Bank of America is paying $16.65 billion to settle fraud claims by federal and state enforcement agencies and regulators that relate back to the financial crisis of 2008. It’s “the largest civil settlement with a single entity in American history,” the DOJ said Thursday. Where’s the money going?
Here’s a breakdown provided by the Justice Department as reported by FCPA Blog.
Almost $10 billion will be paid to settle federal and state civil claims by various entities related to residential mortgage-backed securities, collateralized debt obligations, and other types of fraud
Bank of America will pay a $5 billion civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery and Enforcement Act
About $1.8 billion will be paid to settle federal fraud claims related to the bank’s origination and sale of mortgages
$1.03 billion will be paid to settle federal and state securities claims by the Federal Deposit Insurance Corporation
$135.84 million will be paid to settle claims by the Securities and Exchange Commission
$300 million will be paid to settle claims by the state of California
$45 million to settle claims by the state of Delaware
$200 million to settle claims by the state of Illinois
$23 million to settle claims by the Commonwealth of Kentucky
$75 million to settle claims by the state of Maryland, and
$300 million to settle claims by the state of New York.
Bank of America will provide the remaining $7 billion in the form of relief to aid hundreds of thousands of consumers harmed by the financial crisis precipitated by the unlawful conduct of Bank of America and its Merrill Lynch and Countrywide units, the DOJ said.
That relief will take various forms, including principal reduction loan modifications that result in numerous homeowners no longer being underwater on their mortgages and finally having substantial equity in their homes.
It will also include new loans to credit worthy borrowers struggling to get a loan, donations to assist communities in recovering from the financial crisis, and financing for affordable rental housing.
Finally, Bank of America has agreed to place over $490 million in a tax relief fund to be used to help defray some of the tax liability that will be incurred by consumers receiving certain types of relief if Congress fails to extend the tax relief coverage of the Mortgage Forgiveness Debt Relief Act of 2007.
How will anyone know if BofA is following the rules of the settlement?
An independent monitor will be appointed to determine if the bank is satisfying its obligations. And finally, the DOJ said: “If Bank of America fails to live up to its agreement by August 31, 2018, it must pay liquidated damages in the amount of the shortfall to organizations that will use the funds for state-based Interest on Lawyers’ Trust Account (IOLTA) organizations and NeighborWorks America, a non-profit organization and leader in providing affordable housing and facilitating community development.”
Those organizations will use the funds for foreclosure prevention and community redevelopment, legal assistance, housing, counselling and neighborhood stabilization, the DOJ said.
The settlement is truly historic, as Attorney General Eric Holder said Thursday, and goes far beyond a cost of doing business. By the way, the settlement doesn’t release individuals from civil charges or absolve Bank of America, its current or former subsidiaries and affiliates, or any individuals from potential criminal prosecution.
The ordeal of Bank of America presents real lessons for banks in Africa especially Nigeria which has had a history of failed banks and allied financial crisis: Never use fraud to cover fraud because it will always spiral to endless fraud and a culture of graft; once a fraud is suspected, the management of that bank should deal with it or be seen to have done so by the immediate employees of the bank and the public; the regulator should at all times be above board and not operate on assumption and presumption that every bank ought to play by the rules.
