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Chapter 12 Banking Experts Opinion Analysis on Credit Issues

Thomas Tarter is the Managing Director of the Andela Consulting Group, Inc. (ACG),in Sherman Oaks, California, a Consulting firm whose services include the providing of

research; financial, management and turn around consulting services; board of directorships andexpert testimony services on a variety of matters including banking and lending standards andpractices involving processing. He has served as a management consultant, business advisor andon the board of directors of public, financially troubled and closely held corporations (large andsmall) including serving as a reorganization advisor to The Bank of Saipan and for SECreporting corporations such as First Alliance Mortgage Company. Mr. Tarter was appointed toFirst Alliances board of directors subsequent to its filing for bankruptcy protection. FirstAlliance was active in the subprime lending market. It was accused of predatory lendingpractices and unfair and deceptive sales tactics involving consumer loans.

Mr. Tarters experience in the financial institutions industry spans more than 35 years.He started his career at Lloyds Bank California, where he was a Vice President in the Corporate

finance and California Divisions; and continued it at the Sanwa Bank of California, as VicePresident and the Senior Credit Officer for Southern California; Bank of Los Angeles, asFounding Director, President and Chief Executive Officer; Center Nation Bank, as Director,President and Chief Executive Officer; First Los Angeles Bank, as Executive Vice President;Western States Bankcard Association, as a director and ACG. He was also a director of the FortOrd Credit Union, advisor to Matadors Community Credit Union and a founder and organizer ofHancock Saving Bank. Mr. Tarter has been appointed to the mediator panel for the BankruptcyMediation Program of the United States Bankruptcy Court for the Central District of Californiaand was a member of the Board of the Los Angeles Bankruptcy Forum. He received a Master ofBusiness Administration from Santa Clara University and a Bachelor of Science in business fromthe University of California at Los Angeles.

Section 12.1 is expert opinion analysis of the direct damages to a consumer as a result ofa foreclosure being recorded against their house, pointing out that the public record of aforeclosure is kept forever, not just for the seven years that credit reporting information may beretained. It points out that a foreclosure will make business credit unavailable for the borrowerand that a mortgage loan in the subprime market is likely to cost an extra $115,000 on anexisting home and $175,000 on a new home. It quantifies similar penalties on car loans andstudent loans.

Section 12.2 is expert opinion analysis of a secured credit card that is so expensive thatits benefit to the consumer was illusory. It analyzes the misrepresentations made in thetelemarketing of the credit card. It concludes that the lender did not deal with the consumer ingood faith and fairly as required by banking standards.

Section 12.3 is an expert opinion analysis of a car dealers and banks incentives toinflate the interest rate on a nonrecourse credit sale of an automobile to a consumer. It describeshow the the bank closely controls the terms of the credit transaction.

Section 12.4 is an expert opinion analysis of Truth in Lending and HOEPA(HomeOwnership and Equity Protection Act) applicability to a predatory mortgage loan concluding thatthe loan violated both laws.

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12.1 Direct Damages to Consumer Caused by Recording of Foreclosure

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FROM : LINDEN 8 RSSOCIQTES TEL: 3192052442

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FROM : LINDEN 8 RSSOCIATES

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--ROFl : LINDEN 8 RSSOC RTES T R : 3102052442

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FROM : LINDEN 8 QSSOCIQTES TEL : 3102052442 NOW. 19.1998 4 : 44 Pm P I S

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& ~ruld c appmximnlcly $7.400.00 ovcr thc l i l i : oi'lha lwo (2 ) lw ~~ i cbr cirdl.1 ,ikc.wisr.., givcn tllc fc>~.cclos~wc,heu'vo\lld br..~cqi l i rcdo 1x1~l prcmirrm ofil]>]".(WilllilI~ly% if lhcy \vjsl~cdo 1wrch:lsc u ~ c lchiclc fi)r Ihcir child. l l i ~~ t : t I) I \ 11 v,osto1'!$7.$00 jinarlcccl ovor 48 mo n~ lis , 11;s v o ~ ~ ldr:.rr~sl;~tcn10 1111 C X ~ I ' ; I$1.444 in inlcrcsl.

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EXHIBIT LIST

DESCRIPTIONCV - Thomas A. TarterLender SurveyFreddie M ac Form 65Credit Application - Greentree Financial and DeutchFinancialChart; Interest paid on a $1 75,000 loan amortized over 30years.Summary o f Damages

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12.2 Illusory Benefit of Secured Credit Card

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Th e Andela Consulting Group , Inc.15250 Ventura Blvd., Suite 610Sherma n Oaks, California 91403Thomas A. TarterManaging DirectorExpert Witness - BankingConsulting - Financial and Managem ent

Phone: (818) 380-3102Fax: (818) 501-5412E-Mail: ttarter@earthlink.net

March 27,200X

Re: Case No:Dear Mr. : 4I have been retained by XXXXX. to provide litigation consulting, and if necessary, expert witnesstestimony at deposition and trial, relative to the business and banking practices of the plaintiffsinvolved in this matter. In connection w ith this engagement, I have prepared this report.The opinions expressed in this report are based upon my knowledge and experience developedthroughout my more than 35 year career in banking, business and consulting as well as informationthat has been produced as part of the discovery process in this M atter.During my banking, business and consulting career, in addition to what I have learned from myprofessional work experience, I have attended numerous seminars, conferences and courses. I havestudied various textbooks and read professional and trade publications. Th e subject matters coveredby these materials include: banking, lending litigation, damages and consu lting issues. While thesources for these materials may vary, they are sponsored or published by various organizationsclosely associated with bankin g, lending and consu mer cred it protection organizations.In forming the opinions contained in this report, I have relied on my education and knowledgegained over the years from these sources, as well as my own business, banking and consultingexperience.I understand that discovery is ongoing. This report is, therefore, subject to amendm ent, modificationand supplementation upon any information, facts, documents or testimony that may be provided tome in the future.

QUALIFICATIONSI am the Managing Director of the Andela Con sulting Group, Inc. ("ACG "), a consulting firm whoseservices include the providing of research; financial, management and turnaround consulting

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services; board of directorships and expert testimony services on a variety of matters includingconsumer lending stand ards and practices.I have significant experience in banking, business and consulting inclusive of experience inconnection with the matters set forth in this report.I have served as a management consultant, business advisor and on the boards of directors of public,financially troubled and closely held corporations (large and small) including SEC reportingcorporations such as First Alliance Mortgage C ompany. I was appointed to First Alliance's board ofdirectors subsequent to its filing for bankruptcy protection. First Alliance was a ctive in the subprimelending market. It was accused o f predatory lending practices, as well as unfair and deceptive salestactics involving consum er loans.My experience in the financial institutions industry spans more than 35 years inclusive of experiencein connection with the matters set forth in this Declaration. I started my career at Lloyds BankCalifornia, where I was a Vice President in the Corporate Finance and California Divisions; andcontinued it at the Sanwa Bank of California, as Vice President and Senior Credit Officer forSouthern California; Bank of Los Angeles, as Founding Director, President and Chief ExecutiveOfficer; Center National Bank , as Director, President and C hief Executive Officer; First Los AngelesBank, as Executive Vice President; W estern States Bankcard Association, as a director and ACG. Iwas also director of the Fort Ord Credit Union, advisor to M atadors Com munity Credit Union and afounder and organizer of Hancock Savings Bank. A copy of my resum e is attached hereto as ExhibitA and is incorporated herein by this reference.My work with financial institutions, lenders, ACG and my consulting experience includes (i)consumer credit lending and collection practices; (ii) the development and implementation ofconsumer loan origination, loan disclosure, loan underwriting, loan approval, loan disbursement andcollection policies and procedures; (iii) the establishment of interest rates for consumer loans; (iv)the development of telemarketing scripts and promotional materials; and (v) credit cards.As a prior financial institution officer, senior executive and board of directors member, I haveconsiderable experience in consum er loan related issues such as those involved in this m atter. Since1993, I have advised A CG's clients and served as a litigation consultant regarding the above subjectmatters.I have been appointed to the mediator panel for the Bankruptcy Mediation Program of the UnitedStates Bankruptcy Court for the Central District of California and have mediated disputes. Inaddition, I am a mem ber of the Board of D irectors of the Los A ngeles Bankruptcy Forum.I have a Master of Business Administration from Santa Clara University and a Bachelor of Sciencein business from the University of California at Los Angeles.

DOCUMENTS

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In preparing the Report, I have reviewed numerous documents including but not limited to thefollowing:First Amended Class Action Complaint for Violation o f the Truth-In-Lending Act;Violations o f the XXX Xtate Consumers Legal Remedies Act; Unlawful, Unfair and Fraudulent

Business Practices; False Advertising; Consumer Fraud; Breach o f Contract; and Breach of ImpliedCovenant if Good Faith and Fair DealingComptroller of the Currency, Administrator o f National Banks, Fact SheetConsent OrderStipulation and Consent to the Issuance of a Consen t OrderVarious Telemarketing ScriptsBetter Business Bureau CorrespondenceCredit Card NoticeVISA Acceptance FormApproval is Guaranteed, ZZZZ Letter

OPINIONS AND CONCLUSIONSBased upon my review of the aforementioned Documents and m y ow n banking, board, business andconsulting expe rience, I have form ulated the following op inions and conclusions:

A credit card is a product that is issued by a bank to a consumer which the consumer u ses topurchase goods and services.In most cases, banks make a credit decision based upon the applicant's credit history andinformation provided on an application form in connection with the issuance of a credit cardto a consumer. That process was not followed by ZZZZ because it guaranteed the applicant acredit card regardless of the applicant's credit history or any other factor.From the consumer's point the consumer make s a decision makes a decision to accept and/orreject a credit card based upon represented fees, interest rates and other terms and conditionspertaining to the proposed card.The text of consumer disclosures is based upon state and federal rules, regulations andguidelines as we ll as industry standards.With respect to ZZ ZZ 's credit card product, the text and disclosures made to consumers werenot consistent w ith TILA and banking industry custom s, standards and practices.The TILA disclosures made to the consumers were not accurate and were in violation ofTILA and banking industry standards.The ZZZ Z credit card product involved in this matter was a for m of predatory lending.

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8. Normally, the penalty for faulty lending practices is a credit loss. In this case, it was theconsumer who suffered. ZZZ Z was primarily interested in consum ers with poor credithistories. ZZZ Z's inaccurate, misleading and contradictory sales pitches, coupled with faultyTILA disclosures resulted in consum ers whose credit ratings were further eroded. Thisappears to be a situation where consum ers were exploited. ZZ ZZ had superior know ledgeabout the credit card's illusory benefits and provided inaccurate and self-serving financialadvice that the consum ers relied up on to their detriment.

9. It has been my exp erience that banks recognize that the balance of power b etween a bank anda consumer is not always equa l. The banking industry standard requ iring credit providers todeal in good faith helps to equalize the relationship and prevent a bank from takingadvantage of a consum er. Banks, therefore, according to banking industry customs ,standards and practices have a duty to act in good faith and honestly with their customers.This includes but is certainly not limited to providing accurate disclosures; negotiating ingood faith; not exercising undue control and influence over a consumer; and not exercisingimproper discretion in setting fees or charges, including interest, late charges and fees.10. My review of the documents indicates that in this matter the consumers: had faith, trust andconfidence in the credit card issuance process; were in a position of weakness, dependence,inequality and a lack of knowledge compared to ZZZZ; and that ZZZZ exercised control andinfluence over the consumers affairs.

Based upon my more than 35 years of experience in the banking and lending industries,ZZZZ's actions and conduct were egregious. It appears that consume rs were takenadvantage of by ZZZZ and that the credit card product involved an abuse of trust andconfidence. ZZZZ 's conduc t in this matter was below banking and lending industrystandards and inherently created an injustice. Du e to the extraordinary circumstancesassociated with ZZZZ's credit card issuance and subsequent actions, it is my opinion thatthere wa s a heightened du ty to disclose and not provide self-serving advice, which resulted inhigh fees and impro per disclosure.

12. It seems only fair, reasonable and equitable that the profits that ZZZZ received be disgorgedand that any employee or intermediary related incentives paid in connection with themarketing and servicing of ZZZZ 's credit card product be likewise disgorged .13 . Any payments made by ZZZZ in settlement to consumers in this matter should be viewed asbeing a refund o f fees, interest and charges to which ZZZ Z wa s not entitled.

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DISCUSSION

Predatow LendingPredatory lending is not a new phenomenon. Simply stated, predatory lending involves instanceswhere consumers are harm ed by abusiv e lending practices. Structura lly, abusive lending practicesincorporate a targeted borrower market; the credit sale or "pitch" to the consumer; origination fees;the structure of the transaction - collateral, amount, loan documents, collection - renewal fees; andthe ostensible benefits of the transaction for both the consumer and the lender.Predatory lending involves credit facilities that are marketed to consumers who normally have pooror no credit histories; are unsophisticated; have no alternative sources of credit; involve loansextended and collected at exorbitant interest rates and fees; and are collected through abusivecollection practices.Will Rogers once said, "It's not politics worrying this Country; it's the second payment." In thisinstance, it's not the second payment that is a problem. It is the whole transaction. This is becausethe consumers in this matter made payments that were required for a credit card that offered noostensible, tangible benefits because on their face the consume rs were burdened with paym ents, highinterest rates, substantial fees and were, for all practical purposes, not able to charge any purchaseson their cards. A cred it card that effectively does not allow a consumer to cha rge anything to theiraccount other than fees and a collateral advan ce is illusory. It is my opinio n, that illusory credit cardproducts, like ZZ ZZ 's, are inconsistent with the standard of the banking industry.

Subprime Borrowers"Subprime" borrowers are borrowers with low credit ratings and a FICO score (a nationallyrecognized credit scoring company routinely utilized by lenders in the U.S.) below an arbitrarycutoff, usually between 600 - 650 points. Subprime borrowers typically have a more difficult timeobtaining credit. Many tim es subprimes are characterized by the fact that they have poor or limitedcredit histories or are otherwise econ omically, mentally or physically disadva ntaged .ZZZZ is a "subprime" oriented bank that offered credit card products to individuals that werepartially secured. ZZZ Z's credit card products were made via a credit card that was sold through adeceptive sales presentation that among other things misrepresented the true cost of the credit cardand the amount of available credit to purchase goods and services. The com mon outcome ofpredatory lenders, in the subprime lending market, is that borrowers who can least afford certaincredit products receive the strongest pitch for the purchase o f those products. It is my opinion that asa result of ZZ ZZ 's m isrepresentations, that consumers were financially harmed . This report willoutline damages, as well as other opinions relative to the consumers who were involved in ZZZZ'scredit card activities.It has been my business, banking and consulting experience that borrowers who are the mostfinancially unsophisticated and desperate for credit are the ones who are traditionally targeted and

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subsequently "hooked" o n subprime lending products such as the ZZZZ credit card scheme. It hasbeen my experience that consum ers place a high value on their credit rating. Consequently,consumers desire to have their credit repaired so that they will able to qualify for future credit.Subprime rated consumers also have the desire and need to charge and purchase consumer goodsjust like people with good credit histories do.Typically, a consumer's entry into the subprime lending world involves the consumer interactingwith a bank that spec ializes in subprime credit arrangem ents as part of its overall business operationsand strategic plans.One method of entry into the subprime lending market is through a consumer dealing directly withthe bank that is the source of funds. In this instance, the consumer would most likely discuss thecredit arrangem ents with a loan officer andlor employee of the bank. Unde r this structure, the bankis accountable for its loan officers and em ployees and has a responsibility to mon itor their activities.Another method of entry into the subprime lending market is through a consumer dealing with anintermediary that brings the consu mer together with the lender. Th is structure leaves room for abusein the subprime mark etplace. Lend ers have claimed that they are not accountable for the resultingabuses because they have no control or responsibility over the practices that these intermediaries(telemarketers) may employ.The standard of the banking industry requires banks to closely supervise their employees and anyentity that might market its products. This is because banks are aw are that consumer advocates andborrowers have reported that bank employees and intermediaries particularly in the subprimemarket, may use aggressive or deceptive marketing techniqu es. Th ese advocates point out thatbecause of aggressive sales techniques, consumers who otherwise might not have sought creditproducts are introduced into the subprim e credit mark et.In recent years the subprime mark et has experienced significant turbulence. Risks have arisen onvarious fronts:Credit risks;

Liquidity risks; an dReputation risks.

First, many subprime lenders have been slow to adopt "best practice underwriting techniques",resulting in higher than ex pected defau lts. Seco nd, the volatile financ ial markets have put liquiditypressure on subprime lenders. In this instance, part of ZZZ Z's source of funds emanates from theborrowers. Lastly, litigation and media exposes arising from alleged abuses by subprime lendershave spawned financial institutional concern about "reputation risk" across the subprime lendingindustry.ZZZZ's MarketingZZZZ solicited perspective consumer customers through telemarketing and direct mail advertisingthat hi-lighted the benefits of obtaining a credit product that would result in the borrower havingcredit available and provide a mechanism for credit repair.

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The Office of the Comptroller of the Currency (the "OCC") is ZZZZ 's primary banking regulator.The OCC alleged that ZZZZ's sales presentation and telemarketing programs, deceived consumersabout material terms pertinent to its credit card product. The O CC further alleged that ZZZ Zdeceived consumers with regard to interest rate charges and available funds. Based upon myexperience involving telemarketing programs with various banks and with First Alliance, I agreewith the OCC's findings.The following are excerpts from ZZZ Z's telemarketing scripts:"I am calling from the ZZZZ ZZ to let you know that if you are 18 years of age or older, you areguaranteed approval for a partially secured VISA card under our XXXXXXX! Program.. ... TheXXXXXXX! Program is a complete money management tool designed to help our customers usetheir ZZZZ Bank V ISA card more effectively.""All you have to d o is sign your app lication that we will mail to you. A $65.90 initial dow n paymentwhich includes $5.95 for shipping and handling is drafted directly from your checking account.Your initial payment pays for more than half the one time enrollment fee of $ 11 5.90." (ZZZZ DOC#>"You do not need to send any money after we receive your initial dow n payment. The remaining$50.00 for the enrollment fee is charged directly to your card, along w ith $200.00 to open your FDICinsured savings account. Wh en you receive your first bill, you can repay it in full, or you can repayin monthly installments - he choice is yours." (ZZZZ D oc #s)"There is an annual membership fee of $72.00 per year, which is charged to your account in monthlyinstallments of only $6.00. Cash advan ces will be charged a fee of $3.0 0 or 3% of the advancedamount whichever is greater." (ZZ ZZ Doc #s)In cold call scripts similar representations are m ade."M - M most secured credit cards require that you make a deposit for the full amount of the creditlimit immediately. How ever, ZZZ Z has made it easier by charging the full $200.00 savings depositto your new credit card. You have the option of paying it off once you receive your statement ormaking monthly payments." (ZZZ Z Doc #).If "I don't have the $65.90 ($85.90) available, the response from the program is, 'Okay, M - Mwhen will you have the funds available? I can postdate the draft for up to 5 days. I have to makesure you are able to take advantage of this offer, so what day would you like to have the draftdone?"' (ZZZ Z Do c#s)ZZZZ represented that the program is more than just a credit card. Because "[Ilt is a comprehensivemoney management tool designed to help you use your credit card more effectively, gain control ofyour finances, and get out of debt - - - ZZZZ charges your savings deposit directly to your card."(ZZZZ Doc #)

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Additionally, ZZZZ represented that "maintaining a good credit history with ZZZ Z is one of the bestways to establish your credit rating." $65.90 is inexpensive when you consider that we report yourpayment history to the three major credit bureaus monthly. You can rebu ild your credit much fasterwhen you keep a good credit history with your VISA credit card. Whe n you break down the totalcost of our standard fees, it will only cost you about $.50 a day." (ZZ ZZ D oc #)The above sections are deceptive because they make untrue representations and leave out theremainder of the fee which w as $1 15 go.Based upon my banking, business and consulting experience, which has included marketing andtelemarketing, ZZZZ's scripts were not accurate and contained gross misrepresentations includingbut not limited to use, benefits, cost and impact on credit.

What the ZZZZ C redit Card Product Really IsThe ZZZZ credit card product can be view ed from two different perspectives:Bank; andConsumer.First, from the bank's perspective, the ZZZZ credit card product is:A credit card issued to a consumer;Loadcredit product;Source of fee income created by advances for origination fees and credit card purchases;andSource of liquidity and funds derived from borrower deposits that were created byadvances on the credit card.From the consumer's perspective:A credit card that can be used to purchase and pay for goods and services;A mechanism for deferred payments;An opened-ended line of creditHigh fees and service charges that were not disclosed; andHidden charges and fees accessed.What the ZZZZ Credit Card P roduct Did Not Provide to the ConsumerThe ZZZZ line of credit did not provide:A reasonable opportunity for actual credit repair for the consumer;A reasonable opportunity for additional charges to be made on the card;No actual benefits; andAbility to borrow at reasonable and fair interest rates.Results of the ZZZZ Credit Card Product:Reasona ble and highly likely chance for default;

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Creation of unrealistic expectations on the part of the consumer;No benefit to the consumer;High profits for ZZZ Z;High probability of default;Denigration o f credit; andPaym ents that would not result in a benefit to credit.

It is well known in the banking industry that credit scores are adversely impacted by additionalcredit. Further, in the eve nt that a default takes place, lenders well know and are well aware that theborrow er's cred it score and perception to credit providers is diminished by missed or late payments.The amount of credit ZZZZ provided $250 - $600 was miniscule. This is especially true looking atthe amount of credit that the consum er was able to effectively dr aw on after the charges are assessedby the lender in the form of fee origination fees and the advance to create the deposit that partiallysecures the credit card period. Little or no money was left for the consu mer. Consequently, theconcept of a credit card, providing any additional credit and being able to be used in the m arketplaceis purely illusory. Based on my business, banking and consulting experience involving creditissuance, ZZ ZZ 's credit card product was manifestly unfair and inconsistent with any credit facilitiesor credit card issuance that I have experienced.According to consumer correspondence and Better Business Bureau documents, the ability to cancelZZZ Z's credit card was also very difficult. Procedurally, the consumer had to jum p through hoopsand was stuck with fees and charges even if no payments were ma de. This is below bankingindustry standards. As stated above, the consum er had little capability to initiate or charge anypurchases to the card because of the relatively low limits provided. Cons equently again, the effectand benefits of the card, in m y op inion, were illusory.The Purpose of Credit CardsThe purpose of credit cards is to provide income for a bank and availability of a multi-purpose creditcard product for the benefit of the consu mer. Th e intent is mutual ben efit. In this case, the cost andcharges that inured to the benefit of ZZZ Z far outwe ighed any consumer benefits. Industrystandards require that credit facilities be fair, reasonable and eq uitable. In this instance, the creditcard product provided by ZZZZ did not meet the standards of fairness, reasonability and equitabilitybecause:

0 ZZZZ did not fully disclose the terms and condition of the card;ZZ ZZ did not disclose the true costs of the credit; andZZZZ misrepresented that the credit card would result in improvement of the borrower'soverall credit worthiness.

It has been my experience that the purpose of TILA is primarily to promote business and providemeaningful disclosure to consumers so that the consumers could competitively shop a credit product.In this instance, it appears to me that consumers were solicited who had poor credit performance

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track records. Therefore, it was unrealistic on the part of ZZZ Z to expect that payment would bemade on a timely basis. No c redit underwriting was taking place predicated upon the sales andtelemarketing representations m ade. Consequently, there was no reasonable expectation for anactual improvem ent in the borrow er's credit score because it was a virtual certainty that many of theborrowers would default. Indicative of this is the high default and loan charge-off rate reported inthe financial statements of ZZZ Z.

The Office of the Com ptroller of the Currency ("OCC") is the primary federal regulator of ZZZZ . Ihave reviewed, in formulating the opinions expressed in this report, the Fact Sheet, dated ------------prepared by the OCC , administrator of national banks. (Doc #s)Based upon my business, banking and consulting experience, it is my opinion that the OCCcorrectly, ". ..conclud ed that the Bank's conduct in marketing a secured credit card constituted unfairand deceptive practices in violation of the Federal Trade Commission Act, and was an unsafe orunsound within the meaning of the Federal Deposit Insurance Act." It is clear from the Fact Sheetthat ZZZZ provided illusory credit and made misrepresentations to a numb er of consumers.It has been my experience working with regulators that their reports are accurate, dispassionate andare intended to identify and eliminate unsafe and unsound banking practices. Based upon my reviewof documents, I concur with the OCC .A hallmark of lending is fairness and honesty. Unfair and deceptive practices are not consistent withbanking industry standards. Likewise, false and misleading statem ents as reported by the OCC, areinconsistent with banking industry standards.-The practices cited by the OCC regarding guaranteed credit cards, consumers who had little or noavailable credit after the card was first issued and were unable to obtain usable credit as a result ofthe card, consisted and represented a large percent (80%) of applicants who received the ZZZZ$250.00 credit line. Additionally, other solicitations and other representations regarding theguaranteed approval, "worldwide acceptance", and inaccurate disclosures and failures to disclose bythe consumers were ag ain below banking industry standards.Additionally, consent orders require banks to adapt marketing and lending practices that areconsistent with industry standards. It has been my experience that conse nt orders are not requiredunless a bank is operating inconsistent with banking industry standards as promulgated by the OCC.Further it appears, based on the consent order that was entered into (Doc #) likewise required thebank to implement written programs to identify and evaluate on an ongoing basis communicationsfrom consumers who sa y that they did not understand the bank's solicitations. Clarity and clearnessin comm unications are also banking industry standards. Clear and conspicuous disclosures arerequired by the banking industry. To do otherwise is to be inconsistent with the standards of theindustry. It is my opinion that improper and misleading disclosures were made by ZZ ZZ that werebelow any industry standard with which I am familiar.

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Capital.A fundamental fiber of the lender-borrower relationship is trust. This involves honesty and fairdealing on the part of both parties. Subte rfuge and dishonesty are considered to be deviant behavior.It is wrong for either party, borrower or lender, to knowingly enter into a credit relationship that itexpressly does not plan to honor. Such an action would be dishones t and consequently wouldimpugn the basic character of the party making the m isrepresentations.Constructive Know ledgeZZZZ, the credit provider and lender, had constructive knowledge that it did not communicate to itsconsumer applicants. ZZZZ was aware of the hidden costs and that the economic reality of theproduct that they were marketing was that the consumer could not use the card to make purchases"worldwide" or even locally because in many instances any potentially available credit wasconsumed by ZZZZ's up-front fees and the advance required by ZZ ZZ to partially secure the card.Key information was not communicated to the consumer. In effect, ZZZZ was orchestrating a wayto minimize its perceived risk s and maxim izing its profits. This is illogical in a fair, reasonable andequitable credit relationsh ip but it existed in this instance.Banks are acutely aware that credit cards and credit arrangements become a basis upon whichconsumers conduct their daily affairs including but not limited to purchasing goods and services.Consequently, ZZZZ 's prior knowledge that its credit card product would not provide the consumerwith any substantive available credit to make even minimal purchases was below banking industrystandards.Good Faith and F air Dealing Ar e Basic Banking: Industry S tanda rds

Banking industry customs, standards and practices are predicated upon the principle of good faithbeing evidenced by both sides - consu mer and credit provider. Th e industry definition of good faithis essentially honesty in the representations that are made in the conduct of the transaction by all ofthe parties involved. A borrower is required to act in good faith with a credit provider by providinginformation, likewise a credit provider is required to deal in good faith with a consumer. This isbecause the bankin g business is affected with the public interest. Trad itionally, banks and theiremployees have been held to a high degree of integrity and responsiveness to their public calling.ZZZZ fell below this standard because in my opinion, its credit card provided no benefits to theconsumer. In my opinion the ZZZZ card only drained econom ic resources to pay exorbitant fees andcharges that could have been used by the consumer for other purposes. The only entity thatbenefited was ZZ ZZ.Fair, Reasonable and E quitable Are Banking Industry StandardsThe standard of the banking industry is that the terms of credit should be fair, reasonable andequitable. It appe ars tha t ZZ ZZ solicited financially unsophisticated individu als for their credit cardproducts. ZZZ Z marketed credit repair. This too was deceptive because of the amount of creditavailable and characteristics of the ZZZ Z credit card product. Based upon my m ore than 35 years of

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experience in the banking, business and consulting industries, the fairness of the credit provided tothe plaintiffs involved in this m atter doe s not appear to exist.The ZZZZ credit card arrangement involved in this matter is manifestly on its face, unfair,unreasonable and not equitable. High interest rates, hidden fees and high late charges coupled withillusory credit are characteristic of the product that ZZZZ mark eted. In addition, with respect tobasic credit, default was highly likely, predictable and inevitable. Th is is because, Z ZZZ did little orno underwriting. Cons equen tly, if the consum er had a history of bad credit and no underwriting tookplace, merely the card was issued. It doesn't take "a rocket scientist" to de termine that an event ofdefault was highly likely predicated up on the credit histories of borrow ers. By definition, borrowerswho have credit that they wish to have repaired are borrowers who have impaired credit histories.Historically, borrowers with impaired credit histories are more likely to default than borrowers withpristine credit histories. Thos e are basic axiom s of banking and are found ations of my opinions inthis matter.In summary, therefore, a bank should not market a credit product without providing full disclosureof the terms and c onditions. Misrepresentations are below industry standards.Supplemental Information:Pursuant to Federal Rule of Civil Procedure 26 : Disclosure of expert testimony, the following issubmitted:

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12.3 Car Dealer and Bank Incentives to Inflate Interest Rate on Non-

Recourse Credit Sale

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PI, Thom as Tarter, declare: - I ( ~ / r / s p f l Y uEim -I have personal knowledge of the matters detailed h e r e i n w e d sa witness I could and wou ld testify competently thereto.1. I am the Managing D irector of the Ande la Consulting Group, Inc.

("ACG"), a banking and corporate finance firm which provides research,consulting and expert witness services involving a variety of m atters includinglender liability issues, consumer credit practices, fraud, and dispute resolution.

2. 1 have over 25 years of experience in the commercial lending andbanking businesses inclusive of experience in advising parties in connectionwith the m atters set forth on paragraph 2 above. I started my career at LloydsBank California, where I was a Vice President in the Corporate and C aliforniaDivisions; and continued it at the Sanw a Bank of California, as Vice Presidentand Senior Credit O fficer for Southern Ca lifornia; Bank of Los Ange les, asFound ing Director, President and Chief E xecutive Officer; Center National Bank,as Director, President and Chief Executive Officer; First Los Ange les Bank, asExecutive Vice President; and ACG. I was a lso a founder and organ izer ofHancock Savings Bank. Attached hereto as Exhibit A is a copy of my C urriculumVitae.

3. 1 have served as a litigation consultant in banking and financialinstitution matters in numerous cases, and I am frequently requested to provideadvice to accountants, bankers and attorneys regarding general practices of thebanking industry, including but not limited to questions and disputes regardingconsumer credit lending and collection practices.

4 . My work with these financial institutions and my consu ltingexperience on financial institution matters includes; (i) consumer credit lending

2 7 and collection practices; (ii) the developm ent and implementation of consumer

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lending and collection policies and procedures; (iii) the establishment of interestrates for consumer loans; and, (iv) guidelines for the purchase of consumerautomobile loans and leases. These assignments and duties also covered therecruitment and training of loan adm inistration, departmental managers,marketing and loan collection personnel involved in automobile leases andloans including contracts (leases and loans) purchased from automobiledealers.

5. 1 have also served on Investment, AssetILiability, Funds Allocationand Loan Com mittees and participated in audit examinations involvingconsumer credit and bank practices.

6. During my banking career, I was involved in a direct andadministrative capacity in consumer credit related matters which includedcontracts and leases purchased from automobile dealers as well as loansmade directly to consum ers.

7. 1 have been appointed as a mediator in the Bankruptcy MediationProgram of the United States Bankruptcy Court for the Central District ofCalifornia. In addition, I was a member of the Board of the Los AngelesBankruptcy Forum.

8. 1 have a Master of Business Administration degree from SantaClara University and a Bachelor of Science degree in business from theUniversity of Ca lifornia a t Los Angeles.

9. 1 not only have a broad basis of experience in the banking industryover the past 25 years, but I have specific experience in the particular issues ofthis matter. As an expert, I have been retained in more than 30 m attersinvolving consumer vehicle loan and lease financing. I have also reviewedvarious-ealer agreements, reviewed manyv e h i c l e ease and loan transactions and have read and reviewed

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many ' consumer loan policies and procedures.10. 1 have been qualified as an expert in both Federal Court as well as

California Superior Court.11. I hav e been retained by plaintiffs as an expert in this case to form opinions

in this c ase regarding general business and lending p ractices involving automobiledealers and banks, including but not limited to, yield spread premiums, thesplitting of the d ifference between contract and buy rates between a bank and adealer and consumer d isclosure responsibilities and obligations.111

SUMMARY OF OPINIONS IN THIS CASE:12.'as an agen t for- because they

originated consum er loans secured by vehicles which-urchased and did n ot intend to provide financing itself to vehicle purchasers.

was an illusory lender.13. Sim ply put, intended to shop plaintiff-s loan around

@

like a loan broker or middlem an to different lenders to obtain mqxim um profit. It did not*intend to retain the contract, based upon the testimony of - its finance manager.

did not intend to be a lender. It was in the business of selling cars and not makingloans to customers.

14.'olicited-n order to increase its loan portfolioof consumer loans secured by vehicles and entered into a Dealer Agreement that involvednon-recourse financing and profit incentives for both the - and

23 that were dependent upon the rate that was charged to the borrower: i.e., the higher the rate, the24 higher the profit for the bank and the dealer.25 15. The buy rate for the loan set a floor. As a result, since was26 aware of the-ending guidelines, it was aware that anything above the floor27 would represen t additional profit for bo th its self and- 4 -3

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16. The borrowing relationship between-nd plaintiff, wasestablished when - accepted the plaintiffs credit application.

17 .-dvised o f ts lending criteria and does notaccept assignments of vehicle loans that do not meet its criteria.

18. Plaintiff dlCI ould have gone directly to-nd obtained avehicle loan at a lower rate than he obtained frome.ased o n the testimony of7redit Risk Manager,- Plaintiff could have obtained aloan at]t 12.5% which is consistent with m y perception of the market at thattime./I /

DISCUSSION20. Banking Industry Changes: As discussed in its commentary in

1977, the Federal Reserve Board reported that in 1977 that most consumerloans secured by vehicles assigned to banks by dealers were on a recoursebasis. This means that if a default occurred, the bank had the option to chargethe loan back to the dea ler at any time during the life of the loan. The bankingindustry recourse vehicle loan practice described by the Federal Reserve Boardin 1977 was materially different than the non-recourse practice that exists in thebanking industry today and in this m atter. Non-recourse financing normallymeans that the bank can not charge a loan back to a dealer if a default occursafter 90 days or 3 payments. This is a very narrow window.

21. Consequently, in non-recourse financing, as it exists today, thedealer has a very small risk of charge back as compared to recourse financingthat existed in 1977. This is especially relevant when compared to the length ofcontracts (the per iod that the bank is at risk) which routinely range between 48and 72 months today versus 36 to 48 months that was common in 1977.

22 . Therefore, today the risk for all practical considerations has- 5 -

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effectively been shifted from the dealer having liability for bo rrower default to thebank. Today the bank is the real lender versus just being a renter of money tothe dealer.

23. Today, dealers are well aware of bank loan guidelines. Technologyhas enabled dea lers to be aware during the negotiation process, prior to loanconsummation of a purchaser1s credit profile. As a resu lt, at the time that avehicle purchase contract has been written. The dea ler has a very good ideathat the contract will be purchased and on what terms. Again, the dealer is ableto write a contract in a manner that it knows that the contract will be bought, thatit will not be liable and that it will be paid an incentive to write the loan in excessof the buy rate in the form of splitting the differential between the contract rateand the buy rate with the bank.

16. As a result, while an argument could have been made in 1977 that a dealerwas compensated for the risk of loss and remaining liable in recourse loan situationsthrough dealer participation in the splitting of the d ifference between contract and buyrates involving consumer vehicle loan contracts. It is clear to me that in today'senvironment that same argum ent can not be made with respect to non-recourse loanssuch as the one made to plaintiff in this matter. The dealer participation feesplit appears to me to represent an origination fee paid to the dealer by the bank andadditional income to increase the yield on the loan to the bank.

25. The Dealer Agreement: The dealer agreement is created and controlledexclusively by a bank. In this matter t h e . solicitspotential vehicle purchasers, such as - on the bank's beha lf, and then sells theloan to - The consumer vehicle purchaser, however, must fit veryspecific guidelines created and tightly controlled by but yet which arewell known by the dealer at the time that the consumer is purchas ing the vehicle. Infact, the dealer acts as a brokerlagent for the bank, procuring loans on behalf of the

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bank, and subject to the specification and control of the bank.26. provides dealerships, such as -

with various docum ents including rate sheets, tiered cred it criteria and specialpromo tions. Before providing all of these docum ents to the dealership, thedealership has to enter into a Dealer Agreement with " Further,pursuant to'greement with - the ~ a l e rAgreem ent, including the fee splitting agreement between the contract and buyrates are not to be disclosed to consumer vehicle purchasers.

27. and-ad such a DealerAgreem ent at the time of the- transaction.-nd*IIII,See Declaration o- in Support of Plaintiffs' Oppositionto Motion for Summary Judgment andlor SummaryAdjudication, Exh. - Dealer Agreem ent sets forth som e of thefactual basis of the considerable control that 'e x e r c is e s overmo tor veh icle purchase transac tions that were procured for- bywIllIll

I declare under pena lty of perjury under the laws of the State of Californiathat the foregoing is true and correct. Executed on January 17, 2003, atSherman Oaks, California.

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12.4 Applicability of TILA and HOEPA to Predatory Mortgage Loan

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including consumer lending standards and practices.I have significant experience in banking, business and consulting inclusive of experience inconnection with the matters set forth in this report. I have served as a management consultant,business advisor and on the boards of directors of public, financially troubled and closely heldcorporations (large and sm all) including SEC reporting corporations such as First AllianceMortgage Company.My experience in the financial institutions industry spans more than 30 years inclusive ofexperience in connection with the matters set forth in this Declaration. I started my career atLloyds Bank California, where I was a Vice President in the Corpo rate Finance and C aliforniaDivisions; and continued it at the Sanwa Bank of California, as Vice President and the S eniorCredit Officer for Southern Californ ia; Bank o f Los Angeles, as Founding D irector, Presidentand Chief Executive O fficer; Center National B ank, as Director, President and Chief ExecutiveOfficer; First Los Angeles Bank, as Execu tive Vice President; Western States BankcardAssociation, as a director and A CG . I was also director of the Fort O rd Credit Un ion, advisor toMatadors Comm unity Credit Union and a founder and organizer of Hancock Saving s Bank. Acopy of my resume is attached hereto as Exh ibit A and is incorporated herein by this reference.My work with financial institutions, lenders, ACG and my consulting experience includes (I)consumer credit lending and collection practices; (ii) the development and implem entation ofconsumer loan origination, loan disclosure, loan underwriting, loan approval, loan disbursemen tand collection policies and procedures; (iii) the establishment of interest rates for consumerloans; and, (iv) the developm ent o f guidelines for the purchase and sale of consumer loans.As a prior financial institution o fficer, senior executive and board o f directors mem ber, I haveconsiderable experience in consum er loan related issues such as those involved in this matter.Since 1993, I have advised ACG's clients and served as a litigation consultant regarding theabove sub ject matters.I have also supervised litigation counsel involved in consumer lending disputes and initiatedaudit examinations pertaining to suspicious circumstances involving consum er credit disputesand bank p ractices.I have been appointed to the mediator panel for the Bankruptcy Mediation Program of the UnitedStates Bankruptcy Court for the Cen tral District of California and have m ediated disputes. Inaddition, I am a m ember o f the Board of the Los Angeles Bankruptcy Forum.I have a Master of Business Administration from San ta Clara University and a B achelor ofScience in business from the University o f California at Los Angeles.

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DOCUMENTS AND DISCUSSIONSIn preparing the Report, I have reviewed num erous documents including but w ere not limited tothe following:

Amended Complaint;Instructions to Escrow ;Final - Settlement Statement U.S. Department of Housing a nd UrbanDevelopment;Estimated - Settlement Statement U.S. Department of H ousing and UrbanDevelopment;Note, May, 19,2000;Deed of Trust, dated May 19 ,20 00 and notarized May 24 ,20 00 ;Assignment of Deed of Trust, notarized May 24 ,20 00 ;Notice of Assignment, Sale, Or Transfer of Servicing Rights, dated May 24,2 000;Norwest Loan Center, Inc. -N oti ce of new loan servicer - Flagstar Bank; datedMay 26,2000 ;Notice of Right to Cancel, dated May 24,2 000 ;Broker Closing Instructions, signed May 18 ,20 00 [Rainier] and M ay 24, 20 00[signature not legible];Table Funding Request Form;Truth-In-Lending Disclosure Statement, dated May 1 9 ,2 00 0 annual percentageRate 9.508%;Truth-In-Lending Disclosure Statement morwest Loan Center], preparation date,April 24 ,20 00 annual percentage rate E 8.7 17%;Access Mortgage, Fax dated May 3 1,2 00 0 re $640 credit;Rainier American Mortgage, Rate Lock Agreement/Disclosure Agreement, LockDate, May 04, 2000, 8.50%;Appraisal Invoice, dated May 05,2 00 0, handwritten note "paid wlcredit card";Good Faith Estimate, Norwest Loan Center, prepared April 24,2000;Uniform Residential Loan Applications - Georgiana and Sidney Ott;Instructions to Escrow , dated May 19, 2000;Pioneer Title Company, Second Supplemental to Commitment;Norw est Loan Center, Inc., Trust Department Post C losing Checklist.Report of Rona ld F. Greenspan

OPINIONS AND CONCL USIONSBased upon my review of the aforementioned Documents and my ow n banking, board, businessand consulting experience, I have formulated the following opin ions and conclusions:1. The are consumers, used the funds derived from the refinance their residence

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primarily for personal,payable in more than 4disclosure.family or household purposes, and the loan that they received wasinstallments. he oan was, therefore, sub ject to TILA

2. T h e oan qualified for HOEPA because the "points and fees" exceede d 8% of theloan amount.

3. In determining the "points and fees" in this matter, I included the follow ing as financecharges:Broker Credit $(640.16)Loan Origination Fee 3,337.00Processing fee, NW 15.00Admin Fee 150.00Comm itment Fee 425.00Tax Service 80.00*Underwriting Fee 250.00Escrow waiver 162.50Interest 15.14Closing Fee SEC 350.00**Fed Express 50.00*Wire Fee to Close 50.00*Total $4,924.48* included because either kept andlor were considered to be unreasonable.* * included because Norwest treated the closing fee as a finance charge andfurther it appears as if the fee was not a service itemized as beingexcludable and must be included in the finance charge. No title, serviceswere apparently provided by S EC and Flagstar Bank prepared almost allof the docum ents involved in the loan.

4. In calculating the total loan am ount, I deducted the $700.00 from that the Otts wererequired to pay at closing because it had the effect to reduce the amo unt that theyfinanced.5 . I calculated the amount financed to be $60,073.52. This calculation included $379 .13 invarious amount financed charges including the credit report [$25.00], title policy

[$180.00}, reconveyence fee [$50.40] and other miscellaneous fees.5. Based upon my review of the documents, it appears to me that HOE PA would apply byusing the creditor's ow n disclosure documents wherein the creditor disclosed an amountfinanced of $59,39 3.56 and prepaid finance charges of $5,6 05.44, it can be seen that the

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points and fees exceeded 8% of the total loan amount by $853.96 . Alternatively, usingmy calculations, HOE PA also applied because the total points and fees exceeded 8% o fthe total loan amount by $1 18.60.6. TILA disclosures are inaccurate.7. The normal lender borrower relationship did not exist. Lenders normally do not providefinancial advise to a consumer regarding a change in property ownership. Therequirement t h a l b e n title is banking and lending industry standards .8. The did not qualify for the loan. It appears that based upon their respective incomeshich totaled app roximately $13 12.001mo that after the $499.79 loan payment that only$8 12.001mo remained for food, utilities, pills, transportation and basic subsistance for twopeople. One of whom w as elderly and the other disabled. The defendants obviously hadtheir eyes shut and their hands out. This loan should never have been made because itappears clear to me that two people would have an extremely difficult time existing on acombined income of only $812.00/mo.