Inner City Press -- Investigative Reporting From the Inner City to Wall Street to the United Nations

As Capital One Derides the Subprime It Seeks from HSBC, on ING Direct, Federal Reserve Rebuffs Frank & 200 Groups

By Matthew R. Lee

SOUTH BRONX, August 22 -- Questions about Capital One's proposal to buy ING Direct, and HSBC's subprime credit card platform, have resulted in requests to the Federal Reserve to hold public hearings and extend today's comment period deadline from over 200 community groups and even Rep. Barney Frank, co-sponsor of the Dodd Frank bill passed after the financial meltdown.

  Still, as of the expiration of the comment period on August 22, the Federal Reserve  ignored all the requests and confirmed that it was closed.  Just before the deadline, Inner City Press / Fair Finance Watch put in a fourth comment, noting that

Capital One's (first) response says that FHA lending down to 580 FICO scores "would qualify as subprime lending" and "put taxpayers dollars at risk" -- this from a company now trying to buy the subprime credit card business of HSBC, which HSBC bought from Household International. Just by the terms of Capital One's own response, public hearings are needed.

The proposed combination of Capital On and ING Direct is particularly troubling given that not only Capital One, but also ING, have disparate mortgage lending records. Beyond Capital One's, in the most recent year for which aggregate Home Mortgage Disclosure Act data is available, 2009, in the Wilmington Metropolitan Statistical Area for conventional home purchase loans ING Bank FSB made six loans to whites and none to African Americans -- ING Bank FSB denied all eight applications it received from African Americans.

Meanwhile for refinance loans in Table 4-3, ING Bank FSB in the Wilmington MSA in 2009 made 114 loans to whites but only eight to African Americans and only two to Hispanics.

While the applicants have impermissibly withheld information about ING's "cafes," it now appears that these facilities were cashing checks, and thus should be viewed as branches, but for the institution-friendly mis-regulation of the now defunct OTS. This too should be addressed at the requested hearings.

  When Capital One applied to the Fed to acquire ING Direct, the US Internet banking subsidiary of Amsterdam-based ING, community groups like ours around the country and Washington based NCRC began to file protests, based on Capital One's anti-consumer practices.

  But the impending addition to Capital One of the predatory lending platform HSBC bought along with Household International, while Household was being pursued by state Attorneys General around the country, would make matters worse.

   With these two acquisitions, Capital One could become a fifth "too big to fail" bank in the US, after JP Morgan Chase, Bank of America, Wells Fargo and Citigroup. The anachronistic gang in Capital One's television ads, along with Alec Baldwin, may be funny, but less so if considered too big to fail, possibly requiring bailouts.

  In group's  initial comments to the Fed, less has been said about ING, in part because ING's US business had been directed at a more affluent clientele, and because ING was not viewed as the applicant.

  But after Inner City Press filed a Freedom of Information Act request with the Federal Reserve Board on July 22, a partial response from the Federal Reserve shows that ING has quietly sought a ruling from Fed General Counsel Scott Alvarez that ING should not have submit any application subject to public comment to own up to 9.9% of Capital One. Click here to view the Fed's (first) FOIA partial denial letter, from which Inner City Press has already appealed.

  This would exclude public comment and consideration of ING doing business with the likes of Sudan, Iran, Cuba, Syria and others on the US state sponsors of terrorism list. ING had admitted being under investigation for, and negotiating with the US Department of Justice about, such violations, and there have been expressions of Congressional concern, which the Fed could ignore by granting ING's stealth request.

Fed board & Bernanke, ING's Sudan & Syria business & HSBC's predatory cards not shown

  The documents obtained under FOIA show that ING, represented by the Wall Street law firm of Sullivan & Cromwell, on July 15 wrote to the Fed's Alvarez asking for "written confirmation that [ING] will not be deemed to directly or indirectly 'control' Capital One for purposes of the Bank Holding Company Act upon the consummation of the Bank Sale."

Earlier in ING's 13 page request, on which the Fed has until now not solicited or accepted any public comment, ING says that the shares with which Capital One would pay it for ING Direct would "represent between 9.7% and 9.9% of the outstanding shares of Capital One's Common Stock on the closing date." Click here to view some of the released records, including Sullivan & Cromwell's letter to the Fed for ING.

Under the Bank Holding Company Act, any holding over 4.9% can be considered control. One would think, given the issues raised, that the Fed would solicit comment and hold the requested public hearings on ING's request to own nearly 10% of Capital One. But it has only come about because of the Fed's partial FOIA response.

Inner City Press / Fair Finance Watch immediately submitted a comment to the Fed and its chairman Ben Bernanke formally demanding the ING submit an application, and joining in requests by NCRC and others for public meetings and an extension of the comment periods until at least October 22.

In a FOIA appeal already filed with but not yet even acknowledged by the Fed, Inner City Press has demanded all withheld records about ING's stealth request, as well as the withhold portions of Capital One's application, which range from exhibits about money laundering to ING's mortgage portfolio.

Amazingly, the Fed mis-read Inner City Press' FOIA request as only asking from Fed communications with ING and Capital One about the proposed acquisitions, when in fact Inner City Press requested all records reflecting Fed communications concerning either of the two companies.

The Fed has provided such records, including internal Fed emails about the Industrial & Commercial Bank of China and Governor Warsh's meeting with its chairman, in previous responses to Inner City Press.

  The Fed has also withheld records about an "ex parte" meeting as far back at May 26 between Capital One's Kevin Murray (SVP of Regulatory Relations), John Finneran and Gary Perlin with a range of Fed officials.

  It seems the Fed, ING and Capital One have already had something to hide in this transaction, including seeking to exclude from public comment and consideration ING illegally doing business in and with Syria, Iran, and Sudan. Now they seek to sweep through and under the carpet Capital One's proposed acquisition of the predatory lending platform of Household International from HSBC. But it will continue to be opposed. Watch this site.