Extensive due diligence practices implemented to handle consumer complaints.
When Matthew Biben was promoted to the new role of general counsel for JPMorgan Chase’s consumer businesses, he knew that dealing with the laundry list of regulatory and operational issues ahead of him would be no walk in the park.
Biben joined JPMorgan Chase in March 2011 as senior legal adviser and general counsel of mortgage banking, so dealing with the aftermath of the 2008 financial crisis was on his radar from the very beginning. In his current role, Biben oversees over 500 legal and compliance professionals who handle all the consumer businesses at the banking giant – this includes mortgage banking, auto loans and student lending, as well as consumer and business banking and credit cards.
‘I was hired to deal with the mortgage crisis, but I was also brought in to pull together a consistent legal framework across the different lines of business,’ Biben says (pictured left).
Creating a more consistent framework under which to operate was necessary for many banks after the industry was shaken by the mortgage crisis and subsequent financial meltdown. Banks were left with significant losses after borrowers defaulted on mortgages and exhausted their credit cards as a global economic slowdown ensued. Banks were also hurt by their exposure to toxic mortgage securities and risky real estate loans. Many financial institutions had approved subprime mortgages to consumers who were not qualified, causing the number of foreclosures to soar due to a lack of effective monitoring of the process. Regulators looked for ways to put an end to it all.
The federal government introduced a number of programs to shore up the banking system and required banks to offer widespread loan modifications to borrowers. The largest banks accounted for more than 80 percent of all loan modifications offered to homeowners, and it cost them billions of dollars to assume the loss from these modifications. Most of the large banks received money from the government to support these efforts. JPMorgan Chase received $25 billion as part of the government’s Troubled Asset Relief Program (TARP), but within a year it had repaid all of the bailout funds. The overall health of the bank remained strong, but it still faced a myriad of challenges.
‘The financial crisis was one of those opportunities for lawyers to demonstrate their value and expertise at a company,’ says Biben, who has also served as an assistant US attorney in the criminal division, and as deputy general counsel for the BNY Mellon. ‘Lawyers are most often called upon to help solve the most unique and complex problems.’
Biben’s appointment came at a time when JPMorgan Chase had started revamping its internal polices in the wake of the new regulatory era brought on by the financial crisis. He used his expertise to develop strategies and implement programs that would help his national legal team put better internal processes in place, improve the effectiveness of compliance and implement governance strategies throughout the banking divisions – all moves designed to strengthen the company and protect it against future economic shocks.
Rebuilding the team
Biben’s first order of business was not just dealing with restructuring and integrating the mortgage and consumer divisions. A major part of his appointment was to start breaking down silos.
To address the common problems many financial institutions have been facing in this new regulatory era, the governance and compliance expert felt that building a solid legal team would be a step in the right direction. To assemble the talent needed to excel in the new, highly regulated environment, Biben focused on going beyond the traditional criteria that most leaders look for.
‘I look for lawyers who possess the right attitude and understand the meaning of execution, accountability, diversity and collaboration,’ he says. ‘I spend a lot of time focusing on creating teams by selecting candidates with sufficient qualifications that leverage collective strength instead of individual contribution.’
However, Biben admits that ‘obtaining the right mix of stars and role players to work together is critical and is sometimes a challenge.’
His secret to building a best-in-class legal team is finding candidates who are willing to go beyond the duties that are assigned to them. ‘Exceeding expectations is a consistent objective – not just meeting goals, but exceeding them at all times,’ he says.
The social media push
Social media silos can be bad for risk management. In a matter of seconds, one torrid tweet can negatively impact the way a company communicates with its employees and the public.
In order to stay ahead of compliance threats, companies are starting to create platforms where senior management and legal professionals can engage in dialogue around the clock. However, there is still a challenge to develop strategies that satisfy the legal team’s need to protect the company from liability and risk while also enabling the company to enjoy the business benefits that derive from communicating with customers in real time via social media. Traditionally, many attorneys tend to shy away from the use of social media forums, while other professionals question the security of these sites.
Biben believes the benefits are worth the risk. ‘Social media can help facilitate collaboration, especially at a company that has lawyers dispersed all over the world,’ he says.
Biben recalls that before he started in his new role at the country’s largest bank, there were no social forums where lawyers or governance professionals could ask questions, gain legal insight or offer advice. After carefully analyzing the needs of the legal team he had inherited, he decided to find a way to bridge the gap between the governance, risk and compliance departments.
Biben then created the Octagon, an internal social media site where the company’s lawyers and compliance professionals can now securely seek guidance, discuss legal dilemmas and educate each other about current trends. Having access to this type of tool has helped to eradicate many risks, and an added benefit is that younger lawyers can access the program and receive training from well-seasoned experts before addressing an issue.
‘Launching a virtual space where attorneys and other professionals from different departments can get together and actively participate in discussions was one of my top priorities,’ Biben explains. ‘Even though the platform is running, we are still continuing to explore and implement new ways to make the program effective to our legal teams.’
Restructuring the business
Managing legal and compliance risks is not an easy task – when emerging from a crisis, any company’s compliance measures will be put to the ultimate test. But compliance in the banking industry has gained tremendous attention in comparison to other sectors. Financial institutions have a lot of work to do in order to meet new regulatory standards and create programs that can be easily adapted into their existing business models.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, for example, was enacted to address the broad spectrum of issues that resulted from the financial crisis. Under this act, a new Consumer Financial Protection Bureau was introduced to promote transparency by policing the actions of lenders who engage in unfair practices involving mortgages, credit card policies and bank loans.
‘This is one of the areas where JPMorgan has invested a lot of resources, especially in the legal and compliance aspect,’ says Biben.
‘The Dodd-Frank Act has not dramatically affected the way we execute business because we have always had processes and policies in place that help senior management create a controlled environment.’
At the center of the legislation are credit and debit cards, which have generated a lot of attention over the last few years. In an effort to cover some losses from the meltdown, some banks have been charging excessive banking fees and slapping on extra surcharges for the processing of credit card purchases. Consumer advocacy groups have long criticized banks that have marketed credit cards to unsuitable demographics.
Fee structures have also been very complex, and have resulted in consumers spending more than they had bargained for. With mounting fees causing customers to abandon their accounts, regulators have stepped in and created tighter regulations in order to limit banks’ ability to demand excessively high charges.
‘It’s good to always remember that you are in the business to serve the customer,’ Biben says. He feels it all boils down to understanding how well a company’s consumer business can solve a problem instead of allowing it to escalate.
Liquid gold
One project to which Biben’s legal team contributed significantly is the recent Chase Liquid card, which will be available to customers in August. The prepaid card, which is targeted at consumers who want a low-cost alternative to traditional checking accounts, will not charge as many fees as similar cards have in the past. The Chase Liquid card does not charge fees for loading money onto the card at Chase bank branches or withdrawing money from Chase ATMs. The card is available to any customer over the age of 18 and carries a $4.95 per month maintenance fee.
Generally, the card offers services that cost less than other prepaid providers which are outside the bank’s network. It also doesn’t force consumers to open an account at the bank, which might subject them to other banking fees and overdraft charges.
‘Here we sought to make the product offerings consumer-friendly, at a price customers can afford, and break down product silos – this is a practice that you don’t always see in financial firms,’ says Biben.
Going forward, Biben says he has implemented extensive due diligence practices within the divisions he now oversees to make sure that consumer complaints are handled in the right way. While he won’t reveal the details of every approach used to stay on top of these matters, he is sure JPMorgan Chase will continue to thrive and weather any financial storms if consumer needs remain a top priority.
Interfacing with the corporate secretary
As general counsel for JPMorgan Chase’s consumer businesses, Matthew Biben knows collaboration is important for any legal team to be successful. Working closely with the corporate secretary has always been an effective way to strengthen the overall governance processes at the various banks where he has worked.
At JPMorgan Chase, Biben actively collaborates with the corporate secretary on various matters including corporate governance issues, committee charters, and strategic risk management techniques that can be implemented to supplement the board. This is critical because in his new role, Biben has responsibility for supporting two committees of the board of directors.
While at BNY Mellon, Biben also supervised the office of the corporate secretary and made regular reports to the board and its committees.
Governance challenges ahead?
In battling its way to the position of the nation’s top bank after the 2008 financial crisis, JPMorgan Chase has shown an excellent ability to manage the challenge of performing well in a difficult economy while dealing with increased regulations. Recent analysis from Morningstar states: ‘In our view, much of JPMorgan Chase’s outperformance was due to common sense risk management. For example, the bank carried far more tangible capital than Citigroup in early 2008, providing a much larger buffer against subsequent losses. Such conservatism is still paying off – JPMorgan Chase’s capital base and earnings power ensure that the firm’s recent surprise trading loss will not permanently damage the firm. That said, the misstep is a reminder that even the best managers can mitigate, but not eliminate, risk at financial firms.’
Going forward, investigations into JPMorgan Chase’s $2 billion trading loss and its involvement in possible misconduct as an underwriter in the recent Facebook IPO will determine whether the bank will need to improve its governance, compliance and risk management measures in order to continue its strong growth.
