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Wed November 16, 2011

New York Town Pulls Funds From Big Bank

Originally published on Wed November 16, 2011 12:08 pm

The Village of Hempstead, N.Y., sounds like a posh resort in the Hamptons. But if you ride the train an hour east from Penn Station, what you'll find is a working-class town of about 54,000 people, more than 80 percent of them African-American and Hispanic.

Nearly a third of local residents are underwater on their mortgages, six times the state average. Mayor Wayne Hall says he heard story after story from local residents who tried to get banks to refinance their loans but couldn't. Finally, Hall got fed up.

"Since Chase was bailed out like all the other banks by our money ... then they could at least help our citizens out by modifying their loans," Hall said. "So we decided that if they can't help them, then we don't need to keep our money there."

Hempstead officials decided in April to take the $12.5 million in the village's bank accounts — all of them with Chase bank — and move them to a smaller competitor. Since then, several other communities in New York state have followed suit, including Freeport and Binghamton.

Hall concedes, however, that it may take more than that to get Chase's attention.

"We only had $12 million in the bank. But if we get $12 million here, million-something here, million there, before you know it, it'll add up to billions of dollars — and Chase will see the light," he said.

Chase declined requests for an interview. In a statement, the company said it's made "extensive efforts" to help borrowers who have fallen behind on their payments, offering more than 56,000 modifications just in New York state.

Skeptics say there's little chance of Chase changing course over a few million dollars.

"I don't think municipalities moving their deposits around is going to have any measurable influence on how home mortgages are serviced," said banking consultant Bert Ely.

He said laws in many states limit where local governments can put their money.

"What the obligation should be first and foremost of the municipalities is No. 1, safety of their funds — which is why they should be in insured accounts, or collateralized accounts," he said, "and then, second of all, trying to earn the best interest rate that they can."

In practice, Ely says, that means local governments often have to work with big banks, rather than community banks or credit unions. Hall says the Village of Hempstead did its homework before moving its money to TD Bank.

"It hasn't made no difference at all," he said. "I still sign the checks, controller still signs the checks. Business as usual."

Buoyed by Hempstead's success, activists are working to introduce divestment resolutions from New York to California.

Ilana Berger of The New Bottom Line, a national coalition that is urging local governments to steer business away from three of the largest banks, says it's not merely going from a devil you know to a devil you don't know.

"I guess I would say there's many devils, but there's devils that are worse," she said. "Bank of America, Chase and Wells Fargo are clearly the leaders. If as industry leaders we can have an effect on them, it changes the whole industry."

Berger and other activists seem energized by Bank of America's recent decision to drop its proposed $5 fee for ATM cards after blowback from angry consumers. If thousands of people could do that, she says, just think what a thousand cities could do.

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Transcript

STEVE INSKEEP, HOST:

Tens of thousands of Americans moved their money out of major banks over the last few weeks, as part of a nationwide protest against their policies. Now activists across the country are urging local governments to do the same. NPR's Joel Rose reports on a New York community that's one of the first to take that step.

JOEL ROSE, BYLINE: The village of Hempstead sounds like a posh resort in the Hamptons.

UNIDENTIFIED MAN: (Unintelligible) track 15.

ROSE: But if you ride the train an hour east from Penn Station, what you'll find is a working-class town of about 54,000 people, more than 80 percent of them African-American and Hispanic. The recession has not been kind to Hempstead. Nearly a third of local residents are underwater on their mortgages, six times the state average.

Mayor Wayne Hall says he heard story after story from local residents who tried to get banks to refinance their loans but couldn't. Finally, Hall got fed up.

MAYOR WAYNE HALL: Since Chase was bailed out like all the other banks by our money, the federal government, then they could at least help our citizens out by modifying their loans. So we decided that if they can't help them, then we don't need to keep our money there.

ROSE: In April, Hempstead officials decided to take the $12.5 million in the village's bank accounts, all of them with Chase bank, and move them to a smaller competitor. Since then, several other communities in New York State have followed suit, including Freeport and Binghamton. Though Hempstead Mayor Hall concedes it may take more than that to get Chase's attention.

HALL: We only had $12 million in the bank. But if we get 12 million here, million-something here, million there, before you know it, it'll add up to billions of dollars. And then, you know, Chase will see the light.

ROSE: I'm standing outside the headquarters of JP Morgan Chase on Park Avenue in Manhattan. Chase declined our requests for an interview. In a statement, the company says it's made, quote, "extensive efforts," unquote, to help borrowers who've fallen behind on their payments, offering more than 56,000 modifications just in New York State. And skeptics say there's little chance of Chase changing course over a few million dollars.

BERT ELY: I don't think municipalities moving their deposits around is really going to have any measurable influence on home mortgages are serviced.

ROSE: Banking consultant Bert Ely says laws in many states limit where local governments can put their money.

ELY: What the obligation should be, first and foremost, of the municipalities is number one, safety of their funds, which is why they should be in insured accounts, or collateralized accounts. And then second of all, trying to earn the best interest rate that they can.

ROSE: In practice, Ely says that means local governments often have to work with big banks, rather than community banks or credit unions. Mayor Wayne Hall says the village of Hempstead did its homework before moving its money to TD Bank.

HALL: It hasn't made no difference at all. I still sign the checks and controller signs the checks. Business as usual.

ROSE: Buoyed by the success of Hempstead, activists are working to introduce divestment resolutions from New York to California. Ilana Berger is with the New Bottom Line, a national coalition that's urging local governments to steer business away from three of the largest banks.

How do you know you're not just going from the devil you know to the devil you don't know, if you're a municipality?

ILANA BERGER: I guess I would say there's many devils, but there's devils that are worse. And for us, right now, Bank of America, Chase and Wells Fargo are clearly the leaders. As industry leaders, if we can have an impact on them, it changes the whole industry.

ROSE: Berger and other activists seem energized by Bank of America's recent decision to drop its proposed $5 fee for ATM cards after blowback from angry consumers. If thousands of people could do that, she says, just think what a thousand cities could do.

Joel Rose, NPR News.

(SOUNDBITE OF MUSIC)

INSKEEP: This is NPR News. Transcript provided by NPR, Copyright NPR.