It’s been a rough few months for HSBC bank. Last week, a London analyst, Chris Wheeler summed up nicely the problems the British banks are having here in the states, “I’m not sure how much more reputational damage can be done.” What Wheeler – or anyone else, for that matter, knew, was that a lawsuit was being put together against one of those banks by three counties in Georgia.
The lawsuit claims that HSBC cost each county hundreds of millions of dollars in extra expenses due to its lending practices. It also claims damage was done to the counties’ tax bases when the bank aggressively signed minorities to housing loans that had little hope of ending well. It’s a bold move and the lines are drawn between the state and the global bank. However this case plays out in court will determine how other state and local governments will hold their own banking entities accountable. Toss in words like “tax revenue” and “predatory lending practices” and local governments begin paying attention. It’s a big suit, but it’s not the first. In fact, both Maryland and Tennessee are home to several communities that have filed similar suits against other banks.
The counties in Georgia, meanwhile, insist the foreclosures that jump started the recession in 2008 were both foreseeable and ultimately an “inevitable result” of the big banks methods to “aggressively push irresponsible loans or loans that were destined to fail”. The counties, Fulton, DeKalb and Cobb – the three most populated in the state – say their counties were forced to shoulder the devastating repercussions as a result of so many foreclosures that never should have been loans in the first place. “It’s not only the personal damage that was done to people in our communities,” said DeKalb County Commissioner Jeff Rader.
That has a ripple effect on our tax digest and the demand for public services in these areas.
It should be noted that Atlanta rests in both Fulton and DeKalb counties.
The question is, did HSBC violate the Fair Housing Act? This law is in place to protect consumers from discrimination on the basis of race, national origin, religion, sex, family status or handicaps and it’s applicable to all housing, rental and mortgage contracts. Further, their tax bases have taken a hit. In Fulton County, the lawsuit says its tax base has taken a 12% hit and has lost $4 billion; DeKalb County has a 20% hit with a loss of $4.5 billion and Cobb County has a 15% loss with a $4.2 billion loss and all three counties hold HSBC accountable.
Remember, this is the same bank that was hit with a whopping $1.92 billion fine earlier this month to settle charges of doing business with Mexican drug cartels. This is set to become the biggest fine in history for any bank to date. This marks the third fine ordered by the United States against a European financial entity. This lawsuit, if the accusations of doing business with Mexican drug cartels wasn’t bad enough, could tarnish the bank’s reputation beyond repair. The bank has so far declined any kind of comments on this case.
Meanwhile, the lawsuit says not only did the bank’s ill approvals ultimately result in abandoned and vacant homes that the counties are now forced to contend with, but the state of Georgia has specific housing codes that various legal departments must investigate and respond to code violations. They must pay maintenance workers to care for the abandoned properties by boarding them up, ensuring rodent infestations are not a problem, tear down or repair unsafe homes and other expensive concerns. The rodents, broken water and sewer lines and trash are public health hazards, as well.
In other specifics of the suit, plaintiffs say the predatory nature of the loans, including “targeting vulnerable borrowers for mortgage loans with unfavorable terms; directing credit-worthy borrowers to more costly loans; putting unreasonable terms, excessive fees or pre-payment penalties into mortgage loans; basing loan values on inflated or fraudulent appraisals; and refinancing a loan without benefit to the borrower” have consequences. As a result, the counties want the courts to prevent the bank from continuing operating in the state in its current methods. They want the predatory lending practices to stop and they want to be compensated for the expenses associated with the abandoned properties along with other damages.
Just as the bank’s not commented on the Mexican cartel fine, it’s opted to decline comment on this suit, as well. Andrew Sandler, a lawyer for HSBC and its subsidiaries in the U.S. said he nor any other spokesperson for the bank would be commenting. Meanwhile, a federal judge has given the bank one month to respond to the suit. For the state’s part, one of its lawyers on the legal team said the state continues to investigate other banks and stands ready to file suit against them as well if there are circumstances that warrant it.
What are your thoughts? Should the banks be forced to eat the damages associated with the homes they’ve foreclosed on? Should they be allowed to then turn around and sue the former homeowners for their losses?