Thirteen billion dollars is a lot of money, but it's not going to add up to a huge windfall for many consumers.
Thousands of homeowners will receive significant financial relief under the terms of a $13 billion settlement with JPMorgan Chase & Co. that was announced Tuesday by the Justice Department. But the bulk of the funds will be going either to investors or government coffers.
Following the money is tricky after any type of mega-settlement. More dollars do flow to consumers in cases that are brought by governments, compared with those filed by private attorneys.
"In all the cases I've ever been involved with, the vast, vast majority of the money goes to consumers," says Patrick Madigan, an assistant attorney general in Iowa.
But even a huge amount of money can be spread pretty thin. And in cases filed by individuals, as much as 40 percent of the funds might be devoted to legal fees.
"A lot of times, the dollars don't really trickle down to the individuals who were harmed," says Linda Sherry, head of the Washington office of Consumer Action, an advocacy group.
Your Check Is In The Mail
Many Americans have received notices in the mail that they may be eligible to claim a share of settlement dollars if, for instance, they downloaded a song or purchased organic hair care from a company that was found to have acted improperly.
Often the amounts of money are negligible — a buck or two, or even less.
" 'Check this box and get a couple of bucks' — that sort of thing sometimes unfortunately does happen with private class actions," Madigan says.
But those mailers only arrive if the attorneys have some means of figuring out the names and whereabouts of people who bought the songs and the shampoo. Oftentimes, people don't even know they might be eligible to receive payment.
"There's no real system to get this information to consumers," Sherry says.
For that reason, Consumer Action maintains a Web listing of class action settlements from which consumers may be able to claim payment. But Sherry concedes, it's "hit and miss," whether consumers would even know to look for such a thing.
Beyond Monetary Value
When funds go unclaimed, often they are distributed after a certain length of time to nonprofit groups, which can use the money for education programs or other purposes.
"If JPMorgan fails to live up to its agreement by Dec. 31, 2017, it must pay liquidated damages in the amount of the shortfall to NeighborWorks America, a non-profit organization and leader in providing affordable housing and facilitating community development," according to the settlement agreement announced Tuesday.
Even if all the money from a settlement doesn't end up reaching those consumers who were harmed, Sherry says, some good still comes out of such deals.
The company may not admit to wrongdoing — which is often the case — but big-dollar legal settlements do show that harm was done to consumers.
And, while companies may not be forced to promise they won't engage in similar behavior again, they've certainly been put on notice that it can get them into trouble.
Help For Homeowners
Cases brought by the feds and states attorney general tend to do better in getting cash to consumers.
For instance, a $325 million multistate settlement with Ameriquest Mortgage Co. in 2006 resulted in some $300 million being distributed directly to private individuals.
Thousands of homeowners are likely to be helped directly by the new JPMorgan settlement, which addresses improper behavior by the bank in the mortgage market.
Of the $13 billion, $2 billion will be directed to reductions in principal, or the amount owed on loans, on first and second home mortgages. An additional $2 billion will be devoted to other kinds of homeowner relief, such as refinancing or forgiving payments in arrears. The rest of the money includes fines and compensation for investors in mortgage-backed securities.
The way the payments are structured will be better for the bank, says Kirsten Keefe, a senior attorney with Empire Justice Center, a public interest law firm with offices in New York State.
JPMorgan doesn't have to write checks for $4 billion. Instead, the company will get credit for forgoing payments that it's contractually owed.
Still, sometimes wiping debts off the books can end up costing banks more money in the long run.
The settlement deal reached last year between state attorneys general and five major lenders was described as being worth $25 billion. But already more than $50 billion of relief has been offered to borrowers, according to Madigan.
Here's why the total relief package ended up being worth so much more: Lenders may have gotten a full dollar's worth of credit under the terms of the settlement for every dollar of reduced principal on first mortgages, but for other changes, such as the amounts paid to borrowers following short sales of foreclosed properties, the lenders received much less.
It all ends up being complicated in a hurry. But in an instance like the JPMorgan settlement, where the bank will forgive money owed by customers, those customers are likely to see some real relief — much more than people who get a card in the mail promising them a buck or two if they were ripped off by some company in the past.
"It's fair to say that thousands of homeowners will receive a true benefit," Keefe says.