Bank of America Agrees to $783 Million Settlement with the US Regulators

Bank of America

Bank of America has complied to US regulators and agreed to settle charges that it collected by deceiving customers. The US regulators held Bank of America Corp. Responsible for sales of theft protection insurance and generating money by selling credit card debt cancellation.

Before Bank of America, similar charges were brought against four other banks. Those banks also faced allegations of manipulating credit card add-ons. It’s important to mention that identity theft protection and debt cancellation are add-on products. These services don’t come directly with credit cards.

The agreement would cost Bank of America a whopping $783 million, out of which $738 million would be refunded to the consumers and another $45 million needs to be paid a penalty. The deal was settled with federal regulators. The Consumer Financial Protection Bureau was one of the regulators.

A representative of CPFB called Richard Cordray said, “Bank of America both deceived consumers and unfairly billed consumers for services not performed. We will not tolerate such practices and will continue to be vigilant in our pursuit of companies who wrong consumers in this market…

According to CPFB, there are nearly 1.4 million customers who were affected due to the deceptive policies are taken by the Bank of America. Around 1.9 million customer accounts were unlawfully charged for credit monitoring and also for credit reporting services when they were not really receiving those services.

To compensate for the 1.9 million consumers, Bank of America was fined $25 million. The restitution amount the bank would have to pay is $459.4 million. The fine amount, according to the authorities deal with, “scope and duration of the violation and financial harm to consumers from the unfair practices.

Before this announcement, the CEO of Bank of America namely Brian T. Moynihan spent over $50 billion for the reimbursement of the victims of sketchy mortgage schemes. With the current settlement, Bank of America moves past another legal hurdle. The Office of Comptroller of the Currency gave an order to the bank. In the order, the comptroller said banks should, “improve governance of third-party vendors associated with ‘add-on’ consumer products and submit a risk management program.

Earlier, the FDIC sued Citigroup and Credit Suisse and now Bank of America jumps into the bandwagon. As a result of the lawsuits, the credit add-on products have been put on hold.


Bank of America to Pay $9.5 Billion Settlement Fee to Federal Housing Finance Agency

Bank of America has come to a settlement with Federal Housing Finance Agency as the latter filed a lawsuit on behalf of Federal Home Loan Mortgage Corporation and Federal National Mortgage Association. Bank of America agreed to pay $9.5 billion fine to them.

Federal Housing Finance is a regulatory agency and it has the legal right to sue an individual/agency on behalf of government-sponsored mortgage finance firms. The claim against Bank of America was that it intentionally misrepresented the value of residential mortgage-backed securities which led to financing related crisis.

Bank of America to Pay $9.5 Billion Settlement Fee to Federal Housing Finance Agency

The actual worth of the mortgage securities was $57.5 billion. The settlement requires Bank of America to pay $6.3 billion in cash to Fannie Mae and Freddie Mac and purchase back $3.2 billion worth of mortgage securities. Bank of America held the settlement responsible for the reduction of its first-quarter income by $3.7 billion before paying taxes. On April 16, the bank will report its earning. The settlement is one of many other recent ones where the regulatory agency summoned banks which sold low-quality subprime mortgages during the recession. Total of $16 billion has been recaptured by the regulatory agency those banks and financial institutions. Fannie Mae and Freddie Mac were under conservatorship since 2008. Then they were seized by the regulatory authorities because they were undergoing heavy loss due to subprime loans. Before this settlement, there were nine other settlements where the Federal Housing Finance Agency filed a lawsuit against banks and financial firms. It started in 2011 when the total of 18 lawsuits was filed for more than $200 billion in mortgage securities. Mel Watt, the director of Federal Housing Finance Agency said, “FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement…” Albeit the amount of fine is huge, no executive at the Bank of America is facing any criminal charge. A mortgage originator called Countrywide Financial was purchased in 2008 by Bank of America for $4.1 billion. It was responsible for many of Bank of America’s problems. No criminal charges were, however, produced against it by FHFA. A representative of FHFA said the government wants to punish the big banks by imposing penalties, not by putting their executives behind the bar.]]>

US Bank Regulator FDIC Accused 16 Banks of Rigging the LIBOR Rate

In the United States, 16 big banks have been sued by The Federal Deposit Insurance Corp. FDIC is a bank regulator in the U.S. The banks are being sued for tampering with a yardstick which is used to calculate interest rates on contract.

Of the 16 banks, some are foreign. The list of accused banks includes Bank of America Corp. Citigroup Inc, JPMorgan Chase & Co, etc. These are some of the world’s largest banks.

US Bank Regulator FDIC Accused 16 Banks of Rigging the LIBOR Rate

The FDIC briefed that being a regulatory agency, they are trying to recover the losses due to interest rate manipulation carried out by these banks. On Friday, the civil lawsuit against the banks was filed by the agency. Interestingly, 10 out of the 16 banks failed during the economic meltdown. The agency then took over those banks.

The chief allegation of FDIC is that the banks that are accused, set Libor rates in such a way that the rates would meddle with a competitive process in the market. This way, the prices got increased artificially and it increased the earning margin of the banks.

The Libor rate is an acronym of London Interbank Offered Rate. The complaint filed by FDIC states that the Libor rate was rigged from August 2007 to mid of 2011. The manipulation of rates, according to FDIC derailed contracts around the world and caused loss of trillions of dollars. Bonds, consumer credit, car loans, student loans, financial derivatives and mortgages were mostly affected.

Investigation of Libor rate manipulation has been taking place across Asia, Europe and the US for last two years. Some very big names in the banking industry were accused and fined by British and US regulatory authorities. Rabobank, ICAP, Royal Bank of Scotland, Barclays, UBS and some other large banks would have to pay a fine amount of $3.6 billion.

To find a safeguard, the banks have already signed an agreement with US Department of Justice that would save them from criminal prosecution even if they are convicted. It was necessary for them as the FDIC suit reads, “fraudulently and collusively suppressed (the LIBOR rate), and they did so to their advantage,”

In July 2013, NYSE Euronext will start to supervise LIBOR from British Banker’s Association. NYSE Euronext currently owns New York Stock Exchange.


Banks to Face Probe from Competition Watchdog on SME Lending

Banks to Face Probe from Competition Watchdog on SME Lending

The Office of Fair Trading in the UK released an update today, which showcases the review of banking for the SMEs. Experts believe this decision may have some impact on the concurrent effort by the government to sell 33% of its stakes to private franchises.

At the time of the Independent Commission on Banking, competition investigation was proposed. It was in 2011. The market study is currently going on as the OFT has been receiving information and engaging with bank stakeholders. After analysis, the OFT will refer to CMA to take action.

On the surface level, the problem seems to be difficult on the part of small and medium-sized businesses to get loans from alternative sources due to hindrances created by banks.

Vince Cable, Secretary of State for Business said, “SMEs feel they have too few lending options other than the big four banks, which is not healthy for the economy,”

He also said, “The picture of concentrated ownership and excessive profit margins from SME banking described in the 2000 Cruickshank Report remains largely unchanged,”

The OFT observed that personal current account market benefits mostly the big banks. Lloyd, HSBC, Barclays and Royal Bank of Scotland had 75% market share in this sector in 2013. As a result of this, they will now face investigation.

Once OFT sends its analysis to CMA, the CMA will become the lead competition and consumer body in the UK and decide whether any bank meets the criteria for an inquiry.

Sources other than banks to secure loans are peer-to-peer loan providers and web platforms with advanced financial technology and analytics. Such providers complained that banks often intentionally defer loan clearance.

The OFT acknowledged this as Vivienne Dews, the chief executive officer of OFT said, “SMEs are a vital driver of growth in the UK. They need access to banking services and loans which meet their needs”

The banks replied that they are devising strategies so that a small or medium size business could get loan easily. They want the process to rely on referral system such that if a business owner is denied loan from a bank, he will be referred to other ways of getting the loan.

The British Bankers Association representative said, “We want businesses to have as many options as possible when seeking to get finance, which is why individual banks and the BBA have set up programmes to refer customers to other institutions”.