Bank of America Pays the Price

Why would you want to do business with lawbreakers?

Bloomberg reports:

Bank of America Corp., the second-largest U.S. bank, said profit dropped for a third straight quarter as the company set aside $6.01 billion for bad loans... The bank said its home equity, homebuilder and small business loans were "particularly'' affected by the slowing economy.

The ever-growing Bank of America ("BoA"), with its nigh-ubiquitous ATMs in the West and extensive reach elsewhere, has long been one of the more successful retail banks in this country.  Of course, as with any multi-billion-dollar financial corporation, it has its hands in many pies; however, to the ordinary banking user it is known most for its ordinary banking activities - actual physical banks you can walk into, consumer loans, home mortgages, checking accounts, and so on.

Given the current problems in the home-mortgage market and the popped bubble of housing prices that puffed up unaffordable loans for millions of borrowers, it's no great surprise that BoA is suffering somewhat.  The losses being reported are simply enormous though, and appear to be quite widespread.  Is there anything about BoA that might have made it especially vulnerable to bad loans and consumer fraud?

As it happens, there is, and it is a great, glaring, conscious decision that BoA made at the corporate level.

In February of last year, it was reported that BoA had decided to offer credit cards to customers without Social Security numbers.

They didn't just allow people to walk in off the street and grab a nice shiny credit card out of the basket.  You had to have held a bank account with them for three months and caused no overdrafts.  At one time, this would have been sufficient safeguard.

Recall the last time you opened a bank account.  You had to show an ID, and provide information about yourself.  Most people show their drivers' license.  If you are a citizen, you have to provide your Social Security number so any interest you earn can be reported to the IRS.  But if you are not a citizen, and don't claim to be one, then no Social Security number is required.

And as luck would have it, illegal immigrants can freely provide a "photo ID."  It's called a matricula consular, and it's an ID card issued by Mexican consulates which are found in many major cities.

It has a picture on it.  It has a name on it.  It's even issued by a government with whom the US has diplomatic relations.  However, it's totally meaningless - the applicant at the embassy simply presents themselves, states their name, pays the fee, and walks out with a nice shiny "government ID."

U.S. banks are not required to accept a matricula consular as identification, but they aren't forbidden to do so either.  And BoA decided that a matricula consular was just fine.

Thanks to this tomfoolery, countless thousands of illegal immigrants now have a ladder into the real, documented economy.  First, go visit your Mexican embassy and get a matricula consular.  Then go take that card over to your nearest Bank of America and open a bank account.  Wait three months, and go back for a credit card.  Now you're just like anybody else, for most purposes!

BoA makes money from the fraudulent activity of the illegal aliens, as they cash their illegally-earned paychecks and wire the funds back home.  So at first glance, this sort of action should increase the bank's profits, regardless of the harm it causes to the wider society by aiding and abetting the crime of illegal entry.

But why do so many financial organizations ask for your Social Security number before doing business with you?  It's not just for tax purposes; your SSN is how credit ratings are indexed.

When you want a loan to buy a house or car, or anything else for that matter, the banker can look you up with the credit bureaus to see if you have been faithfully paying your other obligations.  Based on that information, he may offer you a loan only at a punitive interest rate or deny the loan entirely.

That's why most Americans try so hard to avoid car repossessions, home foreclosures, and other adverse credit events.  Once you have something like that on your credit report, it takes many years of hard work and faithful repayments of other debts to wipe the slate clean.  As a punishment for not paying your debts, the idea of credit rating agencies is fundamental to the American consumer and financial economy.

Illegal immigrants have no such fears.  If an illegal immigrant fails to pay their car loan, to say nothing of their credit card, the worst that might happen is that the repo man comes and hauls the car away.  They won't suffer on their credit report - they don't have one!  And if they do, it is under a fraudulent Social Security number that isn't theirs anyway, and they can always buy another one from the hooded guy down the street for a small fee.

Bankers set the interest rates they charge based on calculations of the likelihood that you'll stick to the terms of the repayment.  But with illegal immigrants, that system breaks down because there is nothing making them pay except their own good graces.

We read in the newspapers of the drop in new home construction and the suffering of the hospitality industries of hotels and restaurants.  Where are vast numbers of illegal laborers to be found?  Precisely there - building houses, cleaning hotel rooms, washing restaurant dishes.  So with many illegal workers now losing their jobs, and no particular penalty attached to not paying their debts, why would they?

As Karl Marx famously said, "A capitalist will sell you the rope to hang himself."  Bank of America continues in this illustrious tradition.  Today, we begin to see them dangling a bit on the gallows, and not before time.  If the executives and shareholders have a good painful stretching, maybe they'll learn the lesson that there's a reason it's not a good idea to rely on lawbreakers for key parts of your business.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Immigration.
Reader Comments
It would appear that Banc of America's quarter 1 debt came from the current housing problem that the United States is having at large. I do not believe that many of your immigrants successfully secured a mortage and contributed to that debt.
April 22, 2008 6:12 PM
Don't be too sure... familiar with the term "no-doc" loan? Is there anyone more "no-doc" than an illegal immigrant?
April 22, 2008 7:15 PM
Wow. Just... Total... Wow. I've heard of a stretch before, but this is new territory. Without taking apart every sentence you said, which would be easy, let's just stick with one easy question: how then do you explain the same (or even larger) debt write-downs that a dozen other major banks have just done? Are they also the result of a million immigrant loans? This is laughable "reasoning".
April 23, 2008 5:49 PM
Mz. Patience....

My dear, have YOU ever heard of a "no doc" loan? Or, better yet, do you KNOW WHAT IT IS? Your use of the term clearly demonstrates that you don't. No doc loans involve one thing and one thing only: the lendee doesn't have to prove his or her employment income. That's it. It has nothing to do with documentation or credit history. In fact, to the contrary. When getting a no doc loan, banks require the lendee to prove MUCH MORE credit history than usual. That is what they are entirely based off of. It would be far easier for a illegal to get a conventional loan based off of bank account and employement income, then to go the no doc route. None of them would ever get it.

Your comment is about as silly and misinformed as the author's entire thing was.
April 23, 2008 5:56 PM
And when getting a BoA loan, after having had a BoA credit card from a BoA account gotten via a matricula consular, the illegal immigrant applicant would, in effect, HAVE a credit report, at least with BoA, would they not? But one that they could easily shed when necessary.
April 23, 2008 8:53 PM
Mz. Patience....

No, they would not. They would have whatever internal history Bank of America chose to keep around for them. Credit history is controlled only by the big three: Experian, TransUnion and Equifax. My guess it that if anything, Bank of America would NOT give those immigrants any mortgages precisely BECAUSE they knew that they were illegal immigrants with no legal documents. Since they are doing the program, they control the data. HAVING the data gives Bank of America all the power over knowing more information on the immigrants that MIGHT be inclined to think about getting a mortgage.
April 24, 2008 8:51 AM
Patience and Louis are both wrong, I think. I mean, the point of the article was not that the illegal immigrants caused the mortgage debt for BoA. The point is more about the macro level problems that BoA has setup for themselves. Giving mortgages to undeserving lendees comes from the same lack of foresight that giving credit cards to illegals does. They both are symptomatic of the same problem. Is that right, Petrarch?
April 24, 2008 8:54 AM
Yes. First, I am not privy to the internal financial breakdown documents of Bank of America, so it is absolutely not possible for me to prove that illegal immigrants "caused" their problems. It wouldn't even make much sense to cast all the blame that way; it stands to reason that BoA also must have made loans to real Americans that went bad for any number of reasons.
But the key point here is that BoA, and American banks in general, have forgotten the long-term view that once was a hallmark of good banking, only keeping the eye on the immediate buck. Their risk model failed because they failed to recognize and accurately price all the risks, in part because of wrongheaded government regulation and "encouragement" to make unwise loans to people who had not the wherewithal to pay.
Doing banking business with illegal immigrants is just one illustration of the problem; but it's one that is easily explained, and easily understood - hence the emphasis of the article. But don't miss the forest for the trees here.
There is a trenchant analysis of the overall problem (though not directly pertaining to illegal immigrants) in the book "The Two-Income Trap", which I highly recommend, and which explains the housing bubble from a different point of view.
April 24, 2008 10:12 AM

I think it`s the bank`s policy and own risk if they want to issue credit cards to this individuals,they can do whatever they want.
as far as I know Wells Fargo,Bank of America,Chase,Ge Money Bank.Department Store National Bank and Citi Bank issue this money plastic to people with no social security and as I said before they are risking themselves. Otherwise if this people keep they payments current and as long they do not use these credit cards to
money laundering or terrorism acts I`m okay with that.

October 6, 2010 6:06 PM
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