CONGRESS OF THE UNITED STATES- COMMITTEE ON OVERSIGHT & GOVERNMENT REFORM

Senator Elizabeth Warren (D-MA) and Rep. Elijah E. Cummings (D-MD) April 10, 2013 letter to Federal Reserve Chairman Ben Bernanke and Comptroller of the Currency Thomas Curry

by Barry Fagan
Contact

Fed Argues that Mortgage Abuses are Trade Secrets, Meaning Institutionalized Fraud

Warren and Cummings have been asking the OCC and Fed for some time for more information about what happened in the foreclosure reviews. Out of fourteen information requests they made in a January letter, they got only one question answered in full, and mere partial responses to three other questions. They requested, and got, a meeting yesterday. They issued a letter Wednesday that described what transpired. Key sections:

Two years ago this week, your offices issued a public report announcing that you determined that 14 mortgage servicing companies were engaging in “violations of applicable federal and state law.” You found that these abuses have “widespread consequences for the national housing market and borrowers.” You also explicitly referenced instances of abuse, including illegal foreclosures against our nation’s men and women in uniform who are protected by the Servicemembers Civil Relief Act (SCRA)….

We have requested information about the process used to conduct this review and the extent to which violations of law were found….

At the meeting yesterday, Federal Reserve staff argued that the documents relating to widespread legal violations are the “trade secrets” of mortgage servicing companies. In addition, staff from the Office of the Comptroller of the Currency (OCC) argued that these documents should be withheld from Members of Congress because producing them could be interpreted as a waiver of their authority to prevent disclosure to the public of confidential supervisory bank examination information.

Now since the Fed is apparently making this absurd argument in all seriousness, let’s look at the implications. A trade secret is a form of intellectual property. I encourage IP experts to pipe up in comments, but my understanding, based on the experience of a client who successfully sued a former employee for violating trade secrets, is that it is difficult to prove that your internal know-how rises to the level of being a trade secret. One of the key elements in making the case is that you have to show you went to some length to keep your special tricks secret, such as limiting access to them, having employees sign confidentiality agreements, etc.

Why does this matter? You can’t have internal knowledge rise to the level of being a trade secret unless their was an institutional decision to keep it secret. That means the Fed is effectively saying that servicer management, and almost certainly bank management (since servicing units don’t have their own corporate counsel) was fully aware of the nature of the practices at issue and chose to keep them secret, supposedly for competitive reasons. This is fact is one of the things lawyers have been eager to establish, namely that bank management knew full well all these servicing tricks were happening, and sought to protect them as important sources of profit. Way to go, Fed!

Now, of course, this argument is revealing in a lot of other ways. The Fed has also just admitted it thinks it is more important to protect bank knowledge of how to break the law than expose the information. So the Fed has also made explicit that it wants to preserve banks’ ability to rip off people. So the Fed’s official policy is bank profits trump the law. Not that we didn’t know that, but it has now been stated in a baldfaced manner.

The OCC’s position, that they need to preserve confidential bank examination information, is equally ridiculous (the letter gives a long-form debunking). Warren and Cummings noted,

You may protect against such a waiver by including standard language in a cover letter explaining that providing documents to Members of Congress, even if normally not disclosed to the public because of their proprietary or confidential nature, does not constitute a waiver.

But it’s doubtful that the information at hand is “bank examination information”. The reason for keeping bank examination results confidential is to prevent bank runs. Mortgage servicing units are not banks. In fact, the OCC said repeatedly when it was pilloried for its failure to supervise servciers that didn’t have much in the way of formal authority over them. It wasn’t acting as a bank examiner of servicing units for the period that was the focus of the IFR, 2009 and 2010. Given the poor control over information during the IFR (for instance, at Bank of America, the army of temps who performed the project didn’t sign enforceable confidentiality agreements), and the fact that lots of relevant information (investor reports, court documents, including the affidavits used for the fraudulent fees) are public records, the OCC argument isn’t credible.

This exchange also confirms something the public knows all too well: the regulators are in the business of protecting the banks, and only secondarily in enforcing the law. And until that changes, it is the safety and soundness of the population that is at risk.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Barry Fagan
Contact
more
less

Law Offices of Barry S Fagan on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!