Consumer Protection: Don't Bank On It

Got a problem with the bank or company holding the mortgage on your house? Don't count on Arizona's Banking Department to help you out.

Alan and Barbara Woodruff found that out the hard way. They bought an $89,000 home in Phoenix four years ago and assumed the mortgage, but soon found they couldn't get the mortgage company to credit them with payments they were making. Sometimes their $930 monthly payment checks were cashed; sometimes they weren't; sometimes the checks were returned with a note saying the company didn't know who the Woodruffs were. Within a few months, the mortgage company declared them in default. They quickly complained to the Banking Department, which is supposed to regulate the industry. The Woodruffs dutifully filled out the form the department has prepared for consumer complaints.

They got a nice letter back from Howard Warner, an agency bank examiner, who said the evidence suggested the blame for the foul-up fell on Commonwealth Mortgage, which had bought the home loan from First Security. Warner explained neither of these companies was licensed by the state "and, therefore, beyond our jurisdiction."

The dispute kept escalating. Last September, the couple stopped making payments on the house. They lost it earlier this year in a foreclosure sale. By then, things were such a mess that the Woodruffs rejected a last-minute settlement offer by the mortgage company. "They had lied to us for years," says Mrs. Woodruff. "We just didn't think we could trust them." But the real surprise was when the couple suddenly learned that, oops, Commonwealth was regulated by the state all along and the Banking Department could have stepped in.

Sort of.
Hank Rivoir, named earlier this year as the state banking superintendent, says his agency could have approached the company and inquired about the problem. An inquiry from the state regulatory agency might have gotten someone's attention at the mortgage company.

But Rivoir offers little comfort. "To the extent that your difficulties in resolving your problems were aggravated by the apparent error made by this office in advising you incorrectly that Commonwealth was not licensed by this department, I apologize," Rivoir wrote to the couple last month. "At the time you were given that information, our records were still kept by hand, and companies whose names had been changed (such as Commonwealth) were sometimes difficult to track. That appears to be what happened in your case."

But Rivoir washes his hands of any responsibility. "That error did not cause the problems you encountered."

"She is correct that there was an error at one time with her account," Rivoir tells New Times. "And she is probably correct that people did not go way out of their way to try to fix it for her."

So the problem could have been resolved--and the couple might still have their home--if the Banking Department had stepped in earlier?

"I doubt that very much," Rivoir says, claiming lack of power.
"You have to understand that we are not a court of law," he says. "If somebody files a complaint with us, we take it to the company to try to work it out. If the company says `You're wrong' or `We just don't buy it' or `We're not going to do anything as far as that individual complaint is concerned,' that's as far as we can go."

The alternative for the aggrieved customer? Hire a lawyer and sue, he says.

That explanation stuns Representative Karen Mills, who heads the House Banking and Insurance Committee. "If the Banking Department is going to treat the consumer this way, we might as well get rid of it," she says.

Mills says one of the purposes of state regulation is to protect consumers from fraud or just plain incompetence without having to force them to go to court and sue every time something goes wrong. She points to the state Insurance Department as an example of how a regulatory agency should work.

Insurance director Susan Gallinger says a similar type of complaint from a customer would initially be handled the same way as the Banking Department: Get the information from the consumer, write to the insurance company and await a response. But any similarities end there.

"If their explanation isn't consistent with the [insurance] contract or the statutes, then we would schedule a hearing," Gallinger says. Sometimes that threat is enough to bring the insurance company into line. Other times a full-blown--and public--hearing is necessary. A hearing officer makes a recommendation, with Gallinger allowed to take whatever action appears appropriate, including requiring the company to comply with the policy, mandating a reimbursement to the customer or imposing a civil fine on the company.

In comparison, the Banking Department's only power to resolve consumer complaints is the voluntary compliance of the folks they're supposed to be regulating. In other words, it's little more than a Better Business Bureau.

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Howard Fischer