Introduction: Banking on America's MisfortunesOver the last two years, millions of Americans have lost their homes, jobs, and savings, and the economy has plunged into a deep recession that experts worry could last years. But even as the warning signs for a serious economic downturn became clear in 2007, Ken Lewis "foresaw a watershed year for Bank of America (BofA), a chance to inflict pain on competitors that lacked its scale, diversity and cash." Lewis, BofA's CEO, firmly proclaimed, "This is the time I think we could go for the jugular, really be disruptive and take market share." A few months later, shortly after announcing the acquisition of LaSalle Bank, BofA raised its noncustomer ATM fee by 50% to a new industry high of $3. Skyrocketing Bank Fees
In 2007, BofA collected $9.5 billion in bank fees, up from $4.1 billion in 2000 - 132% growth. In fact, BofA's American customers paid over $14 in fees for every $1,000 in their bank accounts in 2007, 37% higher than its nearest competitor among the nation's top five banks at the time.
In January 2008, the bank's CFO told analysts, "consumer fee increases in mortgage, card, and service charge revenues" would drive BofA's non-interest income growth. Shortly thereafter, the Forbes Magazine reported that BofA was arbitrarily running up interest rates for thousands of its American credit cardholders, including those who had never missed a payment, apparently, to generate new income and stem their losses. In 2007, BofA raised interest rates on about 1 million play-by-the-rules, pay-on-time credit card customers.
Anti-Consumer Lobbying Agenda
BofA also pursues an aggressive anti-consumer agenda on Capitol Hill, lobbying directly for policies that would saddle consumers with substantially more credit card debt and prevent them from getting out from under the crush of predatory lending and advocated against policies that would have assisted homeowners facing foreclosure.
In March 2008, BofA and other big banks successfully prevented credit card customers from testifying at a hearing on Rep. Carolyn Maloney's (D-NY) Credit Card Bill of Rights. The banks demanded that customers who had flown from all over the country sign waivers allowing their personal financial information to be revealed to the public before they could testify. They refused.
Similarly, MBNA, BofA's credit card arm, was one of the chief proponents of the 2005 bankruptcy bill that can saddle consumers with debt and lead to wage garnishment for decades. BofA and Countrywide were also among the banks that lobbied to block the passage of Sen. Harry Reid's (D-NV) Foreclosure Prevention Act of 2008, which would have helped consumers facing the threat of foreclosure.
Discrimination in the Workplace
BofA employees have raised charges of racial discrimination. In 2007, African-American employees in St. Louis, Atlanta, and Boston filed a class-action lawsuit charging that the bank assigns African-American employees to predominantly minority communities because the bank says that clients "are more 'comfortable' dealing with sales professionals of their own race." The case is still pending.
Reckless Mortgage Lending
Last spring, BofA acquired Countrywide Financial, making it the biggest originator and servicer of mortgages in America. Countrywide had been one of the nation's largest providers of nonprime and subprime loans, and its business practices wreaked havoc on America's communities. At the end of 2007, $15.1 billion worth of mortgages in its loan servicing portfolio were in foreclosure. Countrywide was investigated by the FBI, the U.S. Justice Department, and multiple state Attorney General offices in 2008 for predatory lending and securities fraud. BofA is still dealing with Countrywide's legal problems, which included numerous lawsuits, some of which have settled, that were brought against the company for its allegedly abusive lending practices and financial practices. For example his past December, BofA agreed to refund $11.5 million to North Carolina homeowners whom regulators claim Countrywide had illegally overcharged.
Since taking over Countrywide, BofA has failed to adequately change course. BofA initially praised the Countrywide business model and offered its President and COO a $28 million retention bonus to stay and head BofA's mortgage operations. Although BofA agreed to get rid of him after a public outcry, he got to keep the $28 million anyway. BofA also settled a predatory lending lawsuit brought against Countrywide by fifteen state attorneys general, and agreed to widespread loan modifications for borrowers facing foreclosure at an estimated cost of $8.4 billion. However, investors who own the underlying mortgages say that BofA is shifting the cost of the settlement onto them, even though the lawsuit stemmed from Countrywide's predatory business practices. Furthermore, BofA has a policy of evicting innocent renters who are current on their rent but live in buildings where the landlord has been foreclosed on, rather than signing new leases with them like Fannie Mae does.
Following the Countrywide acquisition, BofA became the largest underwriter of mortgage-backed securities in the country. While BofA itself stopped originating subprime mortgage loans in 2001, it continued to package subprime mortgage-backed securities. This allowed subprime lenders to bundle up their loans and sell them to investors without worrying about the borrowers' ability to repay. It encouraged other banks to keep making subprime loans, and made it possible for the subprime
Tax Avoidance Schemes
Even though Bank of America benefits from taxpayer bailouts, it bites the hand that feeds it. The bank has a history rife with questions about its involvement in tax avoidance schemes:
- In the past, BofA moved at least $8 billion into investment funds to shelter income from state taxes. Those funds wound down their activities shortly after being investigated. BofA also has several offshore subsidiaries in known tax havens, such as the Cayman Islands.
- BofA agreed in 2005 to pay the largest-ever money-laundering fine levied by a securities regulator - $3 million - to settle charges that it aided billionaires with tax evasion schemes.
- BofA has been involved in legal battles with the states of West Virginia and Massachusetts over state taxes. In both states, the courts ruled against BofA.