Bank of America was able to wipe about $225 million off its record $16.6 billion Justice Department mortgage fraud settlement by making donations to nonprofit and legal groups approved by the Obama administration.
But the bank only had to make $100 million in donations to do that, thanks to little-known provisions in the settlement, included at the Obama administration’s insistence.
Groups receiving the money include liberal organizations such as Hispanic civil rights group the National Council of La Raza ($1.5 million), the National Urban League ($1.1 million) and the Neighborhood Assistance Corporation of America ($750,000). Another $4.3 million went to the Local Initiatives Support Corporation, a nonprofit where former Clinton administration Treasury Secretary Robert Rubin is chairman.
All of the donations made and credit received were reported in a document published online Wednesday by the settlement’s independent monitor. The more than 2-for-1 credit was a key part of the deal the Justice Department offered to get the bank to settle. For every $1 the bank has given the nonprofits, it has claimed at least $2 off the settlement, sometimes more. The Obama administration included the provision to ensure that some of the settlement funds would go to friendly liberal groups, bypassing the normal congressional appropriations process.
“The settlement agreement specifies that the tax relief payment amount is to be paid to certain nonprofit organizations located around the country, instead of to the IRS on behalf of homeowners receiving [loan] modifications,” professor Eric Green, the settlement’s official monitor, said in the report.
Republicans have sharply criticized that part of the settlement as well as near-identical language in multi-billion settlements with Citigroup, Morgan Stanley and Goldman Sachs. House Judiciary Committee Chairman Bob Goodlatte, R-Va., just introduced the Stop Settlement Slush Funds Act to prohibit the diversion of the funds.
“When DOJ recovers money from parties who have broken the law, those funds should be going to victims, or to the Treasury so that Congress can ensure accountability for how the funds are spent,” Goodlatte said in May. “These funds should not be funneled to the president’s pet liberal groups.”
The settlement skirts federal law, which says that any revenue obtained by the government must go to the Treasury and cannot be redirected to third parties. The deals circumvented that by requiring the banks to make “voluntary” donations before they officially entered into the settlement.
A Bank of American spokesman declined a request for comment. A spokesman for the Justice Department could not be reached.
Bank of America and the Justice Department reached the record settlement in 2014 to address violations relating to the 2008 housing crisis. Most of the violations involved Countrywide and Merrill Lynch, which Bank of America bought, with the government’s encouragement, during the crisis. That meant taking on both entities’ assets and liabilities.
The settlement has been a good deal for Bank of America, which is obligated to donate only $100 million to the outside nonprofit groups: $20 million to housing groups, $30 million to legal aid groups and $50 million to public or private community development funds.
There is no limit on the amount the bank can give, however, and the double credit it gets toward the settlement gives it a strong incentive to keep on donating. It received a second bonus for all consumer relief “offered or completed by Aug. 31, 2015.”
Direct consumer relief, on the other hand, such as forgiving delinquent loans, earns the banks at best only $1.50 of credit for each $1 it spends.
Correction: This article originally incorrectly attributed the publication of the independent monitor’s report to Bank of America.
