Citigroup agreed Monday to pay $7 billion to settle a civil suit for the bank’s questionable subprime lending practices preceding the 2008 financial crisis.
The payment will be divided into $2.5 billion for homeowner relief, $500 million in cash to states and the Federal Deposit Insurance Corp (FDIC) and $4 billion in cash for penalties.
In a press release, Citigroup outlined the plans for the payment: “The cash portion consists of a $4 billion civil monetary payment to the U.S. Department of Justice and $500 million in compensatory payments to the State AGs and the FDIC.
The consumer relief will be in the form of financing provided for the construction and preservation of affordable multifamily rental housing, principal reduction and forbearance for residential loans, as well as other direct consumer benefits from various relief programs. Citigroup has agreed to provide the consumer relief by the end of 2018.”
During the years leading up to the 2008 financial crisis, Citigroup and other giants like JP Morgan Chase and Bank of America approved millions of subprime loans for homeowners, allowing homeowners who otherwise should not have qualified for loans to purchase homes. When the crisis hit, major banks like Citigroup were about to file bankruptcy when the government stepped in and provided emergency capital.
Now, Citi is forking up billions to avoid investigation into Citi’s subprime lending habits. According to CNNMoney, Citi has more than one reason to agree to settlement. Over the past two weeks, Citi’s stock dropped sharply.
“Citi is also under investigation for possible fraud and money laundering in its Mexican unit,” CNNMoney reported. “All of that has been a drag on its stock.”
Citi’s settlement follows a recent $13 billion settlement by JP Morgan Chase over the same issue: bad subprime lending.
“This action is merely the latest step in our active and ongoing pursuit of those whose activities defrauded the American people and inflicted grave damage on our financial markets,” Attorney General Eric Holder told POLITICO. “Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last.”