the government. Of course, Wells isn’t the only financial entity that’s in hot water. The question now is should you be worried about these very public and quite embarrassing problems these troubled banks have?

Federal Fines

On Wednesday, a federal judge ordered Wells Fargo to pay another multimillion dollar settlement to make a class action lawsuit go away. The suit itself accused the bank of passing on to customers “excessive” overdraft fees. Full disclosure: this is part of a lawsuit that was already litigated and tossed out in 2011 – it just happens to be back due to various appeals.

The judge that initially popped the mega bank with a $206 million fine, only to have it tossed by a higher court, told the bank yet again to pay up. Judge William Alsup says the bank violated state laws designed to protect consumers from excessive fees and other fraudulent practices. To no one’s surprise, the bank said it would again appeal the decision. Meanwhile, the current litigation that continues to unfold in Miami isn’t affected by the ruling.

Troubled Banks and Investigations

An investigation, in the form of a team of 100 temps worked two shifts and they reviewed various documents and contracts to ensure the troubled banks were in compliance with the laws. Very few did. Another team had been set up to handle any of the contracts that fell short. No one expected the second team would see nearly the same amount of documents the original team did. Wells Fargo was found to have tampered the documents and worse, its efforts were ridiculous and any third grader could have seen through them.

The policies changed on a dime, no one knew what those policies were at any given moment and the loans that were properly executed were even changed. Worse, the lawsuit showed that the documents were moving at warp speed, making it obvious there was no attention to detail being provided. The teams were held to tight quotas and had no choice but to rush through the process.

Clearly, this would make anyone hesitant in doing business with any bank that cared so little about accuracy, ethics and the well being of its customers. The lawyers representing the plaintiffs made a strong argument and won. Troubled banks aren’t necessarily worried about things like ethics, though.

You Can’t Make Us

Meanwhile, on Wednesday, Bank of America’s lawyers, in a brazen letter to the state of New York, challenged it and said it couldn’t sue the bank over the mortgage settlement. It also stated that the bank hadn’t violated the National Mortgage Settlement. The lawyers then made sure the state understood that their client was disappointed to learn that AG Eric Schneiderman believes he has the power to follow through with these lawsuits. It should be noted that Wells Fargo is also being sued in this same case.

Bank of America was surprised and disappointed to learn for the first time through the May 6 letter and attendant press coverage about your belief that Bank of America is engaging in ‘a persistent pattern of non-compliance under the National Mortgage Settlement’ and ‘flagrant violations’ of the loan modification timeline…

the attorney for Wachtell, Lipton, Rosen & Katz. The three page letter was received by Schneiderman’s office a day later.

Schneiderman announced he would be citing more than 300 violations between the two banks. It all has to do with the violations associated with the $25 billion National Mortgage Settlement.

The lawyers also said that only a federal judge in DC had the authority to take action and only if the bank had previously been given the opportunity to fix its servicing standards. Failure to handle these problems more than two years ago, along with the countless opportunities since then, apparently doesn’t count.

Dodd Frank Reform

Remember three years ago, when the president signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act? You likely recall President Obama’s proud declaration that he had, in one fell swoop, eliminated the financial corruption that played a massive role in the recession and mortgage meltdown.

These reforms represent the strongest consumer financial protections in history,

the president announced during a DC rally. It was designed to finally rein in the greedy banks, hold them accountable while protecting consumers in the process. And it was (still is) brilliant. The only problem is, no one seems to have what it takes to force the banks to fall into line. Maybe that’s the biggest jaw dropping realization in our modern society: the financial sector determines what it does and doesn’t do and not even the president of the United States can rein it in.

Dodd Frank also put into place certain language that not only protects consumers, but ensures they never again will have to bail out a big bank.

The American people will never again be asked to foot the bill for Wall Street’s mistakes,

Obama promised.

There will be no more taxpayer-funded bailouts. Period.

His efforts were all fine and good, but either he doesn’t have the right folks overseeing these laws or he’s just given up; either way, it’s unacceptable and as one lawsuit is filed after another, it’s clear the banks have very little to fear from the Obama Administration.

Rewriting the Rules

Now that we know that all of the banks – yes, all of them – are playing by their own rules, it presents a certain truth: how are we, as Americans, supposed to conduct our financial business when we don’t trust the sector as a whole? Could this be the real reason so many are turning to prepaid debit cards? It allows consumers to distance themselves: they don’t have to go into a bank and make small talk with someone they feel has betrayed them.

No worries about waving across the bank lobby at the loan officer that put them into a sure to collapse mortgage, a bank president that just bought his fifth luxury car and no worries about the bank making an error. No, today’s consumers want that distance. They want a product they can trust and right now, the prepaid products are what provide the solutions. In fact, these financial products are outpacing nearly every other source of funding when it comes to personal finances.

So what are your thoughts? Have you lost faith in your bank? Have you considered using a prepaid credit card? If so, share your experience with us. Let us know what the bankers symbolize to you in the here and now. We’ve heard several stories from readers, and now it’s your turn.

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