Did Capital One Target Deployed Soldiers for Foreclosure?

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Until recently, the U.S. Army had a recruiting slogan: "Army of One." The Obama administration is now concerned that slogan may have been a bit too accurate, and wants to know whether, when American men and women shipped out to serve their country overseas, anyone was "watching their six" back home.

Case in point: Last week, the Department of Justice wrapped up an investigation of Capital One (COF), in which it accused the bank of violating the rules of the Servicemembers Civil Relief Act -- specifically, rules that forbid:

  • Charging more than 6% interest on loans and credit card debt incurred prior to a servicemember's being called up for active duty, during the period of service.
  • Foreclosing on a servicemember's home for missing a mortgage payment.

Capital One cooperated with the investigation, ultimately concluding that it was in the wrong, and agreeing to pay $7 million to compensate servicemembers for motor vehicles and homes it foreclosed upon while they were overseas.

At a minimum, servicemembers who lost their homes to Capital One will receive $125,000 each in compensation, while those who had cars repossessed will get at least $10,000. The bank further agreed to pay $5 million more to cover anyone for whom it failed to reduce interest rates on credit card debt as required by law.

And then ... a miracle happened.

Banker With a Heart of Gold

Going one step further than what its deal with the government required, Capital One announced it is lowering the interest rate on servicemembers' card debt to 4%, and holding it there for as long as a year after returning from their tours overseas.

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That hardly sounds like the kind of action you'd expect a guilty bank to take. Conspiracy theorists will surely disagree -- pointing to similar settlements that DOJ has inked with Bank of America (BAC), which in November, agreed to a $20 million-plus settlement for offenses similar to what Capital One was accused of, and with JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Ally Financial, which in February set up a similar compensation fund at government request -- in the amount of $25 million.

Attorney General Eric Holder is spinning all this as a "fight for our service members, [using] every available tool, resource and authority to hold accountable those who engage in discriminatory practices targeting those who serve."

But if you look at the numbers, they actually tell a different tale.

Tempest in a Teapot?

Consider: Over the past decade, some 2 million American servicemen and women have served in Iraq and Afghanistan. How many of them have been foreclosed upon, though?

  • In the November Bank of America settlement, DOJ alleged that "approximately 160 servicemembers ... were illegally foreclosed on between 2006 and the middle of 2009." The investigation is "ongoing," but that's still a slow start.
  • The February settlement with JPMorgan, Wells, Citi and Ally, 25% larger than the settlement reached with Bank of America, suggests perhaps 200 persons were affected by SCRA violations there.
  • As for Capital One, the bank says its settlement with the DOJ relates "predominantly" to card customers who were charged too-high interest rates. Improper foreclosures on servicemembers' homes, says the bank, totalled precisely four.

That brings the total count of victims to 364. That's 364out of 2 million servicemembers who cycled through foreign theaters over the past 10 years, resulting in a foreclosure rate of approximately 0.02% (as in, fewer than two incorrect applications of SCRA out of every 10,000 servicemembers).


The Upshot

As conspiracies go -- if this is one -- then it has to be one of the least widespread cases of consumer fraud in recent memory. Tally up the payrolls at all these banks, and you're talking easily 1.1 million employees. Collectively, these folks probably make more than 364 paperwork errors on a typical Monday, before the coffee pot gets put on.

In short, while we should all cheer the fact that the government is doing its job and making sure servicemembers get a fair shake from the nation's bankers, it really does look like this was already happening before DOJ ever got involved. Over a multiyear timespan, 364 errors across a population of 2 million banking customers -- that's not a scandal. It's a rounding error.

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Did Capital One Target Deployed Soldiers for Foreclosure?

BOK (BOKF) is the smallest bank on the list with a $3.8 billion market value and $26 billion in assets. The bank holding company is based in Tulsa, Okla., but its branches operated under several names in other states: Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas and Colorado State Bank and Trust. BOK is worth about 12.5 times earnings and is valued at 1.3 times book value. The return on equity is 11%, and it offers a 2.7% dividend yield to the common holders. Shares are trading around $56.00, and Wall Street analysts have a target above $59.00.

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KeyCorp (KEY) is the one exception in our list to our rule about share prices under $10. Its other metrics more than make up for this. It has a market cap of just $7.12 billion against some $87 billion in assets. It operates in 14 states throughout the Rocky Mountain, Northwest, the Great Lakes and Northeast regions. To make its appearance on this list even more impressive, KeyCorp is headquartered is in Cleveland, where a large number of now-troubled loans were issued. The bank has a return on equity of 9.2% and pays out a 2.7% dividend yield. Shares trade around $7.50 but have a target price of $9 from Wall Street.

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PNC (PNC) is based in Pittsburgh and has almost $300 billion in assets, with over 2,500 branches and almost 7,000 ATMs in 14 states. It has a market cap of $31.01 billion, and its stock is valued at 10.6 times earnings and at less than 0.9 times book value. The return on equity is 8.9%, and the company pays out a 2.73% dividend. Shares are trading at under $59, but Wall Street is eyeing a price of $70.50. PNC was even strong enough financially to close its National City acquisition at the end of 2008 when there was so much fear in the financial markets. PNC also owns almost a quarter of the great asset-management firm BlackRock (BLK).

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M&T Bank Corporation (MTB) is based in Buffalo, N.Y., and now has more than $79 billion in assets. Excluding any small purchases made recently, M&T had nearly 700 branches, 2,000 ATMs and a presence in eight states. The market cap is $10.12 billion, its P/E ratio is 12.7, and its price-to-book value ratio is only 1.07. M&T has a return on equity of 9.5% and pays out a dividend of 3.5% to common stockholders. The stock is trading just north of $80 a share, but analysts have set a target price of about $90. Berkshire Hathaway owns almost 5.4 million M&T Bank common shares worth more than $400 million.

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U.S. Bancorp (USB) is often overlooked as a money-center bank because it is a super-regional located in Minneapolis. But it's the fifth-largest commercial bank in the United States and caters to millions of consumers. With $341 billion in assets, more than 3,000 branch locations and more than 5,000 ATMs, its operations are spread out over 25 states in America. Berkshire Hathaway owns some 69 million shares worth more than $2.1 billion. The bank's market cap is $59 billion. It is worth about 10 times earnings and 1.6 times book value. The return on equity is very high at 16%, and it offers a 2.5% dividend yield to the common holders. Shares are trading around $31.50, and Wall Street analysts have a target of about $34.25 on this great, safe bank.

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Despite the media attention surrounding the JPMorgan's (JPM) multibillion-dollar trading loss, the firm is still in good shape compared to many of its peers. It has a fortress-like balance sheet with about $2.3 trillion in assets, and CEO Jamie Dimon has said the only thing that could lead to the bank's failure is a collision of the Earth and Moon. Despite a share price decline following news of the "London Whale" trading loss, the company still has a sizable market cap of $135.17 billion. Shares trade at less than 8 times earnings and only about 0.7 times book value. The return on equity is 9.8%, and the company pays a dividend yield of 3.4% on the common stock. While the bank shares are trading at just over $36, analysts value the company at $47 a share.

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Wells Fargo (WFC) is the undisputed safest bank in America now that JPMorgan Chase & Co. (JPM) has come under scrutiny -- even if Chase has about $1 trillion more in assets. With some 6,200 storefront branches, more than 12,000 ATMs and an asset base of over $1.3 trillion, it has a presence in almost every state. Warren Buffett's Berkshire Hathaway owns close to $13 billion worth of the common stock, and his stake keeps rising. The market cap is a whopping $171 billion. The shares trade at less than 9 times earnings and at almost 1.2 times book value. The return on equity is just above 12%, and it offers a 2.7% dividend yield to the common holders. While shares trade at around $32.50, Wall Street analysts value the bank at almost $38 per share.

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Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Citigroup, Bank of America, and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Wells Fargo. Motley Fool newsletter services formerly recommended JPMorgan Chase.

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