By Pam Martens: September 10, 2013
Citibank, the insured depository bank of the global behemoth, Citigroup, was bailed out by the U.S. taxpayer from 2008 through 2010 with over $2 trillion dollars in equity infusions, asset guarantees and loans of under one percent interest from the Federal Reserve. The far flung financial enterprise was bailed out despite a serial history of abusing its customers – crimes for which its regulators have imposed large fines and little justice.
The undisputed reality is that the shareholders of Citigroup would be holding worthless stock today were it not for the company’s rescue by taxpayers during the Wall Street collapse five years ago. And yet, today, based on reports from coast to coast, the company is engaging in egregious abuses of struggling young college graduates who took out private student loans from Citibank.
The generosity that the U.S. Congress, and Treasury and Federal Reserve lavished on Citigroup is now being repaid with unbridled callousness and twisted schemes to exact as much pain as possible from its student loan holders according to court narratives and complaints filed with federal agencies. Citigroup has quickly forgotten how it survived its brush with death from its own imprudent debt loads.
As we reported in August 2012:
Citigroup was showing serious strains in 2007 but the meltdown came the week of November 17, 2008. On Monday, the firm called a Town Hall meeting with employees and announced the sacking of 52,000 workers. On Tuesday, November 18, Citigroup announced it had lost 53 per cent of an internal hedge fund’s money in a month’s time and that it was bringing $17 billion of off-balance sheet assets back onto its balance sheet. The next day brought the unwelcome tidings that a law firm was alleging that Citigroup peddled the MAT Five Fund as “safe” and “secure” then watched it lose 80 per cent of its value…
All told, Citigroup lost 60 per cent of its market value that week and 87 percent for the year to date. The company’s market value went from $250 billion in 2006 to $20.5 billion on Friday, November 21, 2008.
Now here is where you need to pay close attention. Just one month prior to this stock meltdown, the U.S. government through its Troubled Asset Relief Program (TARP) had injected $25 billion into Citigroup on October 28, 2008. With a market cap of $20.5 billion on Friday, November 21, 2008, the U.S. taxpayer effectively owned this company lock, stock and barrel.
But instead of being put into receivership, the rest of the $2 trillion was funneled into Citigroup by the U.S. government. Based on reports from students across the country, there is now the legitimate question as to exactly what kind of an enterprise was propped up by the taxpayer.
On February 27 of this year, the Consumer Financial Protection Bureau (CFPB) sought public comment on what borrowers were experiencing in the private student loan market. It received over 30,000 responses. Respondents who had taken out loans from Citibank painted the portrait of a cold-hearted, conniving miscreant.
Allison L. from Rego Park, Florida wrote about her Citibank loans as follows:
“I have made over $110-125K in the past 4 years with working overtime as a nurse. My base pay is $59,000. I cannot keep this pace any longer. I do not own a home, and it seems that I never will. I have paid my credit card and student loan debt on time for the past 13 years. I have paid $50,000 towards my student loans, but $25,000 has gone to interest. I will end up paying at least double on my student loan money by the time it is over. This was not clear to me when I had initially borrowed the money. Now my credit card interest rates are too high for me to be able to pay for food and gas. I am thinking about filing for bankruptcy, but of course my ‘student loan’ debt is not dischargeable.”
Allison is correct; under the bankruptcy reforms of 2005, there is limited ability to get out from under the crushing weight of student loan debt.
Diane A. wrote the following to the CFPB about her Citibank loans: “I have been paying them $172 a month for almost 3 years for a $15,000 loan and I still have not gotten under the original $15,000 principal balance amount and I will not get there until the end of this year.”
Erick A. wrote:“Citibank was comparable to the devil in every way.”
Darlene L. put an even more personal face on the problem, writing:
“…After 911, Citibank offered a forbearance to residents of NYC, which I (stupidly) took, if anything to build my savings just in case I lost my job, which I did two years later, just after Shock and Awe (business dropped because of it.) At this time, I took another forbearance. And another during the crash of ’08, when I again lost income. I did this to keep my credit rating from falling, as it is difficult to obtain an apartment in NYC with any adverse mark whatsoever on your credit report. During this time Citibank sold my loan to Sallie Mae, who changed the terms. (Citibank allowed me to pay off the interest, if I had it. Sallie Mae does not.) Now I owe Sallie Mae about $45,000, even though I have already paid $35,000 on a loan that was at approx. $32,000 when I graduated in 1994. Last year, I took on another job to pay down my debt (which nearly resulted in a nervous breakdown — should a person be working literally ALL THE TIME?)…”
Mary Dove of Brooklyn, New York strengthened the case further against Citibank:
“My original balance (5 years ago) with Citibank was $35,642.00. I have paid in total $15,293.96. And, my current balance is $32,459.69. The fact that banks can charge this type of interest on Student Loans is completely unethical. We should have government policies that address the gouging the banks are doing to student.”
On April 25 of last year, Justin Kuehn, a law school graduate, filed a class action lawsuit against Citibank in Federal Court in Manhattan, also naming its former subsidiary, the Student Loan Corporation (SLC), and Discover Bank, the company to which it sold part of its student loan operations in 2010. Citibank continued to service the loans, even after they were sold to Discover.
Kuehn told the court that in November 2007, he had consolidated four private student loans with SLC, then owned by Citibank. Subsequently, his complaint charged, the defendants “engaged in a scheme to collect additional interest at the expense of borrowers of student loans.” He said the firms were “deceiving borrowers into believing that their monthly payments have been reduced because of an interest rate reduction, when in fact, the vast majority of the payment reduction is attributable to a reduction in the amount of principal being repaid each month.” That resulted, according to Kuehn, in thousands of dollars of additional interest being paid by student loan borrowers.
After consolidating his loans, Kuehn started out with a balance of $99,148.19 with an annual, fixed rate of interest of 9.55%. (Keep in mind that Citigroup was allowed to borrow from the Federal Reserve at a rate of less than 1 percent.) Around the first of January 2008, Kuehn began making monthly payments of $845.72 through an auto-debit program. In April and June of 2008, Kuehn paid down $15,000 of the principal on the loans; he paid an additional $10,000 in June 2009 for a total principal reduction of $25,000. Subsequent to those payments, Citibank and SLC continued to auto-debit the same $845.72 per month until January of 2012. At that time, says Kuehn, “Defendants unilaterally dropped Plaintiffs auto-debited monthly payment from $845.72 to $539.27… As a result of the reduction to the monthly payment, the amount of principal being repaid on the Consolidated Private Student Loan declined from $335.67 in December 2011 to $42.59 in January 2012, namely, a decline of $293.08 per month, while the amount of interest paid remained basically the same declining only from $510.05 in December 2011 to $496.68 in January 2012.”
Kuehn’s lawyers provided a graph in the lawsuit, showing that under the rigged new system of so-called “lower” monthly payments, Kuehn would end up being forced to make an additional 197 monthly payments on the loan and pay an additional $71,577.04 in interest.
According to Kuehn in his lawsuit, none of the banks involved disclosed this illegal maneuver; he had to ferret out what was going on himself.
But the worst was yet to come for this young law graduate. After filing in a U.S. Federal Court paid for by the U.S. taxpayer, where every citizen has a right to bring a claim for a small filing fee, Judge Denise Cote ruled on December 6 of last year in favor of Citibank, pushing Kuehn’s claim out of her courtroom and into a privately run arbitration system.
As we have written about extensively on Wall Street On Parade, the biggest Wall Street banks make both their customers and their employees waive their constitutional rights to access the Nation’s courts, forcing all claims into mandatory arbitration, a system so riddled with conflicts of interest that many Wall Street veterans consider it kangaroo courts.
Kuehn’s case is set to be heard by the American Arbitration Association (AAA), which has repeatedly been challenged on the neutrality of its repeat player arbitrators. On January 14, 2000, one of its regional vice presidents, Paul L. Van Loon, penned a memo to AAA’s roster of arbitrators, making the following request: “Part of our marketing effort for 2000 will be to develop business contacts with corporations headquartered in Northern California. Meeting with corporate counsel and CEOs will allow us the opportunity to develop personal relationships and explore the use of ADR in their business. To accomplish this, I am asking for your help. If you have a contact with a corporation and you can make the introduction for us, please print your name next to the corporation listed…Allowing us to make a ‘warm’ call will make the connection more meaningful. If you would like to make the call with us, please indicate it on the sheet…”
Tomorrow, in Part II, we will look at more of the gut-wrenching details of what America’s young people are enduring in terms of stress, hopelessness, and inability to see a way out because of the Citibank debt they are buried under — in no small part because Congress elected to bail out the banks while keeping interest rates high for students.