The Office of the Commissioner of Financial Regulation oversees state-chartered banks and is responsible for ensuring that other financial companies — such as mortgage lenders, brokers and debt-collection agencies — operate properly in the state.
Leading the charge is Commissioner Mark A. Kaufman, who assumed his post a year ago after serving two years as deputy commissioner.
The Baltimore Sun spoke with Kaufman recently about the health of state-chartered banks and consumer complaints about loan-modification companies and debt collectors.
Of the six Maryland banks that failed since 2009, K Bank was a state-chartered institution. How is the health of state-chartered banks?
We regulate roughly 50 state-chartered banks. One in four branches in the state. The average institution has $500 million [in assets]. … All in all … asset quality has stabilized and recovered. Past dues have begun to turn down [and] capital levels have improved. Ninety to 95 percent of our institutions are well-capitalized.
We've had problems [but] they're the exception, not the rule. Through it all, community banks have grown. The banks we regulate, over the last two years, assets are up 3 percent a year.
What issues are you focused on?
On the banking side, I've been aggressive and outspoken about the need to look at the capital-raising process for community banks.
The fact is federal laws and regulations do not make it easy for small banks to raise capital. They're one-size-fits-all rules. The same rules that apply to a $100 billion bank apply to a $100 million bank.
I've spent 15 years as an investment banker, and it's very hard for small companies to raise small amounts of money. The way that markets work is essentially people invest through institutions [that] invest on their behalf. … If you're a $5 billion bank and you go raise $100 million and you cut it into four $25 million pieces, that still meets the deal size minimums [for institutional investors]. If you're one-fifth of that size and conduct the same exercise, and the guy has a $50 million deal minimum, he doesn't return your calls. …
I understand why the restrictions exist. I think they make a fair bit of sense for large institutions. Applying the same rules blindly across all sizes is a problem for those institutions.
On the non-bank side, we've been active about debt collection over the last 18 months through the Maryland Collection Agency Licensing Board.
Speaking of debt collectors, Maryland's Court of Appeals recently approved rules aimed at preventing these companies from winning judgments in District Court without sufficient documentation to prove their cases. Your office has been aggressive about this issue. Why is it important?
Our office has jurisdiction over licensing of debt collectors. What became clear to us is that the litigation side of collections — which traditionally has not been the first place regulators look at — was an enormous and growing part of debt collection.
In particular, when we investigated Midland Funding, which is part of Encore [Capital Group], it was a growing part of the business. It had grown to 50 percent of revenue. In their public presentation to investors, they were trumpeting the growth of litigation collection.
[Midland Funding agreed earlier this year to dismiss more than 10,000 cases in Maryland as part of a federal class action settlement in which the firm admitted no wrongdoing but promised not to refile lawsuits against consumers or sell the accounts.]
We found that filings and affidavits were deficient. That's important because they're not contested. They were filing thousands of lawsuits in the state of Maryland. In the real world, you file a small-claims action against someone who's not responsive to mail. The person never shows up and you get a default judgment. And then your debt is elevated to wage garnishment.