should there be such a thing as a financial malpractise suit?

clairefontaine

In nearly every profession, you can sue them for malpractise if they break healthy protocols in their profession.

Should the same accountability exist in the banking financial sector, so that you can sue your lender who supplied and unsustainable loan and broke protocols to do so?

srsly78

Was it unsustainable because you lied about your means?

Nice try but you still have to pay.

greenman09

Obviously no problems when the loan gets drawn down and spent. That's the problem its everyone else's fault.

clairefontaine

srsly78 wrote: »

Was it unsustainable because you lied about your means?

Nice try but you still have to pay.

I am not talking about me. I don't have a mortgage or anything. Im speaking in general.

AlexisM

People generally sue professionals because they were given incorrect advice and/or insufficient advice/warnings. In a loan-type transaction, the bank is your counterparty, not your adviser. If you want independent advice in relation to the transaction and its risks, you should pay someone independent to give you this advice - and then you can sue your adviser if things go wrong.

Anyone

clairefontaine wrote: »

In nearly every profession, you can sue them for malpractise if they break healthy protocols in their profession.

Should the same accountability exist in the banking financial sector, so that you can sue your lender who supplied and unsustainable loan and broke protocols to do so?

I'd love if it was the other way around. In my experience, the majority of applications for loans contain lies.

Scortho

The only person who you could go after would be someone like an independent financial advisor.
The banks did warn people especially when it came to investing in financial products with them.
The value of your investment may fall or rise was on nearly every contract and financial product sold or advertised.

Are independent financial advisors under the same professional regulations as the likes of pharmacists under the psi and doctors under the IMO?

Sleepy

I've seen evidence of a case where a farmer sued a bank after they extended him credit beyond what their own farm adviser reckoned was sustainable. The case never saw a courtroom but that case was in the bad debts files so had presumably been written off at the time..

The Corinthian

clairefontaine wrote: »

Should the same accountability exist in the banking financial sector, so that you can sue your lender who supplied and unsustainable loan and broke protocols to do so?

In theory yes, but in practice I don't know how much use it would be.

For example, if the bank you borrow from also acts as a financial advisor (a questionable practice, given the conflict of interest), then you would have to show that they either were dishonest or showed gross negligence in advising you. This means that if:

• You lied or made any omissions as to your financial situation to them.
• They warned you at any stage that interest rates, house prices, personal circumstances, etc may rise or fall in the lifespan of a loan and you paid no notice.
• You chose to deviate from their advice at all.

Then you'd probably not have a leg to stand on. Indeed, at the best of times it would be difficult to make stick because the three cases above are probably all too common.

It's an interesting idea though, however it would need some form of framework agreed to say what is negligence and what is not first - for example, how do you define legally if a loan is reckless or not?

Scortho wrote: »

The value of your investment may fall or rise was on nearly every contract and financial product sold or advertised.

True, it would be pretty much impossible to sue on the basis of negative equity.

However, there may be scope for malpractice on the basis of a financial adviser advising someone to take on debt, when they are not realistically in a position to do so in the long term, as many were not. Of course, in Ireland you have no legal requirement that you should have a financial adviser.

As I said above, you'd have to legislate for what is malpractice before you could sue for it.

clairefontaine

The medical profession has the same thing, where if you lie or you deviate from their recommended procedures you sign off a liability waver, but they are still accountable if they cock it up from their own protocols or negligence. Obviously with medicine too there are risks involved.

I guess though the bottom line with finance and investment is that it is like predicting the future, but if there was direct fraud or deceit from your lender, estate agent or surveyor you should be able to have recourse.

You are the customer or service user so you should be able to do something if the product you bought is utter ****.

Sleepy

Why do you think you wouldn't have recourse in the event of fraud?

I can't see how lenders, estate agents and surveyors would be immune from civil prosecution?

The Corinthian

Sleepy wrote: »

Why do you think you wouldn't have recourse in the event of fraud?

I can't see how lenders, estate agents and surveyors would be immune from civil prosecution?

They're not, but can you say they did legally commit fraud, let alone prove it?

From what I can see, they didn't commit fraud, simply because in the end they too ended up holding toxic debt that resulted in many banks losing their independence in return for being propped up, and estate agents and surveyors going bankrupt.

Of course, individuals from these organizations may have committed fraud; acting recklessly to maximize their personal gain in time to jump ship with it when the shìt hit the fan. Also it may be argued that they were reckless and thus are guilty of malpractice - hence liable.

But as I said, the legal regulations and rules of proper practice aren't there for us to claim this; it's up to banks if they want to lend, I don't think they are even legally required to do any serious credit check on someone if they do.

So technically the problem is that, outside of a few extreme cases, they've not broken the law or any rules of best practice.

Sleepy

I don't believe most of the banks' actions were fraudulent. Certainly some of the directors appear to have engaged in reckless trading and would be in contravention of directors legislation but in terms of the majority of mortgages, the majority of the "fraud" would have been undertaken by the borrowers (falsifying documents to inflate earnings records etc.).

I was responding to clairefontaine's assertion that:

if there was direct fraud or deceit from your lender, estate agent or surveyor you should be able to have recourse.

.The point being that there is recourse in these circumstances. Proving it might be difficult but unless we adopt Napoleonic law of guilty until proven otherwise, I don't see any way around this.

clairefontaine

Sleepy wrote: »

I don't believe most of the banks' actions were fraudulent. Certainly some of the directors appear to have engaged in reckless trading and would be in contravention of directors legislation but in terms of the majority of mortgages, the majority of the "fraud" would have been undertaken by the borrowers (falsifying documents to inflate earnings records etc.).

I was responding to clairefontaine's assertion that: .The point being that there is recourse in these circumstances. Proving it might be difficult but unless we adopt Napoleonic law of guilty until proven otherwise, I don't see any way around this.

Have a read of this and see what you make of it.

http://www.golemxiv.co.uk/2013/03/unpleasantness-in-belgium-silence-in-ireland/

Sleepy

I don't see any reference to fraud in that blog post, tbh the only breach of propriety I see in that article relates to capitalisation levels. There's potentially a slander issue too as, no matter how reckless banks lending practices got during the bubbles, the assertion that a millions euro mortgage would have been issued to Mickey Mouse by any bank (his credit rating is shocking! ).

AlexisM

I agree - no fraud there. And nothing new either - hardly a shock that banks lost the run of themselves and lent too much to the wrong people - but that is a reason for their shareholders to be angry, not a reason for unhappy regretful borrowers to sue them.

Cody Pomeray

clairefontaine wrote: »

In nearly every profession, you can sue them for malpractise if they break healthy protocols in their profession.

Should the same accountability exist in the banking financial sector, so that you can sue your lender who supplied and unsustainable loan and broke protocols to do so?

I don't see any reason why one shouldn't already be able to sue one's financial advisors or one's bank.

For example, the Quinn family have just been granted a court hearing where they will sue the Central Bank of Ireland and the IBRC (Anglo Irish Bank), claiming - broadly speaking - financial malpractice.

Just because there is no such combination of exact words as financial malpractice on the Irish statute books does not mean that you cannot effectively sue for it.

Of course you can. You may or may not be successful, but you can certainly sue.

Solair

clairefontaine wrote: »

In nearly every profession, you can sue them for malpractise if they break healthy protocols in their profession.

Should the same accountability exist in the banking financial sector, so that you can sue your lender who supplied and unsustainable loan and broke protocols to do so?

There's nothing to prevent someone from taking a test case against a bank and seeing if they could establish a duty of care as you've outlined.

So far, nobody seems to have tried to go that route though. There's no legal impediment there to prevent them from doing so.

The only issue is that it would be extremely expensive if you lost!

KyussBishop

The problem with fraud in the banks, is that it has gone totally uninvestigated, and whistleblowers have even been threatened with prosecution themselves; here is a prominent criminologist, who helped put thousands of people in jail during the US 'Savings and Loans' crisis, giving an analysis of Ireland and how it shows the signs of systemic fraud throughout the banking system:
http://neweconomicperspectives.org/2011/06/control-fraud-and-irish-banking-crisis.html

There is a strong incentive to suppress any potential investigation of fraud, because of the potentially massive damage it could do to banks balance sheets if they start taking a greater hit on mortgages due to fraudulent lending, the wider economic damage that could cause, and the political damage of widespread prosecutions for fraud and money trails getting followed, leading back to corrupt politicians/businessmen and such.

AlexisM

That article doesn't address the same issue as this thread which is about a borrower pursuing a lender for fraud. In situations as outlined in the article, it would be shareholders/regulators/government bailout providers who would go after the bank's management - I suppose the way Sean Fitzpatrick is now being prosecuted. There's nothing in the article about fraud perpetrated on borrowers by banks.

clairefontaine

I don't believe they have investigated fraud at all within the banks.

Purely speculation, but I had little alarm bells with the SSIA and that outrageous guarantee of 25% guaranteed interest, enough to wonder if the government was in on something. I remember the distinct feeling of "I really don't trust this." I wonder what else went on.

It certainly smells off.

If there was wide spread systemic fraud that led to the collapse, I would wonder if homeowners in NE could initiate a class action suit?

Sleepy

Never attribute to malice that which can be put down to simple incompetence.

Since homeowners in negative equity were the very people that over-valued those homes (i.e. the buyers in the Supply/Demand equation) they must accept responsibility for their own actions.

One might then argue that non-homeowners might have a position from which to launch such a case but, following on from this, who would they be charging? The government? The property developers? The homeowners who bought during the bubble? A little pointless since all are now broke. Never mind that this group are hardly blameless themselves: as part of the electorate they kept voting in the very morons who failed to govern our country in any manner approaching sensible.

And here we end up with the sorry reality: we elected morons, who rather than seeking to reign in the effects cheap EU credit on the Irish property market built our tax system upon one-off property taxes (stamp duty etc.) and further inflated the market via mortgage interest relief, tax breaks, bonanza raises for public servants, removal of huge numbers from the tax net etc.

In response to this, we lapped up the houses and believing that trees could grow to the sky tried to keep flipping them to one another.

We live in a democracy. An unfortunate side-effect of which is that even if you didn't vote for these guys, you're stuck with the outcomes of their governance. As someone who never voted for them, never bought property and who's greatest benefit of the boom was easy availability of part-time employment during my college years it's galling to have to pay for the mistakes of others but it's part of democracy and my ideals of meritocracy don't seem to be popular enough to be pushed as a better system of governance.

hatrickpatrick

Forget civil suits, it should be a criminal offense, on a par with negligence.

If we're going to use a crackpot monetary system which hands vested interests all the control over it, then we sure as f*ck should be prosecuting them when they screw it up because they put their own selfish greed before the best interests of society.

Take current mortgage interest rate rises in BOI for example. How exactly are society's best interests being served by doing something that moronic?

The Corinthian

hatrickpatrick wrote: »

Take current mortgage interest rate rises in BOI for example. How exactly are society's best interests being served by doing something that moronic?

Serving society's best interests is not their job. Their job is to make a profit. It's called free market capitalism.

Serving society's best interests is the job of government (who else is there?), who's job is to impose regulation on free market capitalism so that even if it does not serve society's best interests, it will not serve against them.

As for banks' job being to make a profit, I think what Sleepy said about incompetence being a better explanation than malice explains how they failed even there, judging by the number that were nationalized and/or in some cases wound up or went bust.

But that's more a discussion about modern corporate culture, where short term profit and goals supersedes long term profit and goals. People making risky decisions that may burn the company in a few years are very commonplace; after all, the person making the decision will be unlikely to still be in the same role by the time the decision comes back to haunt them.

hatrickpatrick

The Corinthian wrote: »

Serving society's best interests is not their job. Their job is to make a profit. It's called free market capitalism.

If their job is to make a profit then they shouldn't have as much power as they have. Control over money supply should only be used in the public interest.

The Corinthian

hatrickpatrick wrote: »

If their job is to make a profit then they shouldn't have as much power as they have.

D'oh, obviously. However the common wisdom in the two decades prior to the 2008 crash was to interfere as little as possible. Ireland, like many other Western nations, followed this common wisdom and, like many other Western nations, got burnt when it became clear that this common wisdom was flawed.

The trick is to limit that power (freedom to trade) in the public's interest, but not to the extent that it seriously damages the financial services industry, which would not be in the public's interest. Difficult balance.

hatrickpatrick

The Corinthian wrote: »

D'oh, obviously. However the common wisdom in the two decades prior to the 2008 crash was to interfere as little as possible. Ireland, like many other Western nations, followed this common wisdom and, like many other Western nations, got burnt when it became clear that this common wisdom was flawed.

The trick is to limit that power (freedom to trade) in the public's interest, but not to the extent that it seriously damages the financial services industry, which would not be in the public's interest. Difficult balance.

^ This is a debate for another thread but I'll just say I disagree hugely with this. In my view, obliterate the financial sector entirely so that the only people with the power to create money or otherwise affect gigantic economic factors on a massive scale are those whose only motivation is providing a public service.
Why do we actually need for profit banking at all? What harm would be caused by switching to an entirely public service based model?

clairefontaine

Can someone explain to me how the SSIA of 25% guaranteed interest did not seem insane?

srsly78

Because that's the return over the full term, not the APR.

The Corinthian

hatrickpatrick wrote: »

In my view, obliterate the financial sector entirely so that the only people with the power to create money or otherwise affect gigantic economic factors on a massive scale are those whose only motivation is providing a public service.
Why do we actually need for profit banking at all? What harm would be caused by switching to an entirely public service based model?

Sure, let's just abolish private enterprise and become a centralized communist state - why do we need 'for profit' anything?

As flawed as the system has turned out to be, it's still far better than anything that was present in the former Comecon nations.

srsly78

Actually, the Soviet Union invented a lot of the various tricks used in international finance. Patrick won't like to hear that tho!

http://en.wikipedia.org/wiki/Eurodollar