Fines & Penalties Monitor: October 2016

November 09, 2016 at 11:38 AM

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October brought with it two settlements for our bank group – the 18 largest institutions headquartered in the U.S. and E.U. The settlements, incurred by Royal Bank of Scotland Group Plc (RBS) and Wells Fargo & Co., increased the year-to-date total by $170 million, to just under $18 billion.

RBS will pay the state of Connecticut $120 million to resolve an investigation regarding the bank’s underwriting practices of residential mortgage-backed securities (RMBS) in the run-up to the financial crisis. The state alleged that the company inadequately did its due-diligence when it pooled residential mortgage loans into approximately 250 RMBS deals valued at $250 billion. The Connecticut Department of Banking will receive $250,000 and the rest of the settlement will be deposited in the state’s general fund.

Wells Fargo agreed to settle a class-action lawsuit for $50 million, over allegations of racketeering. The lawsuit alleged that the bank overcharged thousands of homeowners for appraisals after they defaulted on their mortgage loans. Mortgage agreements allow banks to charge homeowners for appraisals if they default, but Wells Fargo stands accused of marking-up the amount that its third-party vendors charged by about double. The proposed settlement calls for Wells Fargo to mail checks to about 250,000 customers whose home loans were serviced by the bank from 2005 to 2010. The average check amount is expected to be about $120 and will be distributed next year.

As we move into the final two months of the year, our year-to-date 2016 total is a little over half of the 2015 total.  It is, however, too early to conclude that we will end the year with a significantly reduced fines total, as there are several settlements in the pipeline. The U.S. Department of Justice is looking to settle with three banks – Barclays Plc, Credit Suisse Group AG, and Deutsche Bank AG – over the mis-selling of mortgage-backed securities. SNL Financial, LC, reported that the DOJ may be waiting until after the presidential election to finalize the fines. These settlements are expected to total in the billions and, if reached before December 31st, may bring our 2016 total to the same level as 2015.

Lauren Rosenberg

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