The financial regulation bill that passed the United States Senate July 15 will drastically change the regulatory framework for the nation’s largest banks, provide increased oversight of financial transactions and expand consumer protections from the previous policies that led in large part to the worst economic crisis since the Great Depression.
Within the financial regulatory legislation is an amendment that will help former Independent National Mortgage Corporation, commonly known as IndyMac Bank (now OneWest), depositors regain some of the money that they lost when the bank was seized by the federal government two years ago during the market meltdown.
The legislation, co-sponsored by Rep. Jane Harman (D-Venice) and Rep. David Drier (D-San Dimas), called the Indy Act, will extend the federal deposit insurance limit to $250,000 retroactive to Jan.1, 2008.
“I’m happy we’re finally getting fair treatment for Indymac depositors,” the congresswoman said in a statement last month. “They were the victims, not the cause, of the bank’s collapse. They deserve the same insurance coverage that Congress extended to all depositors in 2008, three months after IndyMac failed.”
Prior to the seizure, deposits were insured up to $100,000 and although Congress signed off an extension of the deposit cap, it did not make it retroactive to before October 2008.
Approximately 6,500 customers in California lost most or all of their savings when the Pasadena-based bank, the largest savings and loan bank in California, collapsed on July 11, 2008 and the Federal Deposit Insurance Corporation (FDIC) subsequently seized IndyMac.
Harman said the amendment has given the banks’ customers, many of whom were middle-class depositors, relief that was due to them because of IndyMac’s failure.
“This bill seeks fair treatment, not special treatment, for more than 8,000 depositors at six banks nationwide who collectively lost more than $260 million when the banks they believed would protect their money abruptly failed in 2008. These are not ‘politically favored wealthy individuals,’” the congresswoman said. “These people were the victims, not the cause, of the banks’ collapse. Giving their depositors the same protection provided to all depositors just three months later is the right thing to do.”
The repayments will come from the FDIC’s deposit insurance fund.
Depositors lost thousands of dollars of their personal savings after the banks’ failure, including a variety of Los Angeles area residents who until recently had given up hope of seeing their earnings ever again.
Agnes Huff, who owns an eponymous communications firm in the Howard Hughes Center in Westchester, counted herself in that group. Because of the legislation, Huff said she recently regained her entire deposit, which was over $50,000.
“It came at just the right time,” Huff, a Playa del Rey resident, told The Argonaut. “It’s so helpful when you’re a small business owner (during a recession).”
Without Harman’s amendment, recovering any of their deposits would have been next to impossible, said Lisa Marshall, the de facto leader of a citizens group who contacted the congresswoman in 2009 after her parents lost their savings in a Long Beach IndyMac bank.
“(Harman) suggested that I should begin to gather signatures as well as the stories of many of the depositors so that she could present them to Congress,” Marshall, whose parents are former Marina del Rey residents, recalled.
Marshall said it was not easy getting depositors to come forward with their stories, many of which involved home foreclosure and anxiety over lost savings, as well as feelings of hopelessness.
“When something like this happens, people are often reluctant to offer information,” she said.
She started an online forum where former IndyMac customers could trade stories, write letters to their congressional representatives and organize their efforts to seek relief from Congress.
“I decided that I had to do something to try and get my parents’ money back,” Marshall said. “My family has endured a lot of stress over this.”
The failure of the bank was part of the 2008 financial meltdown on Wall Street that played a significant role in ushering the United States into its worst economic crisis in 80 years.
According to federal regulators, IndyMac backdated an $18 million contribution from its parent company in 2007 in order to preserve the bank’s appearance as a “well-capitalized” institution. A federal report found that the underlying cause of the bank’s failure was the unsound and unsafe manner in which it operated.
“(The Office of Thrift Supervision, which regulates banks) identified numerous problems and risks, including the quantity and poor quality of nontraditional mortgage products,” a federal report states. “Yet it did not take aggressive action to stop those practices from continuing to proliferate.”
There was a time when the possibility of IndyMac customers recovering lost financial assets was in doubt.
Last December, the House Rules Committee voted 8-4, with one abstention, to deny Harman’s amendment.
But when the U.S. Senate won passage of the larger financial regulations bill, Harman and Drier’s legislation was included in the bill that became law, paving the way for depositors like Huff to get financial relief.
“We were on pins and needles the whole time,” the business owner admitted. “We had great hopes that (Congress would pass legislation) but we also had our doubts.”
Huff is impressed by what people like Marshall were able to do to enable depositors to get financial fairness.
“It’s really amazing to see what could be done with a group of people who were only hoping to get what they were owed,” she said.
In an open letter to Harman, Marshall thanked the congresswoman for her efforts in helping her and other families regain their savings.
“On behalf of over 600 people and families represented in the
www.Indymacdepositors.com/ group, we want to express our deepest gratitude for the relentless efforts of your team to restore our life savings,” Marshall wrote.
“You have touched the lives of so many hard working contributors to our great country, many of whom are retired.
“Our faith in the United States financial system will be bolstered.”
Huff is also grateful for Harman’s amendment to the financial regulations bill.
“When she realized that we needed her, she mobilized to get us help,” she said. “This definitely shows that if you raise an issue, you can see that sometimes there is fairness and justice in government.”
What was disappointing to Marshall and other depositors was the false notion that their savings were fully insured.
“It was devastating to learn that we weren’t,” she said. “The bank assured us that we were completely insured for all of my parents’ savings, and we didn’t find out until the bank collapsed that it wasn’t true.”
That is the enduring lesson that Huff said she has learned throughout the ordeal of regaining her savings.
“What we have learned is that the rules for your account and your limits of protection vary, and people need to be aware of that,” she cautioned.