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Blythe to test predatory lending claim against banks

BY VERNON DAVIDSON Executive editor — publications davidsonv@jamaicaobserver.com

Sunday, June 15, 2014    

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FORMER Cabinet minister Dr Karl Blythe intends to test in court whether or not Jamaican banks are guilty of predatory lending, using his 17-year ordeal as a foundation for the case.

Blythe, who recently paid $35 million cash and handed over five apartments to Jamaica Redevelopment Company to settle a debt that mushroomed in the harsh high-interest rate climate that resulted in a meltdown of Jamaica's financial sector in the 1990s, is also offended by the insinuation of a bank manager that he would use general election funds to clear or reduce his loan.

The bank manager made the suggestion in an internal memo sent to the bank's head office, a copy of which Blythe secured during the Finsac enquiry and which he shared with the Jamaica Observer.

Blythe's ordeal with the bank started in 1997 when his father, sister and brother decided to consolidate loans they held with a local bank.

He admitted that he does not remember discussing the matter, but accepts that he must have agreed

with the decision, as he was submerged in campaign activities for the upcoming general election.

"They must have spoken to me by phone — that is the bank manager and the family members — and I must have said 'yes man, go ahead, consolidate'," Blythe told the Sunday Observer in a recent interview.

He said that it was difficult to give a definitive figure of the combined loan, but he recalled that his debt was just over $2 million because his account had gone into overdraft while he paid $83,000 monthly to help settle his sister's

$4-million loan for which he had taken responsibility.

"Remember now, it is '97 and I am out on the campaign trail. The next time I really see this loan was the next year when it was $13.8 million, which was put on my account one day as a debit, then the next day it is credited back, and then after that, it appeared as debit again. I couldn't understand," Blythe said.

He said that by the time he got involved in the consolidated family loan, the bank had already gone to his father and secured his signature while he was convalescing. Blythe said that what shocked him even more was that the bank agreed to him taking over the loans without asking him to sign over any of his securities.

"What happened next was they had to prove that I could pay back this loan, so they put a proposal together," Blythe explained as he showed the Sunday Observer two bank documents.

In the first document, dated June 2, 1997, the bank head office is responding to a proposal from the branch for Blythe to assume the liabilities of his family members.

The head office, while agreeing to grant the request and outlining a number of conditions for the approval, expressed concern that the branch had "not clearly demonstrated Dr Blythe's ability to meet the monthly payments or, at least, interest charges" .

In response, the manager of the branch agreed that Blythe had not provided evidence of his ability to meet the monthly payment programme. However, the manager "strongly recommended" that the proposal be approved and said: "On our part we will monitor the position closely as we do recognise that the next six months (election time) present the best opportunity to get the facility repaid/reduced .

That, to Blythe, suggests that the bank expected him to use money that was not his to pay his debt.

"What they are saying — and this is why I call it predatory lending — they tie you up and then they say he can't pay it, but the next six months is election time, so Dr Blythe somehow will find a way to pay. In other words, they are saying I will steal it, because you are taking money from what is not yours to pay, that's the basis on which they granted this loan," Blythe argued.

"I feel the time has come for me to test that in court, he said. "My point that I think needs to be tested is, did the bank, in their interest, consolidate the family debt?

"This is where I think a lot of the persons who found themselves in difficulty need to go back and look at the material that was given to the [Finsac] commissioners and see how they accumulated that debt," he added.

"I don't know what law predatory lending would fall under in Jamaica, but my God, there must be some law that corresponds with the one in the [United] States," Blythe said.

In recent years, predatory lending law suits have been filed against some of America's largest banks by a number of cities in the USA.

Last month, US District Judge Otis Wright II ruled against Wells Fargo & Co in its bid to throw out a lawsuit by Los Angeles to hold mortgage lenders liable for record foreclosures during US housing market collapse.

According to a Bloomberg news report, Los Angeles had filed separate suits against Wells Fargo, Citigroup and Bank of America last year arguing that "the three mortgage lenders engaged in discriminatory practices since at least 2004, placing minority borrowers in loans they couldn't afford and driving up the number of foreclosures in their neighbourhoods".

In December last year, New York Attorney General Eric Schneiderman announced a near US$300 million settlement with mortgage servicing giant Ocwen Financial Services over alleged improprieties by the company and its subsidiaries related to mortgage servicing and foreclosure practices.

Two years before that, Massachusetts Attorney General Martha Coakley sued Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and GMAC Mortgage, seeking redress for consumers who Coakley said were hurt by "deceptive and unlawful" business practices.

In his interview with the Sunday Observer, Blythe said it would be interesting to find out when the Bank of Jamaica and the Government decided to acquire the bad loans.

"I strongly believe that the banks got an opportunity to clean up their books and they took it in their interest, not the interest of their clients, and that is where I say they failed their clients, as bankers, and that is the point I plan to test," he added.

"I feel they had a duty and responsibility to say no, it cannot be done that way."

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