Every person who is a customer of private banking agrees that banks are corrupt entities. We all say that because they charge senseless fees and spill out busy talk that nobody understands except used car salesmen. Yet, has anyone ever tried to quantify a case of RICO [1] against a bank, or the banking industry at large?
We are going through a refinance transaction on our house. There are two mortgages to refinance. The first is the larger of the instruments and is the target of our refinance transaction. The second is serviced by another bank and is much smaller than the first. The second is termed the "subordinate" loan [2].
After approval of the new loan we were informed that there is a fee that must be paid to the subordinate loan servicing bank for the bank to review the terms of the refinancing agreement. In this case, the fee we must pay is $250 [3]. I complained to the "mortgage consultant" that is refinancing our loan and he conveyed his equal disdain for the fee and went on to explain that they would charge the same fee had the roles been reversed. The important detail he conveyed though was that their fee would have been $150. That got me thinking, of course.
This subordination fee is being required by the second bank. They require me to pay it so that they can review a loan that I am refinancing. This loan is not being serviced by this subordinate bank, so they have no reasonable claim to review its terms. This is not only an invasion of my privacy, it smells like price fixing [4].
Let's make this easier to explain. Bank A is the refinancing bank. Bank Z is the subordinate bank charging the $250 fee. Bank F is the bank that held the original loan that is being refinanced.
Price Fixing [4]
Bank A offers affordable loan terms to refinance a loan not serviced by Bank Z. Bank Z demands to see the terms of that loan to discover competitive pricing and terms that Bank A and Bank F. Bank Z can then adjust its lending practices to be more in line with Bank A and F. Proving that is difficult, but not impossible with insider and regulatory help.
You know about LIBOR [10], right? This is the interbank lending rate, a rate that is set by a bunch of bankers who lend out money at the LIBOR rate. If you haven't made this connection yet, then consider that these bankers are setting the PRICE of the money that they are lending. They are colluding together as independent bankers to control the price of this commodity, known as money. This is price fixing at its purest and most shameless form. These bankers are in the U.K. though, so they are not directly affected by the RICO Act. They do fall under the Foreign Corrupt Practices Act [11]. Should any bank do business with these bankers, and those banks are also guilty of these other crimes, then they can be argued together as RICO.
Racketeering [5]
The $250 service fee charged by Bank Z is a service fee for which I get no gain, no product, and no perceived resolution to a problem. By example, it is a fee to solve a problem that does not exist. Why would I need to pay a bank (Bank Z) for them to review my loan? This not only impedes my effort to manage my debt and finance instruments, but it also offers an opportunity for Bank Z to collude with other banks in retarding the refinance process.
Extortion [6]
This one is a little more difficult to stomach. My argument is that Bank Z is engaged in a form of Blackmail/Extortion where they are hindering the progress of my engagement in commerce unless I pay them this $250 subordination fee. If I choose not to pay this fee, then they refuse to review the loan, and Bank A can not proceed with the refinance. Furthermore, since this fee is not a regulated fee, they could charge any fee they desired. Should they be in collusion with Bank F, they could charge an exorbitant fee, a fee so large that it would eclipse the loan origination fee[7].
More Price Fixing[13]
From the Rolling Stone article you will learn that these super giant investment banks are starting to buy up industries. From owning the raw resource to the logistics and distribution channel, they are controlling the entire industry. When a single entity owns the entire supply chain of a commodity it can control pricing on that commodity. Since these are investment banks, they are buying and hedging on the very commodity that they trade in the commodity markets. This creates an inflated market value for the commodity and results in an enormous bubble that bursts across numerous industries. We saw this during the Great Depression when banks were engaged in cross-industry investment, and we are seeing it again today thanks to Bill Clinton's repeal of the Glass-Steagall Act. Thanks Bill! You were probably distracted by that girl again ...
For a RICO consideration on any corrupt organization, the FBI must prove 3 cases of criminal activity. I have described three such cases in this one fee required for a simple loan refinance. What really saddens me the most is that Dodd-Frank[8] did not address this fee. Senator Frank, a pervasively outspoken critic of the organized banking industry, did not (or could not) put his regulatory stamp on this egregious fee.
It is clear that these surreptitious fees are nothing more than a phantom way for banks to continue to charge a "tax" on a service that has no resolution, no product, no outcome, and no benefit to the person paying the tax. If I were living outside of California and trying to refinance a loan that was held in California, then this egregious fee might fall under the Interstate Commerce Act [9]. I would certainly not want to choose a bank in California that charges an exorbitant subordination fee, but rather choose one that does not charge a fee at all.
If only I had Senators Frank or Dodd, or Governor Spitzer on speed dial. This one fee, one single fee, can be arguably the Achilles Heel [12] of the banking industry.
References
[1] http://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizations_Act
[2] http://en.wikipedia.org/wiki/Subordinated_debt
[3] https://www.google.com/#q=subordination+request+checklist
[4] http://en.wikipedia.org/wiki/Price_fixing
[5] http://en.wikipedia.org/wiki/Racket_(crime)
[6] http://en.wikipedia.org/wiki/Extortion
[7] http://en.wikipedia.org/wiki/Origination_fee
[8] http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act
[9] http://en.wikipedia.org/wiki/Interstate_Commerce_Act_of_1887
[10] http://en.wikipedia.org/wiki/Libor
[11] http://www.justice.gov/criminal/fraud/fcpa
[12] http://en.wikipedia.org/wiki/Achilles'_heel
[13] http://m.rollingstone.com/politics/news/the-vampire-squid-strikes-again-the-mega-banks-most-devious-scam-yet-20140212
For The Record
Bank A : Union Bank formerly Union Bank of California
Bank F : Wells Fargo Bank, N.A.
Bank Z : JP Morgan Chase
Furthermore, I know that Wells Fargo would forgo this fee on us because we are an avid customer of Wells and they have been extremely helpful in finance instruments for both personal and business transactions. I really like how Wells Fargo treats me as a bank customer, but everyone has different experiences.