A Well-Deserved Apology From a Red-Faced S

In four years, Washington Mutual has expanded tremendously, taking over American Savings in 1996, Great Western in 1997 and Home Savings in 1998.

With each acquisition, said Tim McGarry, a Wash Mutual vice president for corporate PR, “we always see a spike in consumer complaints. Fortunately, there’s always a rapid normalization in the months following, but it must be granted that the process of conversion is not easy for the bank or its customers. We recognize that our system still needs some improvement.”

I’m not surprised at this admission. Since writing last year about the 26-day disappearance of $4,500 from a woman’s account at Wash Mutual’s Port Hueneme branch, I’ve received a stream of complaints about the thrift, which has 348 branches and 1.9 million customers in the Southland alone.

The latest case involves a 90-year-old San Fernando Valley resident, Leta Irving, who, McGarry acknowledges, had her CD account of $99,437 improperly turned over (“escheated” in banking parlance) to the state controller’s office Oct. 19, 1998.

Her attorney, John F. Garvin, noticing this in an audit, began seeking to retrieve it Aug. 24, 1999, but encountered only frustrations in dealing with bank officials.

Finally, on May 22, Garvin wrote to me asking for assistance.

According to the law, a financial institution must escheat money to the state after three years of not hearing from a customer about an account. Wash Mutual escheated $10 million of its $50 billion in California deposits last year.

At one point, Garvin said, when he told the thrift that he had had power of attorney granted in a notarized letter from Irving, and communicated this well before the three years was up, “the bank’s arrogant and, in my opinion, ludicrous response . . . was that it did not consider the power of attorney or the change of address a . . . ‘written or oral communication from the account holder’ ” sufficient to block an escheatment.

More recently, he said, he had an unsatisfactory conversation with a Wash Mutual paralegal who informed him that, after months, the thrift had taken no action to recover the money from the state and was still “investigating.”

Answering my inquiries, spokesman Tom Marshall in the controller’s office said the state will return Irving’s money, with 5% annual interest, on Garvin’s request within 90 days. McGarry, meanwhile, said Wash Mutual will be willing, if Garvin wants, to retrieve it for Irving, and that would take only about four weeks.

As corporate apologies go, McGarry’s was quite categorical.

“We have served this customer very poorly, and the aggravated tone John Garvin conveys to you in his letter is largely warranted,” he said. “His central point is that Ms. Irving’s account should not have been escheated in the first place, and he’s absolutely right.”

McGarry acknowledged that the notice Garvin provided, with Irving’s notarized signature, did clearly constitute a communication about the account within the rules.

“Human error” was responsible for it not being recorded, and “we compounded the initial error when we . . . told Mr. Garvin that a written communication from the customer is not a written communication from the customer. . . .

“It was further compounded when, as far as we can tell, nothing was ever done with Mr. Garvin’s unclaimed-property form [to initiate retrieval of the money], which he forwarded us in November. . . .

“It’s very unfortunate from the bank’s point of view if matters like these simply get dropped.”

Garvin, however, remains unmollified. “I’m old enough to remember when banks were your friend,” he remarked.

I’m glad, though, that in this case Wash Mutual was so contrite.

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But there are other issues to consider: In March, the thrift launched ads on radio urging listeners to take advantage of a new “On the House” credit card linked to a home-equity line of credit.

One ad featured a couple talking over a new sailboat purchased with the card. It mentioned that it “may be tax-deductible” and advised customers, “Consult your tax advisor.”

At a time when lobbyists are urging Congress to change the bankruptcy laws to increase requirements that the bankrupt still pay off credit- card debts, it seems inappropriate to me to promote new cards that escalate debts, and tie them to one’s home.

I solicited comment on this issue from one of the five Federal Reserve Board governors, Edward Gramlich, a specialist in such matters.

He declared: “There is an awful lot of consumer borrowing out there now, and consumers have got to understand that economic conditions are very good now. But if things ever turn around either for them individually or for the whole economy, the interest payments will bite pretty hard.”

He referred me to James Hines, research director of the Office of Tax Policy at the University of Michigan Business School, who cautioned, “There are limits on deductibility” of the cards, and more people are coming under the alternative minimum tax, which curtails it.

Stephen Brobeck, executive director of the Consumer Federation of America, commented: “That ad is, in our opinion, grossly irresponsible. To suggest that a consumer spend substantial sums of home equity on luxury purchases could be considered ethically immoral.”

Pamela J. Gavin, Wash Mutual’s manager of consumer lending development, defended the ads as a response to customer desires and noted that no one is forcing anyone to accumulate more debt.

“When [Congress] took away the tax deduction for regular credit, the only credit upon which you can get a deduction is equity in the home,” she said.

Wash Mutual, she said, limits the credit line to no more than 90% of the value of the customer’s home, including the mortgage.

“It’s not our intent to lead customers astray,” Gavin said.

Still, it’s being mighty tempting, too tempting for an unwary public.

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Ken Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060 or by e-mail at ken.reich@latimes.com.