If I missed a scheduled payment to a bank, I would probably get hit with a late fee. Credit bureaus would receive a delinquency report. If I continued to miss the payment, debt collectors would harass me at all hours with phone calls. They might take me to court and get a judgment against me that enables them to garnish my wages or my tax refunds. If the debt was secured — i.e., backed by a piece of collateral — the creditor could initiate proceedings to take that collateral away from me. In the case of a mortgage, that means repossessing my house in a foreclosure action. They could take my car or strip me of all my other assets.
All of these consequences made the credit system work: Without them, people would be foolish to pay their debts. But if you’re a big bank, you can fail to make a
$20 million payment for two years — something you would never tolerate from your own customers — and face absolutely no consequences. That’s just how our financial system rolls.
A case study of these separate sets of rules for powerful institutions came this week when Bloomberg Business revealed that Citigroup, which would not exist today without substantial financial support from U.S. taxpayers, forgot to pay 23,000 borrowers entitled to restitution under something called the Independent Foreclosure Reviews (IFR).
Because I’m making a very specific point, let's ignore for the moment the plain fact that the IFR, designed to check all foreclosures in 2009 and 2010 for processing errors, was neither “independent” nor a “review.” It was ultimately aborted and turned into a cash settlement, where most borrowers — including those who improperly lost their home — received less than $1,000 and as little as $300 in compensation for this destruction of their wealth and financial security. By contrast, the reviewers of the loan files, who were ultimately fined for inability to complete the task, received $20,000 a loan. The IFR was one of the most disgraceful episodes in the entire financial fraud accountability charade of the past few years.
Setting that aside, the banks that agreed to the reviews were required to send payments to borrowers. Here’s Citigroup’s enforcement agreement, signed February 28, 2013, almost exactly two years ago. It says that the bank must identify all of its borrowers eligible for compensation “promptly,” and within 15 days put a cash payment of over $306 million into a settlement fund, to be drawn down accordingly. The Office of the Comptroller of the Currency (OCC), who along with the Federal Reserve created the IFR, had to review Citigroup’s list of eligible borrowers. If Citigroup needed more time to comply, it had to submit a written request to the Deputy Comptroller.
The checks initially bounced, and 400,000 were sent to the wrong address, which is lovely. But an April 2014 report by the OCC claimed that Citigroup fulfilled its obligation. The nation only found out about the “missing” 23,000 payments, which totaled $20 million, a year later.
There don’t seem to have been any consequences for Citi neglecting $20 million in government settlement payments for two years. Under the consent order, the OCC could make claims against Citi for violating the settlement. If they’ve done so, they’re being awfully quiet about it. (A phone call to the OCC’s public affairs office was never returned.) It looks like what happened is that regulators found that Citigroup left out 23,000 borrowers, Citi said “our bad,” promised to mail the checks two years late and life went on unobstructed.
Did Citigroup have to pay interest or make a late fee on two years’ of missed payments? No. Was its credit rating affected? No. Did it have a lien placed on its headquarters or bank branches, as would many debtors who failed to pay? No. Did the OCC call them in the middle of the night and threaten to garnish their tax refund? No. Were they in any way treated the way “deadbeat borrowers” are in this country? Nah. In fact, they got to use that $20 million for two years, and profit from it, without punishment.
What if Citi Was a Citi Customer?
I started to wonder how Citigroup would treat clients who missed $20 million in payments for two years. It’s a surprisingly hard question to answer! Citi Credit Cards says they will assess a late fee “when you fail to pay the minimum payment due by its due date.” Under the 2009 CARD Act, a credit card late fee must not exceed $25 for the first violation and $35 thereafter. Here we have 23,000 separate violations, so that’s $575,000 the first month, $805,000 after that, and $19.09 million in late fees over the two-year spread.
There is a “Citi Simplicity” card with no late fees, but it charges up to 22.99 percent interest. That would be $4.6 million in interest the first year, and $5.6 million the next. So with Citi’s best, no-late-fee deal, the bank would owe an extra $10.2 million.
On personal loans, Citi is slippery, saying only, “terms, conditions and fees for accounts, products, programs and services are subject to change.” Annual interest payments range from 10.74 to 22.24 percent. So again, that’s millions of dollars, before getting to any penalties.
Citi Home Finance’s fee schedule on late mortgage payments is simply impossible to find unless you’re a customer. But mortgage servicers typically layer fees on top of one another, whether late fees or property inspection fees or much more. This is because fees go entirely to the servicer and represent the one variable in their revenue model. Not to mention that, if a borrower is two years late on their mortgage payment, they’re almost certainly having their home taken away in a foreclosure sale. If you even tried to pay two years later, the servicer would most likely not accept it, having accelerated the loan.
What I don’t see anywhere is evidence that Citigroup would react to two years of one of their customers missing a $20 million payment by shrugging their shoulders. They have all kinds of recourse to take action against a debtor. They’re not in the business of offering two-year, interest-free, no-penalty loans.
In the grand scheme of things, this is a pittance of a sum for a mega-bank. The 23,000 borrowers will get less than $1,000 apiece. And hey, the checks went out to the other 350,000 or so who were eligible. It would be easy to chalk this up to an unfortunate mistake and move forward.
But in the real world there are penalties for defaulting on obligations. Only on Wall Street do those cease to exist. The regulators who called Citgroup’s attention to this “error” — a nice euphemism for theft — should be ashamed that they not only allowed foreclosure victims to get rooked for two years, but that they made no effort at sanctioning Citigroup for the misconduct.
We’ve seen a lot of injustice since the financial crisis, and maybe this one doesn’t rank so high. But if you as a regulator bend over backwards to grant a criminally liable bank a cash settlement to keep them out of jail, and then they don’t even pay the cash, and you do nothing about that either, maybe you should find another line of work.
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