Banks holding over $200 million in Sandy payments

[The Straight Story]

New York (CNN) -- Banks are holding more than $200 million in insurance payments meant for victims of Superstorm Sandy, nearly four months after the storm made landfall, New York Gov. Andrew Cuomo said Tuesday.

The Cuomo administration said it has delivered letters to various banks and mortgage service providers asking they "use maximum discretion and effort to speed the release of funds."

"Families need to be able to return to their homes and the state economy, which took a hit from Superstorm Sandy, needs the boost from spending on repairs," Cuomo said in a written statement. "After insurance companies have sent homeowners checks to pay for repairs, the money should not be sitting with the bank because of red tape."

The state's Department of Financial Services found that four of the biggest U.S. banks -- Wells Fargo, Bank of America, Citibank and JP Morgan Chase -- are holding more than 4,100 checks worth more $130 million. The banks were not immediately available for comment, though have maintained that they were socked with a massive amount in payouts that require processing in the wake of the storm.

http://www.cnn.com/2013/02/12/us/new-york-banks-sandy-payments/index.html?hpt=hp_t2

[Angry Dragon]

1. the banks are making money off of the payments

[FBaggins]

3. No they aren't

They're holding checks that can't be submitted for payment.

[Angry Dragon]

5. Could you please explain ..........

[FBaggins]

7. See my #2.

Say you buy a $10,000 car and borrow $8,000 from me (the bank) to help pay for it. I'm going to have a lien on your car (so if you don't pay the loan... I take the car). In order to get the loan, I'm going to require that you insure the car and that your insurance company lists me as the loss payee (so if you total the car, you don't get a check from the insurance company and leave me holding worthless collateral).

Now some drunk driver comes along and bangs up one side of your car. We'll say that it would take $4,000 to repair the car, but if it isn't repaired, it knocks $6,000 off the resale value of the car - but the car still runs. The insurance company is going to make out the check to both of us because I have an interest in that collateral being repaired.

If the check didn't have my name on it too, you might be inclined to say "it looks bad but it still runs. I'd rather keep the $4,000 and live with a banged up car"... but I'm not going to let you do that. If you had the cash, the repair shop might ask for it in advance and then do a sloppy job (or rip you off)... that's not going to happen either - because I need the car to be repaired. The check is going to sit un-cashed until you get the repairs done and I verify that they have been done.

Just as importantly to your questions... that un-cashed check is just a piece of paper. I'm not earning any money on it either. The funds are still with the insurance company.

[Angry Dragon]

8. okay

[FBaggins]

2. it isn't just "red tape"

It helps combat fraud.

Back in the day, the check would be cut to the homeowner and the bank that had a lien on the home. That way the bank would verify the repairs prior to the check being paid. This avoids the repair company getting the funds before doing the work and then disappearing. (After an emergency like this one, there are lots of shady vendors trying to make a quick buck)

The same thing happens with auto repairs.

[bullwinkle428]

4. Hmm...the same banks that couldn't get their hands on the bailout $$$ fast enough.

[Downwinder]

6. "socked with a massive amount in payouts that require processing"

Is that banker for not being solvent enough to make the payments? Think I can get away with, "I have been so busy that I can't pay you right now. When it slows down, I'll get around to paying."