Even as the Occupy L.A. protests put a spotlight on financial institutions here and elsewhere, a top city official says that a proposal to deal only with banks that disclose their lending practices - and are not engaging in the activities that helped lead to the mortgage meltdown - could cost the city millions.
Refinancing the city's bonds and loans could cost nearly $28 million in fees, City Administrative Officer Miguel Santana said in a report issued this week. The banks would charge these fees because the city would be terminating its loans with them earlier than had been previously agreed.
In addition, Santana said, over the next 30 years, the city would pay an extra $15 million other fees on the debt.
But Councilman Richard Alarcon, who has pushed for more than a year for an ordinance that would require banks to disclose their lending practices before they could do business with the city, said Santana is wrong.
His measure, Alarcon said, would require disclosure of banks that want to do business with the city going forward, but would not require the city to dump the banks with which it's already doing business.
The measure would require banks to disclose how many loans they had made to local small businesses, and how many affordable housing units they had funded in the city. It would also require them to say whether or not they allowed homeowners to obtain loan modifications if their income comes from unemployment insurance instead of from a job, and whether it allows people in foreclosed homes to rent them back until the homes are sold.
He accused Santana of dragging his feet in developing a way to assess the banks' practices.
"I think they're dragging their feet because they want to do things the old boys' way," Alarcon said.
A phone call to Santana was not immediately returned.
Concern about the city's relationship with banks and other financial institutions comes as Los Angeles is enmeshed in negotiations over the way 35 financial institutions handled their business with the city during the mortgage meltdown.
Three years ago, Los Angeles sued the lenders, among them Bank of America, alleging that they had traded inappropriately in some mortgage-backed securities, and also engaged in bid-rigging in their dealings with the city.
Negotiations are still going on with regard to that lawsuit, according to Santana's report. But the recent Occupy L.A. movement has shined a new spotlight on the idea of pulling the city’s business from lenders that officials believe are not behaving fairly.
If the city is serious about doing that, Santana wrote, it should stop all borrowing – and stop all of the public works projects that are paid for with borrowed money – until a new policy is sorted out.
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