Three former Bank of America employees have accused the bank of lying to customers to prevent them from successfully applying for the Home Affordable Modification Program (HAMP), forcing them into foreclosure. While foreclosures can have devastating consequences for those who lose their homes, for the Bank of America it was allegedly a more lucrative option than the government-sponsored alternative.
The former employees gave their testimony during a civil lawsuit brought by some of the borrowers affected. They claim managers ordered employees to lie to customers by claiming that they had not received documents needed for the application, and that a regular "blitz" was carried out in which documents were destroyed so that applications had to be restarted. The aim was to profit from trial repayments made during the application process, while delaying the process for so long that borrowers were forced into foreclosure. They claim that bonuses of $500 were given to employees who put more than 10 accounts into foreclosure in a month.
There is something shocking about this cynical behavior from one of America’s best-known financial institutions. This is not the behavior one should be able to expect from an established financial institution, nor even the over-boisterous willingness to cut a few corners one might expect from a younger organization hungry for profits and success. If these allegations are correct, managers at Bank of America must have known that they were gaining profit as a direct consequence of bringing misery to many of their customers.
If it is found that the bank has broken the law it must be punished. There will no doubt also be hand-wringing from the "Something Must Be Done" club, who will argue for more regulation in order to bring financial institutions into line.
This is, indeed, the latest in a long line of scandals that have wracked large financial institutions in recent years. There have clearly been issues with the culture in many of these institutions, which have proved themselves willing to take excessive risks and play fast and loose with the law. Employees at all levels have been lured into behavior that is risky for others but not for themselves by reward schemes that give bonuses to those who bring short-term profits, and not those who act to avoid long-term losses. Meanwhile illegal or unethical practices seem to have become accepted in some institutions thanks to a corporate culture that has failed to temper the drive for profits with an ethos of individual and corporate responsibility.
However, further regulation is not the answer. The dawn of the HAMP scandal shows that government attempts to mold the industry to fit with a social agenda will not necessarily achieve the results aimed for, and may even be exploited by unethical businesses. There is a very real danger that ethical businesses would pay the costs of greater regulation, while the less scrupulous will yet again find a way to twist the situation to their advantage.
Outraged voters should not be looking to government to solve this one. Instead they should remember that they are consumers too. Just as in a democracy citizens can use their ballot cards to “throw the rascals out,” so in a free market they can use their hard-earned dollars to get rid of the corporate rascals. However established a corrupt institution might be, it could not survive long if consumers decided to turn their armchair outrage into action and take their business elsewhere.
America’s consumers have all the power they need to bring corrupt businesses into line. Once they remember that, America’s grand corporations will soon discover that having a conscience pays.