State Rep. Jeff Clemens, D-Lake Worth, has filed a bill that would ban banks from charging fees on debit cards.

Debit card fees are one of the issues that has protesters from the Occupy Wall Street movement rallying all over the country — including in Florida. Cities across the state and country have been mobilizing for weeks now in protest of the country’s rising income inequality, and have argued that the debit card fees are unfair considering that large banks in the U.S. are currently seeing their highest profits since the beginning of the recession.

Clemens’ House Bill 375 would prohibit “certain financial institutions from charging specified fees for use or holding of debit card by consumers” and provide “administrative penalties” if a bank does decide to charge those fees. According to a recent press release, it would make it unlawful “to charge or impose a dormancy fee, an inactivity fee or charge, or a service fee with respect to the use or holding of a debit card by a consumer.”

Clemens tells The Florida Independent that he has been considering this legislation since Bank of America first announced it would be charging fees on debit cards. He said that even though the legislation was not a direct result of the protests, he says his “outrage is similar to the Occupy Wall Street folks.”

Clemens also says that “what really bothers” him is that banks insisted on everyone moving into a “paperless and cashless economy.”

“Now that we’ve bought into their promise of free, easy access to our own money,”  he says, “they want to charge us for it.”

Conservatives have adopted a new meme that blames the recent fees on federal regulation. Along with Sen. Marco Rubio, R-Fla., GOP Senate hopeful Adam Hasner has said that banks were “forced to charge customers new fees due to the negative and costly requirements associated with the Dodd-Frank financial overhaul law, in particular the ‘Durbin Tax.’” Dodd-Frank legislation was a response to the country’s financial crisis that many economists say was partially caused by lax regulations on financial institutions.

Clemens says the claim that financial regulations are to blame is “ridiculous.”

In a recent press release, he explains:

Seeking to please shareholders and continue to pay exorbitant salaries, extremely profitable banks have taken to blaming federal legislation that limits the amount they can charge for so-called ‘swipe fees’ to retailers,” said Representative Clemens. “But no one is buying the weak explanation.

“No one is weeping for an industry that makes billions in profits and in some cases, doesn’t pay taxes,” Clemens added.

Wells Fargo and Bank of America were among the first banks to announce monthly fees for the usage of debit cards.

Bank of America has paid no federal income tax for the past two years, claiming losses in its federal filings. Meanwhile, they have pledged to eliminate 30,000 jobs over the next few years, adding to our country’s unemployment woes. Wells Fargo posted a $3.8 billion profit in the first quarter of 2011, and a $3.73 billion profit in the second quarter.

“The greed of these institutions knows no bounds,” Clemens said. “As soon as you try to end one deceptive or immoral practice, they come up with two more.”

Clemens says that politicians blaming regulation instead of the banks for the fees are “not there for the right reasons.”

“I don’t think they care anymore,” he says.

Clemens also says to “expect to hear the argument that state’s cannot regulate federal banks.” He says, however, that “a recent U.S. Supreme Court case (Cuomo v. Clearing House Association), [which]  granted the New York Attorney General oversight over practices of certain federally chartered financial institutions” is grounds for the legislation.

In 2009, the U.S. Supreme Court ruled in Cuomo that federal law did not preempt states from enforcing their own laws on national banks.

According to The Miami Herald, it’s not clear whether Cuomo will be enough to ensure Clemens’ law can be enforced. According to Anthony DiMarco, a lobbyist for the Florida Bankers Association, “the state cannot impose the law because of the country’s longstanding dual banking system.” He told the Herald that “state banks comply with state law and a few national regulations, he said, and national banks answer mostly to federal regulators like the FDIC… [which means] big banks are allowed to charge fees under federal law.”

A foreclosed home in Winchester, Va. (Jay Mallin/ZUMA Press)

Yesterday, Wall Street giant J.P. Morgan Chase announced a $4.4 billion profit in the third quarter. Wall Street analysts should have cheered. Instead, they golf-clapped, while the bank’s chief executive officer, Jamie Dimon, went on the defensive on an earnings call.

[Economy1] The reason: foreclosures, again threatening everything from homeowners’ security to banks’ bottom lines. In early September, an employee of GMAC Mortgage admitted he had signed as many as 10,000 affidavits, required in 23 states to proceed with foreclosure, a month. The affidavits attested that the employee had personal knowledge of homeowners’ financials before the bank foreclosed. Given that he obviously did not, the paperwork might have constituted fraud and the foreclosures were possibly illegal.

The scandal went big, embroiling mortgage-holding banks like J.P. Morgan Chase in a problem of possibly systemic proportions. Stories of banks lacking required title documentation and evicting the wrong families from homes flooded into the press. Financial companies, including J.P. Morgan Chase, halted foreclosures in the states that require judicial review, and then some halted them everywhere. Members of Congress announced hearings. Finally, yesterday, all 50 state attorneys general announced a probe into systemic problems with mortgage documentation.

On the J.P. Morgan Chase earnings call, Dimon promised that there was “almost no chance we made a mistake” with foreclosures. “We think we should continue and get done and make sure we do the right things for the consumers, the investors and the country. So it obviously will increase our cost a little bit and maybe we’ll have to pay penalties eventually to some of the attorneys general but we really think we should just continue.”

But the financial statement itself proved the lie. The bank said it was carefully checking 115,000 mortgage affidavits. It set aside a whopping $1.3 billion for legal costs. And it put an extra $1 billion into a now $3 billion fund for buying back bunk mortgages and mortgage products.

For banks like J.P. Morgan Chase, the issue is not just the legal headaches. It is the financial blowback. The mortgage-documentation scandal, housing experts warn, runs far and deep — involving not just foreclosure papers, but titles and rights and fiduciary contracts. And it has analysts on Wall Street and politicians on the Hill wondering whether the worst-case scenario might involve not just losses, but bank failures or government bailouts.

The pending mortgage problems resemble those that caused the failure of Lehman Brothers, the credit crunch and the ensuing financial crisis in October 2008: Every bank has problematic mortgage holdings on its books, and each bank is interconnected with every other. Before the bubble burst, investment banks bought up faulty mortgages, many of them subprime loans, from lending banks. Investment banks then bundled the mortgages into mortgage-backed securities, for sale to investors. But just as banks are now foreclosing without proper documentation, they were bundling mortgages without proper documentation — abdicating their fiduciary responsibility to investors and muddying the waters as to who actually owns the loans.

That means the investors who own mortgage-backed securities might argue that the products do not meet the contract standards. If those investors choose to sue the originating investment banks en masse, for breach of contract, they would force the banks to buy back the rotten mortgage-backed securities. That would cost in the hundreds of billions — swamping banks’ profits and sweeping away any cash they might be keeping on hand.

At least one mortgage analyst, Josh Rosner, a managing director at Graham Fisher & Co., has said that if investors force banks to take back the $1.3 trillion of mortgage-backed securities in question, it could create a kind of doomsday scenario pitching the markets back into crisis. Indeed, Rosner believes it could feel very much like 2008 again.

“This is poetic justice,” says Janet Tavakoli, of Tavakoli Structured Finance in Chicago. “The mortgages that seem to be most affected are by predatory lenders, or lenders who engaged in fraudulent practices, like appraising a home for twice its value. The careless investment banks were willing to overlook that fraud. But they just bred fraud into their mortgage-backed securities.”

She does not believe every bank will have face write-downs due to mortgage buy-backs. But she does believe the losses might be substantial. “It’s not clear to me that every mortgage has this problem,” she says. “But there’s no transparency on this issue now. And it is clear that we are dealing with massive, systemic fraud.”

One way or another, some on the Hill are bracing for the worst.

“[Banks will] have to buy back one mortgage at a time,” Rep. Brad Miller (D-N.C.) told The Washington Post. “Someone said there might be a second round of bank insolvencies because of this and there might need to be more TARP. There is no chance that Congress would pass more TARP. It’s hard even to see how it ends. But I’ve got to think it creates more uncertainty about the health of the banks.”

Rep. Alan Grayson (D-Fla.) has gone further, proactively asking the Financial Stability Oversight Council — created by the Dodd-Frank financial regulatory reform law — to step in to stop foreclosures and monitor the banks, just in case.

“There are now trillions of dollars of securitizations of these loans in the hands of investors,” Grayson wrote in a letter (PDF) to the Council, which includes Treasury Secretary Timothy Geithner and Federal Deposit Insurance Corp. Chair Sheila Bair. “The trusts holding these loans are in a legal gray area, as the mortgage titles were never officially transferred to the trusts. The result of this is foreclosure fraud on a massive scale, including foreclosures on people without mortgages or who are on time with their payments. The liability here for the major banks is potentially enormous, and can lead to a systemic risk.”

And it seems the banks — if not J.P. Morgan Chase — are also acknowledging that risk. Josh Levin, an analyst with Citigroup Global Markets, described three potential outcomes to investors, citing work by Georgetown law professor Adam Levitin. The first is that courts consider the erroneous foreclosures technicalities, and the losses are minimal. The second is that banks face significant legislation, but ultimately aren’t forced to buy back mortgage-backed securities.

And the third? “In the worst-case scenario,” he said, “the aforementioned issues become a ‘systemic problem’ which causes the mortgage market to grind to a halt.”

Lawmakers say more work is needed to reform Wall Street. (Flickr: Pamhule)

Soon after Rep. Brad Miller (D-N.C.) came to Washington in 2002, a fellow member of the House Financial Services Committee told him to pick an arcane financial issue — any issue — and to make it his pet topic. Miller chose mortgage finance. He knew little about it. Banking lobbyists peppered him with data, but he had difficulty getting much information from independent sources.

[Economy1] “I was even reduced to reading blogs,” he quipped to a crowd of bankers, community organizers, financial reform experts, hedge fund managers and government aides at the Roosevelt Institute’s conference, “Financial Reform: Will It Work? How Will We Know?” on Monday. But Miller educated himself on the topic and became a leader in pushing for stronger regulation of mortgage products. By 2008, as the financial system collapsed, all of his colleagues in Congress had joined him in reading up on everything from liar loans to naked credit-default swaps.

That period of intense interest is over following the passage of financial regulatory reform legislation this summer, Miller and others said on Monday. But that does not mean that reform is done. In fact, because political attention has flowed from Wall Street to immigration, unemployment and myriad other topics, reform is imperiled. The regulatory law gave guidelines for fixing the financial sector, but the rule-writing process has fallen to dozens of agencies and government bureaucrats currently hammering out the details. That means the real work of reform is just beginning and the country is only incrementally closer to a safer financial system.

“It has become quite clear in recent years that the servant’s servant has become the master’s master,” argued Rob Johnson, a former hedge fund manager and current director at the Roosevelt Institute. Banks, he said, which should help companies merge, access credit and grow, instead ended up leeching off of them, piling on fees and unnecessary products. Ultimately, average Americans suffered. “We do not yet have a balance between society, the real economy and the financial sector.”

A few visiting investors noted that the sector has become more concentrated — due to a number of banks failing, and the others picking up their business — and therefore more dangerous. Each one of the systemically risky banks, like Goldman Sachs, has become more systemically important and therefore more likely to receive government backing if financial troubles re-emerge. (It will take years for Washington to put capital requirements and other safeguards in place.) Moreover, the long process of rule-writing allows banks ample time and opportunity to lobby bureaucrats working on legislation.

And that rule-writing is ongoing among dozens of agencies, including the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Treasury Department and the Federal Reserve. The government is also in the process of organizing and hiring workers for the new $500 million Consumer Financial Protection Bureau. And the massive legislation is drawing major lobbying interest. This campaign cycle, the American Bankers Association has pledged $13.6 million on lobbying and $2.1 million to campaigns, pushing for looser rules on banks. J.P. Morgan Chase alone has contributed nearly a million to campaigns this year.

So how will those interested in reform know if it is working in the meantime? The question posed to the gathering of 40 or so met with many answers. “[Reform] would be working if the banks were making a lot less money,” Miller argued. “The reality is for it to be successful it has to be a win-lose-win,” with markets and consumers winning, and banks losing. The Wall Street Journal reported yesterday that financial-sector corporate profits are near their all-time highs.

Sen. Jeff Merkley (D-Ore.) was more optimistic. He praised the reform process, citing the creation of the Consumer Financial Protection Bureau, derivatives reform and proprietary trading regulations as big wins. (Elizabeth Warren, the White House and Treasury advisor helping to build the new bureau, attended the conference but did not speak.)

Still, Merkley conceded, “There is more to do.” He noted that ratings agencies — which stamped triple-A ratings on hundreds of billions of dollars of worthless mortgage-backed products in the run-up to the recession — remained unfixed. (“They’re almost useless,” sighed Jerome Fons of Kroll Bond Ratings agency.)

Others pointed to problems with the derivatives clearinghouses, which might now be the new “too big to fail” institutions. (If banks post insufficient capital to cover their derivatives trades, and another credit crunch hits Wall Street, with investors pulling cash out, the government might be forced to bail them out to calm the markets.) Some criticized the new Treasury Department Office of Financial Research, tasked with understanding Wall Street’s new innovations. Dozens of such niche issues arose.

“There are the tools there to do this,” Mike Konczal, a Roosevelt fellow, said. “Now it’s an issue of political will. [The financial regulatory law] doesn’t presuppose that [reform] will happen. But it does have the tools to do it.”

He concluded: “Those tools sit there, and there’s going to be a lot of pressure not to use them.”

“There are encouraging signs in the first-quarter numbers,” Sheila Bair, the head of the FDIC, said in a statement. “Industry earnings are up. More banks reported higher earnings, and fewer lost money. … [The $18 billion] is more than three times as much as banks earned a year ago, and it is the best quarterly earnings for the industry in two years.”

That said, the FDIC’s “problem list” of banks rose to 775, up from 702 last quarter, and the assets of these “problem” institutions grew 8 percent. During the first three months of the year, 41 banks failed. These are the worst numbers since 1993.

All in all, the report paints a picture of a banking sector bolstered by low interest rates and government backing, but one in which the haves — mostly bigger banks — are pulling away from the have-nots — smaller and community banks. Those smaller banking institutions with thin capital cushions will continue to face serious hardships due to delinquent loan, foreclosure and other losses.

Additionally, the number of FDIC-backed banks fell below 8,000 for the first time in the agency’s history, as banks failed or merged with one another.

Democrats reportedly want to weaken or strike Lincoln’s provision to force banks to spin off their derivatives desks. Everyone from Sen. Chris Dodd (D-Conn.), who wrote the bill, to Sheila Bair, the head of the Federal Deposit Insurance Co., to the White House, to the banks themselves oppose the measure. Bair and the White House contend that it would actually make derivatives riskier, by allowing banks to move their derivatives tradings operations into subcompanies that might not face strong enough scrutiny. The banks dislike the measure because it promises to undercut their profits. But Lincoln has touted it as demonstrating her populist cred.

The two-term Arkansas senator is facing a challenge from the left on May 18, from Arkansas Lt. Gov. Bill Halter, backed by many of the state’s unions. As of last week, a Mason-Dixon poll showed Lincoln with 44 percent support and Halter with 32 percent. Lincoln needs a majority to avoid an early-June runoff.

Therefore, Democrats will not alter Lincoln’s derivatives language — likely by taking out the derivatives spin-out provision and adding some window-dressing to bolster oversight — until next week. Democrats say the earliest the final vote on the bill will happen is on Wednesday, though that seems optimistic.

Dodd was one of nine senators — eight Democrats plus Sen. Bernie Sanders (I-Vt.), who caucuses with the Democrats — who opposed the amendment on the grounds that it produced regulatory overlaps and introduced the opportunity for regulatory arbitrage. State-chartered and small banks under the new language can choose whether to be overseen by the Fed or the FDIC.

In a statement, Bair said, “We must recognize that not only did market discipline fail to prevent the excesses of the last few years, but the regulatory system also failed in its responsibilities. There were significant shortcomings in our approach that permitted excessive risks to build in the system. Critically, the lack of an effective resolution process for the large, complex financial institutions limited regulators’ ability to manage the crisis. As we now know, early planning and preparation is the key to avoiding bailouts. This [resolution] moves us forward to address these gaps.”

The FDIC plan would affect banking subsidiaries with more than $10 billion in assets controlled by parent companies with more than $100 billion in assets — essentially the 40 or so biggest banks. The FDIC says its plan will complement, rather than make redundant, a similar measure in Sen. Chris Dodd’s (D-Conn.) financial regulatory reform proposal. As part of the regulatory reform negotiations, Senate Democrats agreed to drop a $50 billion resolution authority fund, but banks still need to show regulators how they would break up into viable, sellable pieces.

Bair, known as a tireless consumer advocate, argues that pushing derivatives trading outside of banks will make the system riskier:

I urge you to carefully consider the underlying premise of this provision — that the best way to protect the deposit insurance fund is to push higher risk activities into the so-called shadow sector….

Banks are not perfect, but we do believe that insured banks as a whole performed better during this crisis because they are subject to higher capital requirements in both the amount and quality of capital…. If all derivatives market-making activities were moved outside of bank holding companies, most of the activity would no doubt continue, but in less regulated and more highly leveraged venues. Even pushing the activity into a bank holding company affliate would reduce the amount and quality of capital required to be held against this activity…. By concentrating the activity in an affiliate of the insured bank, we could end up with less and lower quality capital, less information and oversight for the FDIC, and potentially less support for the insured bank in a time of crisis. Thus, one unintended outcome of this provision would be weakened, not strengthened, protection of the insured bank and the Deposit Insurance Fund, which I know is not the result any of us want.

Thus, opposition to the spin-off provision comes both from the consumer advocacy and the investment banking sides. Banks do not want to spin off the derivatives business because it is lucrative. Regulators do not want banks to spin off the derivatives business because it is dangerous, and better held within institutions with more government oversight and higher capital requirements.

One way to help manage the commercial loan distress, Geithner said, is through the $30 billion fund proposed by President Barack Obama to provide money to midsize and community banks if they boost lending to small businesses.

He did not clarify how giving money to some banks for an entirely unrelated purpose would solve a commercial real estate crisis.

Earlier in the day, TARP Congressional Oversight Panel chair Elizabeth Warren warned that more than half of commercial real estate would be underwater by the middle of 2010.

“They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending.”

In February, Warren noted that $1.4 trillion in commercial real estate loans would need to be refinanced between 2011 and 2014 when the shorter-term commercial real estate mortgages end, and a significant proportion of those are underwater already. More than $50 billion in commercial real estate mortgages are already in default or foreclosure — both figures are far larger than Geithner’s $30 billion plan to extend credit to small businesses. Sheila Bair, the chair of the FDIC, expects that commercial real estate defaults and losses will be the number-one factor that drives small and medium-sized banks into failure this year at a higher rate than they experienced in 2009. Extending credit to small businesses to the tune of $30 billion doesn’t seem like the best solution to the coming commercial real estate crisis or its downstream effects on businesses or the banks holding the loans.

In his letter to the Fed July 21, Mr. Menendez said there was a strong likelihood that First BankAmericano, of Elizabeth, N.J., would fail in three days, which would “send yet another negative message to consumers and investors and further impact our fragile economy.” The one-page letter, obtained by The Wall Street Journal under the Freedom of Information Act, urged Fed Chairman Ben Bernanke to approve a sale of the bank to JJR Bank Holding Co. of Brick, N.J.

The Journal would like you to know that the two of the First BankAmericano executives are “major” Menendez donors: former Chairman Joseph Ginarte and vice chairman Raymond Lesniak, who gave $30,000 to Menendez and his PAC since 1999 and “generously,” respectively. The Journal’s definition of “generously” is, at least when it comes to Democrats, $5,250 since 1990. By way of comparison, Menendez has raised almost $30 million for his campaigns since starting his federal political career in 1989 and $2.5 million for his PAC since starting it in 2000, making Ginarte’s donations less than .1 percent of Menendez’s total contributions in that period, and Lesniak’s even less.

Buried further in the piece than the fact that a New Jersey banker and a New Jersey Democratic politician were donors to one of the state’s Democratic senators is this tidbit, which the editorial staff of the Journal found less important than Menendez’s donors: If the Fed had acted upon Menendez’s request and allowed the sale of First BankAmericano — which it didn’t — both Ginarte and Lesniak would have taken huge financial hits.

Better yet, neither Ginarte nor Lesniak actually contacted Menendez or his office: The letter was written after a request for assistance was received from First BankAmericano’s consulting firm, FinPro Inc. None of the principals of FinPro have ever donated to Menendez, though, so that’s probably not as interesting if you’re trying to paint a senator as beholden to his donors.

Finally, at the very, very bottom of the story, there’s this tiny piece of information that would normally seem pretty important, unless the article is framed around making Menendez look … beholden to his donors.

In a twist, after the bank failed and the Federal Deposit Insurance Corp. auctioned it off, it was bought by a subsidiary of JJR—the same firm to which it would have been sold if the Fed had approved the acquisition. The failure cost the FDIC $15 million.

In other words, had the Fed bothered to act in a timely fashion on a bank sale already approved by the state of New Jersey — which was the reason that FinPro asked Menendez to weigh in — the government would have saved itself $15 million. But the deficit hawks at the Journal are, in this case, less concerned with the Treasury’s balance sheets than with those of Sen. Menendez’s campaign coffers.