Bank of America To Pay Record Penalty of $17 Billion to US Justice Department

Bank of America has reportedly agreed to pay a little under $17 billion to the U.S. justice department to settle a lawsuit that found the bank guilty of selling shoddy mortgage loans that resulted in the 2008 financial meltdown.

According to the New York Times, officials of the bank and Attorney General Eric Holder agreed on the yet-to-be announced amount in a late night telephone conversation July 31. The amount will set a record for penalty paid to the justice department.

News of the agreement comes after several broken negotiations. The Bank of America had offered to settle for $13 billion earlier but the justice department wouldn't settle for anything less than the $17 billion.

In fact, the department threatened to sue the bank if they didn't raise their settlement offer and after much resistance, the financial institution caved.

An insider told USA Today that though the settlement amount has been agreed upon, there are several issues that still need to be sorted out, like how much should be allocated to consumer relief etc. That could delay an official announcement by weeks.

"Despite the eye-popping penalty, the deal would bring a measure of closure to the bank, which has already paid tens of billions of dollars to settle lawsuits by private investors and regulators over its mortgage operations," Ben Protess and Michael Corkery of Dealbook write. 

"The deal, the bank's largest remaining legal issue from the financial crisis, would, in turn, accelerate Bank of America's effort to return to the business of being a bank," they add.

News of BofA's settlement comes just weeks after the justice department settled with Citigroup on the same faulty-mortgage selling issue. The DoJ held several other financial institutions including J.P Morgan Chase and Goldman Sacchs on charges of deceiving investors.

More recently, it was revealed that the DoJ was using all the money from the J.P Morgan Chase settlement to speed up other bank cases. The bank paid $13 million in fines to the department.