Politico Pro: Bank Toomey founded to become Pennsylvania flashpoint
By Kevin Robillard
October 7, 2016
Wall Street ties have become a potentially poisonous issue for many politicians on the campaign trail in 2016. It has played an especially big role in Pennsylvania’s key Senate race, where Democrats have portrayed GOP Sen. Pat Toomey as too close an ally of banks and Wall Street – and where Toomey’s ties to the industry also include a major financial stake in a small bank he cofounded.
While sitting on the Senate Banking Committee, Toomey owned between $500,001 and $1 million in stock in Team Capital Bank, from 2010 to 2014. His ownership of the bank, while little discussed so far, looks set to become a focal point of Democratic attacks in the final weeks of his reelection run.
The bank also used a controversial foreclosure method called a “confession of judgment” to foreclose on at least 21 homes in the state that were used as collateral by small business owners, even as Toomey fought against consumer protections for mortgages in the Senate, repeatedly opposing the Consumer Financial Protection Bureau.
Nothing Toomey did was illegal or violates Senate ethics rules, and his campaign notes he was far from the only senator to have interests in industries they regulated. At least one other Banking Committee member – Democratic Sen. Heidi Heitkamp of North Dakota – also owns stock in banks, while multiple members of the Senate Agriculture Committee own farms or ranches. Opposing stiffer bank regulations is also the de facto Republican position.
But mere ties to Wall Street test badly with voters in 2016 – as Hillary Clinton found when her paid speeches to the financial industry became a campaign issue. And attacking Toomey, a former investment banker who once led the Wall Street-friendly Club for Growth, for his ties to the banking industry has become Democrats’ go-to move in Pennsylvania. The industry’s unpopularity could prove a political problem for the freshman senator, who is running in a state Clinton is expected to win.
“Pat Toomey has always followed Senate disclosure rules and, on top of that, voted for even stronger transparency measures in Congress,” Toomey spokesman Ted Kwong said, referring to a case where opponent Katie McGinty gave a grant to a company that employed her husband. “Katie McGinty is famous for being unanimously rebuked by the Pennsylvania Ethics Commission, and even the Supreme Court agreed. In comparison, the Democrats’ baseless conspiracies about Pat only underscore how bad McGinty’s notorious penchant for using taxpayer dollars to enrich herself is.”
Democrats have signaled they intend to attack Toomey on the issue: “Voters in Pittsburgh, Harrisburg and outside of Philadelphia need to know more about millionaire Pat Toomey,” McGinty’s campaign has written on its website, in a section used to deliver instructions to outside groups. “Flew around in his own private plane; started his own bank and profited from it. And while serving on the Senate Banking Committee he voted to re-write the rule book to help banks like his – even attempting to eliminate consumer protection oversight.”
Toomey cofounded Team Capital Bank in 2005, not long after leaving the House of Representatives and while he was leading the Club for Growth. The bank, which started in the Lehigh Valley, eventually grew to have 12 branches throughout eastern Pennsylvania and northern New Jersey. Toomey sat on its board from 2005 to 2009 before he won election to the Senate.
The senator’s personal financial disclosures from 2010 to 2014 showed he owned stock in the bank worth between $500,001 and $1 million. In December 2013, Provident Bank – a larger bank operating in New Jersey and Pennsylvania – announced it was purchasing Team Capital for $122 million. Toomey still owns shares in Provident Bank, which is publicly traded.
Before and after the bank’s sale, Toomey repeatedly expressed his opposition to the CFPB, which was designed to protect consumers from abusive banking and mortgage practices. He voted against the confirmation of the agency’s director multiple times and has pushed to abolish the agency, recently calling it “an ill-conceived and badly governed entity that’s not accountable to anyone.”
The CFPB deals exclusively with retail mortgages, while Toomey’s bank only used confessions of judgment in commercial mortgage cases. But advocates warned the spread of such practices was exactly the type of thing the CFPB was designed to prevent.
“In the wake of the financial crisis, we should be concerned about elected officials whose outside interests were engaged in predatory practices,” said Joe Valenti, the director of consumer finance at the liberal Center for American Progress Action Fund, adding: “Proposing to weaken the Consumer Financial Protection Bureau and to export anti-consumer state laws to the entire country only moves us farther away from improving families’ financial stability.”
Toomey’s office suggested Democrats were grasping at unrelated straws.
“This issue has nothing to do with the CFPB or more excessive red tape coming from Washington,” said ER Anderson, a spokeswoman in Toomey’s Senate office. “It is about how small banks typically provide commercial loans to businesses, which the CFPB currently does not regulate.”
Toomey’s campaign argued the CFPB’s impact on Team Capital would be limited because the agency deals exclusively with retail mortgages, which made up just one-third of the bank’s total loan portfolio. But in more than 20 cases, Team Capital used the process to foreclose on business owners who put residences up as collateral, according to court documents.
Pennsylvania is a judicial foreclosure state, meaning most foreclosures are lengthy processes requiring appearances before a judge. This stretches out the average length of a foreclosure to about 270 days, compared to about two months in non-judicial foreclosure states.
The confession of judgment process allows a bank to start the foreclosure process almost as soon as a borrower misses a payment, without notifying the owner.
So while a standard process gives a homeowner or business owner more time to negotiate with a bank or pay up on the mortgage, a confession of judgement is an “end around” that “moves very, very quickly,” said Debbie Goldstein, the executive vice president at the Center for Responsible Lending.
The practice is only allowed for commercial mortgages in Pennsylvania and is banned in 35 other states because of due process concerns. State law also requires the language to be conspicuous, meaning it must be in large font and clearly labeled on legal documents. Commercial mortgages also traditionally have more involved and detailed negotiations processes, so it’s likely the mortgage holders knew they were agreeing to an expedited foreclosure process.
“The CFPB was created because individual consumers needed help defending themselves against practices like that,” Goldstein said. “Confessions of judgement are intended to undermine the foreclosure process.”
Toomey’s ties to Wall Street have already proven to be fertile ground for Democrats during the campaign. They’ve attacked him for his opposition to CFPB, especially after the agency played a major role in a massive fine against Wells Fargo for deceiving customers. And his long ties to the industry have played a role in countless attack ads.
“Toomey got rich working on Wall Street,” a narrator in May ad from Senate Majority PAC says. “Then he got elected, and kept working for Wall Street.” The ad notes Toomey has received millions in campaign donations from Wall Street and supported the repeal of Dodd-Frank.
The senator is now seeing some benefit from aiding the industry. The Fund for Economic Growth, a nonprofit linked to the American Banking Association, is up with an ad praising Toomey’s support for blue-collar workers.
“In western Pennsylvania, we’re doers,” the narrator says. “We’re proud, loyal, tough. It’s who we are. And it’s how Pat Toomey represents us in the U.S. Senate.”