Woman Who Lost Home Sues Big Banks Over LIBOR Manipulation
When the U.S. pensioner lost her home to foreclosure, she could have easily done what so many others have: swallowed hard, accepted her fate, and moved on. After all, what else are you supposed to do when a Wall Street megabank tells you that you don't own your home anymore?
If you're Adams, you do what many Americans do when all else fails: sue.
The Financial Times is reporting that Adams, along with four co-plaintiffs, has filed suit against 12 of the biggest banks in the world, including Bank of America (BAC), alleging that manipulation of the LIBOR rate caused their mortgage payments to be much higher than they otherwise would have been.
LIBOR (pronounced LIE-bore) stands for London Interbank Offered Rate, and is the average rate at which the biggest U.S. and European banks can lend money to each other. Rates are reported by the participating banks each morning, and the LIBOR is made public at 11:45 a.m. GMT each day.
Over the summer, allegations emerged that bankers had manipulated LIBOR in the run-up to and during the financial crisis. British superbank Barclays (BCS) was the first bank to be publicly reprimanded because of it -- suffering a fine of $450 million at the hands of American and British regulators, and seeing CEO Bob Diamond sent packing in the process.
But if Adams' suit is any indication, Barclays won't be the last bank to feel the pain.
Here's how LIBOR Affects Your Wallet
If you don't remember the LIBOR scandal with much clarity, don't be too hard on yourself. Bank scandals have been hitting the headlines with a renewed vigor lately. And as banking scandals go, the LIBOR uproar may have seemed a bit arcane and too inside-the-industry, leaving the average observer thinking that it wasn't an issue for them.
Nothing could be further from the truth.
Most important for our purposes here, LIBOR is the rate used in the issuance of adjustable-rate mortgages. Typically these rates are indexed along the lines of "LIBOR plus 2%" or the like.
This is exactly the kind of adjustable-rate mortgage that Adams and her co-plaintiffs held, and that are front and center in their complaint. According to the Financial Times, their suit alleges in particular that bankers at the 12 institutions in question "were incentivized to manipulate the London interbank offered rate to a higher rate on certain dates on which adjustable mortgage interest rates were reset."
More Lawsuits to Follow?
Following months of public outcry, and much hand-wringing on the part of politicians and bureaucrats on both sides of the Atlantic, at the end of September, the British Bankers' Association formally ceded control of LIBOR to British government oversight. The LIBOR will now receive what U.K.'s Financial Services Authority Managing Director Martin Wheatley is calling "a complete overhaul." The BBA had overseen the LIBOR since its first use in 1986.
But a new and improved LIBOR is neither here nor there for Annie Bell Adams and her co-plaintiffs. They have a legitimate gripe, and this suit could be just the beginning of more like it. When will the first LIBOR manipulation suit for credit card rates appear? Or for student loans? It's estimated that Adams' class action suit alone could draw up to 100,000 additional plaintiffs.
Four years after the financial crash, the world's big banks can't quite get away from the trouble they caused. Just ask the lawyers gearing for Annie Bell Adams' lawsuit.
John Grgurich is a regular contributor to The Motley Fool, and owns no shares of Bank of America. The Motley Fool owns shares of Bank of America. Follow John's dispatches from the bleeding edge of capitalism on Twitter @TMFGrgurich.