Courtesy of Pam Martens.
Yesterday, the Consumer Financial Protection Bureau (CFPB) charged two units of the Wall Street mega bank, Citigroup, with insidious fraudulent acts against homeowners while it imposed a modest $28.8 million in relief and penalties. The penalty portion of $7.4 million is meaningless because this is a bank that serially breaks the law, laughs at its regulators, and, most outrageously, it was simultaneously engaging in heinous misdeeds against Americans while the U.S. government was using taxpayer money to bail out its failed business model of brazen financial frauds. The $7.4 million in fines also stands in contrast to the $14.9 billion that Citigroup reported as net income for 2016.
We will get to the current CFPB charges in a moment, but first some necessary background. On May 20, 2015, Citigroup’s commercial banking unit, Citicorp, pled guilty to criminal charges brought by the U.S. Justice Department for its role in rigging foreign currency markets. The bank was fined $925 million. The conduct for which Citicorp was charged covered the period of December 2007 until at least January 2013. In addition to the fine, Citicorp was put on a three-year probation.
During the period of its criminal conduct, Citigroup and/or its various units were receiving the following from the taxpayer in the largest bailout of a bank in U.S. history: The U.S. Treasury infused $45 billion in capital into Citigroup to prevent its total collapse; the government guaranteed over $300 billion of Citigroup’s assets; the Federal Deposit Insurance Corporation (FDIC) guaranteed $5.75 billion of its senior unsecured debt and $26 billion of its commercial paper and interbank deposits; the Federal Reserve secretly funneled $2.5 trillion in almost zero-interest loans to units of Citigroup between 2007 and 2010. And those are just the details the public has been given thus far.
Simple logic would suggest that when a bank is a serial recidivist lawbreaker, the fines should be going up, not dramatically shrinking; its top management should be ousted and a new Board appointed. None of that is happening. For example, the Justice Department’s 2015 fine of $925 million is 125 times more than the CFPB just charged Citigroup’s two units.
The two units of Citigroup the CFPB charged yesterday are CitiFinancial Servicing and CitiMortgage, Inc. The period for which the CFPB alleges fraudulent acts were committed by CitiMortgage was during most of 2014. The period for which the CFPB alleges fraudulent acts were committed by CitiFinancial Servicing covers July 2011 through April 30, 2015 – stopping suspiciously short by just one month of the date the Justice Department charged Citigroup’s Citicorp with a criminal felony and placed it on a three-year probation — where it could be indicted and prosecuted if it committed further crimes.
Among the brazenly fraudulent acts against the public that the CFPB charges against CitiFinancial Servicing are the following:
- Misled consumers about the impact of deferring payment due dates: Consumers were kept in the dark about the true impact of postponing a payment due date. CitiFinancial Servicing misled borrowers into thinking that if they deferred the payment, the additional interest would be added to the end of the loan rather than become due when the deferment ended. In fact, the deferred interest became due immediately. As a result, more of the borrowers’ payment went to pay interest on the loan instead of principal when they resumed making payments. This made it harder for borrowers to pay down their loan principal.
- Charged consumers for credit insurance that should have been canceled: Some borrowers bought CitiFinancial Servicing credit insurance, which is meant to cover the loan if the borrower can’t make the payments. Borrowers paid the credit insurance premium as part of their mortgage payment. Under its terms, CitiFinancial Servicing was supposed to cancel the insurance if the borrower missed four or more monthly payments. But between July 2011 and April 30, 2015, about 7,800 borrowers paid for credit insurance that CitiFinancial Servicing should have canceled under those terms. These payments were still directed to insurance premiums instead of unpaid interest, making it harder for borrowers to pay down their loan principal.
- Prematurely canceled credit insurance for some borrowers: CitiFinancial Servicing prematurely canceled credit insurance for some consumers. Some of those borrowers later had claims denied because CitiFinancial Servicing had improperly canceled their insurance.
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