TIME Companies

Here’s How Much Banks Have Paid Out Since the Financial Crisis

Bank of America's new settlement with the Justice Department is among the largest

The Bank of America deal announced Thursday, the government’s largest-ever settlement with a single company, means the nation’s second-biggest bank will shell out $16.65 billion over allegations that it knowingly sold toxic mortgages to investors.

The landmark agreement is a win for the government—particularly the Department of Justice, which spearheaded the probe—after drawing criticism for its sometimes weak response to the financial crisis in 2008. The sum surpasses Bank of America’s entire profits last year and is significantly higher than the $13 billion it offered during negotiations in July.

But the deal also caps a string of settlements that the Justice Department and other regulators have imposed on banks in the wake of the recession. Since the crisis, the six largest banks by assets have paid more than $123.5 billion in settlements over faulty mortgages, according to previous data from SNL Financial and incorporating the latest settlement. Authorities have forced the banks to pay the majority of that amount, and more deals are likely: Goldman Sachs and Wells Fargo are both reportedly on deck.

Here are seven of the largest government settlements:

$25 Billion
Wells Fargo, J.P. Morgan Chase, Citigroup, Bank of America, Ally Financial
February 2012

In what President Barack Obama called a “landmark” settlement, five of the nation’s largest banks agreed to a $25 billion settlement with 49 states and the feds to end an investigation into faulty foreclosure practices (Oklahoma reached a separate deal). Most funds were directed toward mortgage relief.

$16.65 Billion
Bank of America
August 2014

The settlement announced on Aug. 21 includes $7 billion for consumer relief, such as mortgage modification and forgiveness, and $9.65 billion in cash. But the deal doesn’t absolve the Charlotte-based bank of future criminal claims or claims by individuals.Bank of America has paid more than $60 billion in losses and legal settlements spawning from troubled mortgages—the most of any bank.

$13 Billion
J.P. Morgan Chase
November 2013

The largest U.S. lender agreed to what was then a record-setting settlement with the Justice Department over its role in the sale of the mortgages. “JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior,” Holder said at the time.

$11.6 billion
Bank of America
January 2013

The bank, which acquired the mortgage lender Countrywide Financial in 2008, agreed to a $11.6 billion settlement over claims that it and Countrywide improperly sold mortgages to Fannie Mae.

$9.5 billion
Bank of America
March 2014

Ahead of the Justice Department settlement, Bank of America agreed to pay $9.3 billion to settle additional allegations that it sold faulty mortgages to Fannie Mae and Freddie Mac.

$9.3 Billion
Thirteen Banks
February 2013

Federal regulators finalized a deal with thirteen lenders — including the three largest — for faulty processing of foreclosures. The sum allowed for borrowers who went through foreclosure to access up to $125,000.

$7 Billion
Citigroup
July 2014

Citigroup, the third-largest bank, and the Justice Department announced the deal in July amid allegations that the company misled investors about the mortgage-backed securities. The settlement, which included about $2.5 billion for consumer relief, surprised some analysts by its size, but was a harbinger of what was in store for Bank of America in the coming weeks.

MONEY financial crisis

What Bank of America Did to Warrant a $17 Billion Penalty

A protester holds up a sign in front of the Bank of America as a coalition of organizations march to urge customers of big banks to switch to local credit unions in San Diego California November 2, 2011.
Mike Blake—Reuters

It's the biggest settlement ever between a corporation and the U.S. government. Here's what it reveals about how bankers inflated the housing bubble.

Bank of America has agreed to pay $16.65 billion dollars in penalties—the largest settlement ever between the U.S. government and a private corporation—for its role in the financial crisis. As Attorney General Eric Holder said Thursday morning, the payout will help “hold accountable those whose actions threatened the integrity of our financial markets and undermined the stability of our economy.”

So what did Bank of America actually do? As part of the settlement, the Justice Department has issued a 30-page “Statement of Facts,” signed by the bank, detailing the actions Bank of America is paying for today. The document includes events that took place at Merrill Lynch and Countrywide, which Bank of America later acquired. It’s full of e-mails and statements from employees and executives, which often make for infuriating, if sometimes grimly funny, reading.

Here’s what happened. In the years leading up to the financial crisis, Bank of America and Merrill Lynch sold various securities based on home loans. If the buyers paid their loan back, investors made money, but if too many defaulted, investors lost. To make sure investors knew what they were getting into, the two companies were required to report to investors on how safe these loans actually were.

The problem? Both BoA and Merrill, the statement says, knew with increasing certainty that many of their loans were troubled or at least likely to be risky, and didn’t fully disclose this.

At Merrill, one consultant in the company’s due diligence department complained in an email:

[h]ow much time do you want me to spend looking at these [loans] if [the co-head of Merrill Lynch’s RMBS business] is going to keep them regardless of issues? . . . Makes you wonder why we have due diligence performed other than making sure the loan closed.

The Merrill email pales next to the almost-cartoonish cynicism on display in some Countrywide emails. In addition to selling mortgage-backed securities, Countrywide was on the front lines giving mortgages to home buyers. Justice Department documents suggest that the company increasingly offered loans to almost anyone who walked in the door. What mattered was whether the loan could later be sold to someone else. Wrote one exec:

My impression since arriving here, is that the company’s standard for products and Guidelines has been: ‘If we can price it [for sale], then we will offer it.’

In an email from 2007, another executive reflected that:

[W]hen credit was easily salable… [the desk responsible for approving risky loans] was a way to take advantage of the ‘salability’ and do loans outside guidelines and not let our views of risk get in the way.

Because why should a mortgage company care about risk?

But what makes Countrywide special isn’t just that they gave out a lot of bad loans, it’s that they sold those bad loans to others while keeping the good ones for themselves. In a 2005 email, the Countrywide Financial Corporation (CFC)’s chairman—not named in the statement, but it was Angelo Mozilo—wrote that he was “increasingly concerned” about a certain adjustable rate loan. He feared that the average borrower was not “sufficiently sophisticated to truly understand the consequences” of their mortgage, making them increasingly likely to default. He wrote:

…the bank will be dealing with foreclosure in potentially a deflated real estate market. This would be both a financial and reputational catastrophe.

So what did Countrywide do about it? Sell the products on the secondary market, and keep only the mortgages given to more qualified buyers. According to the settlement document, Countrywide’s public releases “did not disclose that certain Pay-Option ARM loans included as collateral were loans that Countrywide Bank had elected not to hold for its own investment portfolio because they had risk characteristics that [Countrywide Financial Corporation] management had identified as inappropriate for [Countrywide Bank].”

In another email, this time from 2006, CFC chairman Mozilo explicitly spelled out this policy to the president of Countrywide Home Loans, writing:

important data that could portend serious problems with [Pay- Option ARMs]. Since over 70% have opted to make the lower payments it appears that it is just a matter of time that we will be faced with a substantial amount of resets and therefore much higher delinquencies. We must limit [CB’s retained investment in] this product to high ficos [credit scores] otherwise we could face both financial and regulatory consequences.

What do you know? Looks like those “financial and regulatory consequences” happened anyway.

TIME Money

Bank of America To Pay Record $16.65 Billion Fine

Bank Of America Reports Loss Due 6 Billion Dollar Legal Charge
Spencer Platt—Getty Images

$7 billion of it will go to consumers faced with financial hardship

Updated: 10:14 a.m.

The Justice Department announced Thursday that Bank of America will pay a record $16.65 billion fine to settle allegations that it knowingly sold toxic mortgages to investors.

The sum represents the largest settlement between the government and a private corporation in the United States’ history, coming at the end of a long controversy surrounding the bank’s role in the recent financial crisis. In issuing bad subprime loans, some observers say, the bank helped fuel a housing bubble that would ultimately burst in late 2007, devastating the national and global economy.

“We are here to announce a historic step forward in our ongoing effort to protect the American people from financial fraud – and to hold accountable those whose actions threatened the integrity of our financial markets and undermined the stability of our economy,” Attorney General Eric Holder said at a news conference announcing the settlement.

Since the end of the financial crisis, the bank has incurred more than $60 billion in losses and legal settlements. Of the latest settlement, $7 billion will go to consumers faced with financial hardship. In turn, the bank largely exonerates itself from further federal scrutiny.

However, not all is forgotten. The New York Times reports that federal prosecutors are preparing a new case against Angelo Mozilo, the former chairman and chief executive officer of Countrywide Financial, which Bank of America acquired in mid-2008. As the country’s largest lender of mortgages, Countrywide Financial purportedly played a large role in distributing toxic loans. Mozilo has already paid the Securities and Exchange Commission a record $67.5 million settlement.

MONEY Saving

WATCH: How You Can Save More Money

Financial planning experts share easy ways you can trick yourself into saving more money.

MONEY mortgages

WATCH: How You Can Benefit from Easier Mortgages

Mortgage loans are easier to get now. Here's how you can take advantage of it.

TIME Banks

U.S. Regulators: Wall Street’s Largest Banks Still Too Big To Fail

Bank Of America Reports Loss Due 6 Billion Dollar Legal Charge
Spencer Platt—Getty Images

The biggest banks still don't have adequate bankruptcy plans to avoid precipitating another economic crisis, said U.S. regulators

Eleven of the nation’s largest banks still do not have viable bankruptcy plans that would avoid causing widespread economic damage, U.S. regulators said Tuesday in a sweeping admonition of Wall Street’s giants.

The Federal Reserve and the Federal Deposit Insurance Corp said that the bankruptcy plans submitted by the 11 biggest banks in the United States fail to prepare for an orderly failure, have “unrealistic or inadequately supported” assumptions and do not properly outline changes in firm structure that would prevent broader economic repercussions.

“…[T]he plans provide no credible or clear path through bankruptcy that doesn’t require unrealistic assumptions and direct or indirect public support,” said Thomas Hoenig, the second-in-command official at the FDIC, in a statement.

Banks are required to submit an annual “living will” under the 2010 Dodd-Frank law, a legacy of the financial crisis of 2007-2008, in which the bankruptcy of Lehman Brothers was a precipitating factor in the economic crash that led to the Great Recession.

Regulators called for banks to create “living wills” to plan for a bankruptcy process that would not require the billions of dollars in taxpayer money doled out during the financial crisis, when many of Wall Street’s biggest financial institutions had to borrow billions from the Treasury to avoid disastrous collapse.

With Tuesday’s announcement, the large banks face the threat of tougher capital rules and restrictions on growth if they do not address the issues by July 2015.

“Too big to fail is alive and well. The FDIC’s statement that these living wills are not credible means that megabanks will live on taxpayer life support in the event of a crash,” said Sen. Sherrod Brown (D., Ohio), a proponent of legislation to increase capital requirements for the biggest banks, the Wall Street Journal reports.

Tuesday’s findings apply to banks with assets greater than $250 billion in assets, including Bank of America, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, Deutsche Bank, Credit Suisse, Barclays and others.

TIME Innovation

Five Best Ideas of the Day: August 4

1. Making the punishment fit the crime: A better way of calculating fines for the bad acts of big banks.

By Cathy O’Neill in Mathbabe

2. Lessons we can share: How three African countries made incredible progress in the fight against AIDS.

By Tina Rosenberg in the New York Times

3. Creative artists are turning to big data for inspiration — and a new window on our world.

By Charlie McCann in Prospect

4. We must give the sharing economy an opportunity to show its real potential.

By R.J. Lehmann in Reason

5. Technology investing has a gender problem, and it’s holding back innovation.

By Issie Lapowsky in Wired

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

MONEY Banking

Stuck Paying Overdraft Fees? One Simple Rule to Not Be a Sucker

Hand holding large lollipop
Yulia M.—Getty Images/Flickr

A tiny portion of bank customers pays nearly three-quarters of all overdraft fees, to the tune of $380.40 annually per account—and some $31 billion total.

Before getting into the nitty-gritty of a new government report about overdraft fees, and before reviewing the recent history and some of the staggering statistics regarding these much-maligned bank fees, let’s cut to the chase and give some straightforward advice:

DON’T OPT IN to overdraft protection.

You may have done so after thinking that “protection” sounds like it’s good for you. Heck, you may have no idea that you’re actually signed up for such a service. (An overdraft, by the way, is when you pay for something with a check or debit card and don’t have enough money in your account to cover the tab, prompting a bank fee to kick in, likely in the neighborhood of $35. When you don’t have overdraft protection and don’t have a sufficient account balance to cover a purchase, your card will be declined, and there will be no fee assessed.) If you’re not sure, check with your bank to check your status. And whether you’ve opted in consciously or unwittingly, give serious thought to opting out. Like, now.

Okay, now that that’s out of the way, let’s run through how we got to where we are today, and why even as reforms have helped consumers save money, they come up way short compared to how consumers can help themselves.

The total amount and frequency of customers paying overdrafts have been declining. American customers collectively paid a whopping $37 billion in 2009 in overdrafts, one of the more outrageous factoids helping to bring about the creation of the CFPB (Consumer Financial Protection Bureau), as well as the Occupy Wall Street protests. After rules were put in place requiring bank customers to opt in to overdraft protection, rather than be signed up automatically for it, the total shrunk to $31.6 billion in 2011, and remains at around $31 billion annually.

On the one hand, consumers are paying $6 billion less in overdraft fees compared to five years ago. On the other, we’re still paying $31 BILLION each year on a fee that bank reforms were supposed to rein in. Why is the figure still so high?

A study released last week from the Consumer Financial Protection Bureau provides some answers. The vast majority of bank customers actually pay no overdraft fees whatsoever. Seven out of ten accounts incur zero overdrafts annually, and 82% of customer accounts are hit with three or fewer overdrafts per year.

Therefore, it’s a very small portion of customers who are paying the lion’s share of overdraft fees. According to the CFPB, 8.3% of bank customers overdraft more than 10 times annually, and they’re collectively responsible for a mind-boggling 73.7% of overdraft fees collected by banks. Who are these people, who pay on average $380.40 in overdraft fees? The data in the report reveals a profile of the prototypical frequent overdrafter:

They’re young and inexperienced. Nearly 11% of customers ages 18 to 25 have 10+ overdrafts annually, compared to less than 3% of those age 62+.

They make small, frequent purchases with debit cards. Consumers who use their debit cards more than 30 times per month were more likely to be frequent overdrafters, with 18% incurring 10+ overdrafts per year. And the purchases that sent them into a negative balance tended to be small, with a median amount of just $24.

They pay back the money soon. More than half of accounts are back in a positive balance within three days, and three-quarters are positive within a week of overdraft. This tells us that an overdraft is often a matter of sloppiness—absentmindedly paying for a small purchase without realizing the money wasn’t there to cover the bill, then quickly making a deposit or transferring money from another account to get out of a negative balance. By then, however, the customer has already been hit with a fee (one likely higher than the median $24 mentioned above), and paid back a loan that equates to an annual rate of 17,000%, as the CFPB put it.

They’ve opted in. Well, duh. A little over 14% of bank customers have opted in to overdraft protection, and unsurprisingly, they tend to get hit with more overdraft fees. (In unusual circumstances, overdraft fees can be assessed even if you haven’t opted in.) The average checking account that has opted in is hit with $21.61 in overdraft fees monthly, compared to $2.98 for those who haven’t opted in. What’s more, those who opt in tend to pay more in other kinds of bank fees too, including maintenance and ATM fees.

If the portrait above sounds like you, the obvious advice is that it’s high time to start paying more attention to where you bank, how you spend, and whether or not you’ve opted in to overdraft protection. If you have, OPT OUT.

MORE:

MONEY Advertising

Best ATM Ever Gives Away Free Trips to Disney, Flights to Caribbean

screenshot from TD advertisement

This viral "Automated Thanking Machine" video will warm your heart, despite the unlikelihood of any bank ever being this nice to you.

Visit the typical ATM and all you come away with is some of your own money, and perhaps a bitter taste in your mouth after coughing up a $3 fee.

Some very special ATMs set up by TD Canada, however, have been giving customers a whole lot more—like the opportunity to toss out the opening pitch in a Major League Baseball game, and a free trip to Disneyland for a single mom and her kids.

In this highly unusual case, the ATM acronym stands for “Automated Thanking Machine,” and TD Canada secretly recorded a bunch of customers on video while they’re receiving their very special gifts. It was edited and put into a YouTube ad that was posted last week and has generated more than 3 million page views.

It may seem like there are some privacy concerns. The bank bizarrely knows all sorts of intimate details about these customers’ private lives. For instance, it’s no coincidence that the guy who gets to throw out the opening pitch to Jose Bautista at a Toronto Blue Jays game just so happens to be a huge Blue Jays fan.

The robot-like voice emanating from the machine also gets into a deep conversation about how one elderly woman has a daughter in Trinidad who is stricken with cancer. Creepy, right? But when that voice announces that the bank is giving the woman a free flight to see her daughter, the heartwarming, tear-inducing scene that results apparently is enough to cast aside any qualms about invasion of privacy.

It turns out that the banks gathered information about these customers the old-fashioned way–with local staffers asking about their lives–rather than sneakily via reviewing Facebook accounts or scanning customer purchase histories. Most banks and companies use our personal information to try to sell us more stuff, but in this instance it was used to pick out the perfect, incredibly thoughtful gift. See for yourself.

MONEY Banking

Why People Mistrust Financial Advisers

Untrustworthy businessman crossing fingers behind back
RubberBall Productions—Getty Images/Vetta

A financial planner says people can be cynical about her work. Her own experience as a bank customer helps explain why.

Very often, we financial planners convey the impression that getting your financial life into shape is easy. And that we’re in control of our finances.

If we had a bit of humility, we’d admit that we share the same frustrations as our clients.

Like dealing with low interest rates on checking accounts in combination with high banking fees.

“You get interest on this account,” the customer service representative from my bank said. This was about a month ago. I had called the bank upon receiving my monthly statement.

“Yes,” I replied. “I got a penny last month. A penny. And now you want to charge me $25 a month to have a checking account?”

She had to laugh.

I was calling to ask why a $25 charge had shown up on my formerly free checking account.

She asked if anything had changed. It had. I had paid off all my big debts. I was in much better financial shape.

Well, that explained it.

Now that I had repaid my loans to the bank, apparently my relationship with it wasn’t sufficient to earn me free checking. I was no longer paying the bank large amounts of interest, so it would start charging me this monthly fee. That is the way it works.

If this makes sense to you, you must be a banker.

Okay, that was a low blow. But for me, it’s an example of why so many clients have a bad attitude toward financial services institutions and professionals.

It’s not just the malcontents, it’s everyone. The surveys confirm that the public does not hold financial services institutions in high regard.

Many of my clients been burned before. And they’re probably still getting burned by such ridiculous tactics as fee-ing the customer to death or the inability to get a new mortgage or a small business loan without a dossier three feet thick that proves you do actually pay your bills.

I told the woman on the phone, “I just opened two checking accounts at another bank for my twin daughters. The other bank is going to charge $12 a month for each account. And as soon as my girls go show their college IDs, the accounts will be free. So tell me why I should pay you $25.”

I spoke politely, without a trace of anger.

Eventually, the customer service representative found a way to give me some credit for direct deposit of my paycheck. And she switched me to an account that will ding me only $7 a month.

Of course, if the bank had wanted to provide the best deal for a longtime customer, they could have recognized this direct deposit before. But they hadn’t. They had just slapped a fee three times larger than on my new account, perhaps hoping I wouldn’t find out how I could save some money.

Cynicism? Anger? The emotions that I feel are the same ones that people have when they approach me as a professional. As a certified financial planner I have much larger ideas that I need to convey to our customers and the general public than “I won’t cheat you or slip in something that benefits me and not you.”

But it’s tough to get through all that dreck first and get on to the important ideas.

I told the customer service representative that I didn’t mind giving up the penny in exchange for a lower monthly fee.

When I told this anecdote to one of my partners, he just had to raise the ante. “Last month, I got three pennies,” he said.

Another happy financial services customer.

———-

Harriet J. Brackey, CFP, is the co-chief investment officer of KR Financial Services, a South Florida registered investment advisory firm that manages more than $330 million. She does financial planning for clients and manages their portfolios. Before going into the financial services industry, she was an award-winning journalist who covered Wall Street. Her background includes stints at Business Week, USA Today, The Miami Herald and Nightly Business Report.

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