Two years after Citigroup was punished for widespread foreclosure abuses, the bank is dealing with another misstep: Thousands of people who were entitled to settlement checks never got any money.
Citigroup missed about 23,000 borrowers who were owed compensation, said two people with knowledge of the matter. The bank is now preparing to pay them about $20 million in amounts ranging from a few hundred dollars to as much as $125,000 after government officials called attention to the error, said the people.
Under accords with regulators, Citigroup and other banks agreed to pay $10 billion to resolve allegations that they mishandled loan papers and robo-signed legal documents, improperly initiating hundreds of thousands of home foreclosures without reviewing each individual case. Paying borrowers was a key requirement of settlements with the Federal Reserve and the Office of the Comptroller of the Currency.
“We want to make sure that everyone eligible for compensation under the agreement receives what they are due,” Mark Rodgers, a Citigroup spokesman, said in an e-mailed statement.
While the oversight isn’t on the scale of other stumbles, it is another setback for a bank that has had many with regulators in recent years. In November, Citigroup agreed to pay $1.02 billion to settle allegations that it tried to manipulate foreign-exchange benchmarks, and several government agencies are investigating the bank’s money-laundering controls tied to business in Mexico.
Citigroup’s missed borrower payments were discovered by regulators, said the people, who asked not to be named because they weren’t authorized to speak publicly. The neglected customers amounted to 6 percent of the roughly 380,000 people the bank owed money. An OCC report released last year showed Citigroup had made cash payments of $300 million, while spending an additional $500 million on foreclosure-prevention efforts.
A quirk of the settlements, which involved 15 banks including JPMorgan Chase Co., Bank of America Corp. and Goldman Sachs Group Inc., is that borrowers who may not have been harmed could still receive compensation.
Initially, regulators required banks to hire independent consultants after the housing bust to dig through past foreclosures and find misdeeds. However, that process proved costly and went on for more than a year without any cash being paid to borrowers.
In 2013, regulators scrapped the case-by-case reviews. Instead, they required banks to pay $10 billion, which would go directly to borrowers and support loan-assistance programs. The revised settlement terms meant that not all of banks’ wrongdoing would come to light and some borrowers whose mortgages were handled properly would still get money.
Most of banks’ direct payments had been mailed by last year, with the highest amounts going to borrowers who suffered the most harm such as military members whose homes were improperly foreclosed on while they served. Checks to Citigroup’s left-out borrowers were expected to be sent this month, the people said.
Citigroup, which survived the 2008 credit crunch after receiving a bailout from the U.S. government, is among banks that have spent years trying to put crisis-era misdeeds in their rear-view mirrors.
In 2014, Citigroup agreed to pay $7 billion to settle government claims that it misled investors about the quality of mortgage-backed bonds it sold. Last month, the bank said in a filing with the Securities and Exchange Commission that it continues to cooperate with regulators on “inquiries concerning Citigroup’s mortgage-related conduct and business activities, as well as other business activities affected by the credit crisis.”