Manhattan U.S. Attorney Announces Criminal Charges Against U.S. Bancorp For Violations Of The Bank Secrecy Act

Charges to Be Deferred For Two Years Under an Agreement Requiring U.S. Bancorp to Admit Its Conduct and Pay Penalty of $528 Million

  Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced criminal charges against U.S. Bancorp (“USB”) consisting of two felony violations of the Bank Secrecy Act (“BSA”) by its subsidiary, U.S. Bank National Association (the “Bank”), the fifth largest bank in the United States, for willfully failing to have an adequate anti-money laundering program (“AML”) and willfully failing to file a suspicious activity report (“SAR”). The case is assigned to United States District Judge Lewis A. Kaplan. 

Mr. Berman also announced an agreement (the “Agreement”) under which USB agreed to accept responsibility for its conduct by stipulating to the accuracy of an extensive Statement of Facts, pay a $528 million penalty, and continue reforms of its BSA/AML compliance program. Assuming USB’s continued compliance with the Agreement, the Government has agreed to defer prosecution for a period of two years, after which time the Government will seek to dismiss the charges.  The Agreement is pending review by the Court.  The penalty shall be collected through the Bank’s forfeiture to the United States of $453 million in a civil forfeiture action also filed today, with the remaining $75 million satisfied by the Bank’s payment of a civil money penalty assessed by the Office of the Comptroller of the Currency (the “OCC”).

U.S. Attorney Geoffrey S. Berman stated:  “U.S. Bank’s AML program was highly inadequate.  The Bank operated the program ‘on the cheap’ by restricting headcount and other compliance resources, and then imposed hard caps on the number of transactions subject to AML review in order to create the appearance that the program was operating properly.  The Bank also concealed its wrongful approach from the OCC.  As a result, U.S Bank failed to detect and investigate large numbers of suspicious transactions.  With today’s resolution, the Bank has accepted responsibility for its criminal conduct and committed to completing the reform of its AML program.”

The OCC, the Financial Crimes Enforcement Network (“FinCEN”), and the Board of Governors of the Federal Reserve System (”FRB”) have also reached agreements with the Bank to resolve related regulatory actions.  For purposes of its action, which was also filed today, FinCEN is represented by this Office’s Civil Division.  FinCEN’s agreement with the Bank requires the Bank to pay an additional $70 million for civil violations of the BSA, and it includes further admissions by the Bank, including that the Bank filed more than 5,000 currency transaction reports with incomplete and inaccurate information, which impeded law enforcement’s ability to identify and track potentially unlawful behavior.  FinCEN’s agreement with the Bank is pending review by the Court.

According to the documents filed today in Manhattan federal court:

USB’s Failure to Maintain an Adequate AML Program

From 2009 and continuing until 2014, USB willfully failed to establish, implement, and maintain an adequate AML program.  Among other things, USB capped the number of alerts generated by its transaction monitoring systems, basing the number of such alerts on staffing levels and resources, rather than setting thresholds for such alerts that corresponded to a transaction’s level of risk.  The Bank deliberately concealed this from the OCC, the Bank’s primary regulator. 

USB was well aware that these practices were improper, were resulting in the Bank missing substantial numbers of suspicious transactions, and were placing the Bank at risk of regulatory action.  Bank documentation from as early as 2005 acknowledged that alert limits were based on staffing levels and, as a result, a risk item for the bank.  For example, in a December 1, 2009,F memo from the Bank’s then AML Officer (the “AMLO”) to the then Chief Compliance Officer (the “CCO), the AMLO explained that while the Bank was experiencing significant increases in SAR volumes, the Bank’s staff was “stretched dangerously thin” and warned that a “regulator could very easily argue that this testing should lead to an increase in the number of queries worked.”  The Bank conducted below-threshold testing (“BTT”), which consisted of investigating a limited number of transactions that fell outside alert limits to see if thresholds should be adjusted so that more alerts would be investigated.  The Bank’s BTT regularly found that SARs should have been filed on more than 25 percent, and as much as 80 percent, of the tested transactions.  Rather than increase resources and lower thresholds to detect such suspicious activity, as repeatedly requested by the responsible AML employees, the Bank instead decided to stop conducting BTT altogether.

An OCC examiner assigned to the Bank repeatedly warned USB officials, including the AMLO, of the impropriety of managing the Bank’s monitoring programs based on the size of its staff and other resources.  Knowing that the OCC would find USB’s resource-driven alert limits to be improper, Bank officials, including the CCO, deliberately concealed these practices from the OCC.  For example, a Bank employee deliberately excluded references to resource limitations from the minutes of an internal Bank meeting for fear that the OCC would disapprove of the Bank’s practices, and in order to protect himself and his supervisor from adverse consequences.  Indeed, the AMLO described USB’s AML program to another senior manager as an effort to use “smoke and mirrors” to “pull the wool over the eyes” of the OCC.

USB also failed to monitor Western Union (“WU”) transactions involving non-customers of the Bank that took place at Bank branches.  The Bank processed WU transactions involving non-customers even though they would not be subject to the Bank’s transaction monitoring systems.  Even when Bank employees flagged specific non-customer transactions raising AML-related concerns, the transactions went uninvestigated.  It was not until July 1, 2014, that the Bank implemented a new policy that prohibited WU transactions by non-customers.

In the course of this investigation, the Bank analyzed the impact of its deficient monitoring practices.  For just the six months prior to taking steps to remedy the practices, the Bank’s analysis resulted in the generation of an additional 24,179 alerts and the filing of 2,121 SARs.

USB’s Failure to Timely File Suspicious Activity Reports Relating to Scott Tucker

From October 2011 through November 2013, the Bank willfully failed to timely report suspicious banking activities of Scott Tucker, its longtime customer, despite being on notice that Tucker had been using the Bank to launder proceeds from an illegal and fraudulent payday lending scheme using a series of sham bank accounts opened under the name of companies nominally owned by various Native American tribes (the “Tribal Companies”).  From 2008 through 2012, Tucker’s companies extended approximately five million loans to customers across the country, while generating more than $2 billion in revenues and hundreds of millions of dollars in profits.  Most of this money flowed through accounts that Tucker maintained at the Bank.

USB employees responsible for servicing Tucker’s ongoing account activity disregarded numerous red flags that Tucker was using the tribes to conceal his ownership of the accounts.  For example, Tucker spent large sums of monies from accounts in the names of Tribal Companies on personal items, including tens of millions of dollars on a vacation home in Aspen and on Tucker’s professional Ferrari racing team.  USB also received subpoenas from regulators investigating Tucker’s businesses.  In September 2011, after news organizations published reports examining Tucker’s history and questionable business practices, the Bank reviewed Tucker’s accounts, and an AML investigator reported to supervisors, among other things, that “it looks as though Mr. Tucker is quite the slippery individual” who “really does hide behind a bunch of shell companies.”  Based on its findings, the Bank closed the accounts in the names of the Tribal Companies but failed to file a SAR.

The Bank also left open Tucker’s non-tribal accounts and opened new ones, allowing over $176 million more from his illegal payday business to flow into the Bank.  Despite also learning of an April 2012 Federal Trade Commission lawsuit against Tucker and the Tribal Companies, the Bank did not file a SAR regarding Tucker until served with a subpoena by this Office in November 2013.

On October 13, 2017, Tucker was convicted in the United States District Court for the Southern District of New York of various offenses arising from his payday lending scheme. The Government intends to recommend that the amounts forfeited by USB be distributed to victims of Tucker’s scheme, consistent with the applicable Department of Justice regulations, through the ongoing remission process.

Mr. Berman praised the outstanding investigative work of the Special Agents at the United States Attorney’s Office and thanked the OCC for its assistance with the investigation.  Mr. Berman also thanked FinCEN for its partnership with this Office.

Long Island Home-School Tutor Charged With Enticement

  Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and James P. O’Neill, the Commissioner of the New York City Police Department (“NYPD”), announced the arrest and the filing of federal charges yesterday against JEFFREY WEBER.  The Complaint charges that WEBER communicated with an individual he believed to be a 13-year-old girl via email and text messages, and made plans to meet the girl at a diner in Manhattan and then go to her apartment to engage in sexual activity.  WEBER was arrested yesterday when he arrived at the designated meeting place to meet the girl, and was presented before United States Magistrate Judge Debra Freeman in Manhattan federal court.

U.S. Attorney Geoffrey S. Berman said:  “As alleged, Jeffrey Weber, a home-school tutor who has constant interaction with children, made arrangements through text messaging and emails to meet with what he thought was a 13-year-old girl to engage in sexual activity.  Thankfully he was corresponding with an undercover law enforcement officer and not a young girl, but his alleged intentions are no less insidious.  This Office, along with our partners at the NYPD, remain committed to keeping child predators off the streets.”

NYPD Commissioner James P. O’Neill said:  “The suspect in this case—a 59-year-old Long Island man—is accused of sending sexually-explicit texts and emails to an investigator posing as a 13-year-old girl.  But this crime wasn't confined to cyberspace.  The man was arrested yesterday at a diner in Manhattan, where his plan was to meet the underage girl and take her elsewhere for sex.  I want to thank the members of the Internet Crimes Against Children Task Force, whose expertise identified and put an end to this predator’s activities.”

According to the allegations in the Complaint filed in Manhattan federal court:[1]

Between January 30, 2018, and February 14, 2018, WEBER, using email and text messages, engaged in sexually explicit communications with a law enforcement agent who was acting in an undercover capacity and posing as a 13-year-old girl.  During these communications, WEBER discussed various sexual acts he wished to perform on the girl and made a plan to meet the girl at a diner in Manhattan and to then go to the girl’s nearby apartment for the purpose of engaging in sexual activity.  On February 14, 2018, Weber was arrested at the diner where he planned to meet the girl.  In an email with who he thought was the 13-year-old girl, WEBER said that he was employed as a tutor, working in the homes of at-risk youth.

WEBER, 59, of the Seaford, New York, is charged with one count of attempted enticement, which carries a maximum sentence of life in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge

Mr. Berman praised the NYPD’s Computer Crime Squad, which is part of the Internet Crimes Against Children (ICAC) Task Force, for their outstanding investigative work.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

A.G. Schneiderman Announces Settlement With Company Over Misleading Solicitations For Insurance Products

Trustage Insurance Agency Mailed Solicitations for Insurance Policies that Appeared to Come from New Yorkers’ Credit Unions – Some Consumers May Have Signed Up Without Understanding That They Agreed to Have Premiums Deducted Automatically From Their Credit Union Accounts

Company Must Reform Its Business Practices, Pay $75,000 in Restitution, Penalties, Costs, and Fees

  Attorney General Eric T. Schneiderman announced a settlement with Iowa-based Trustage Insurance Agency, which mailed solicitations for Accidental Death and Dismemberment policies that appeared to come from New Yorkers’ credit unions. Trustage is a wholly owned subsidiary of CMFG Life Insurance Company, which markets a variety of insurance products to credit union members, including Accidental Death and Dismemberment policies. The settlement requires Trustage to make a number of changes to its solicitations based on concerns raised by the Attorney General’s office, and pay $75,000 in restitution, penalties, costs, and fees.

The Attorney General’s investigation revealed that Trustage’s Accidental Death and Dismemberment policy solicitations mailed to consumers prominently featured the logo of consumers’ credit unions and did not make clear that the solicitations were from Trustage. The solicitations contained other features that, coupled with the credit union logos, may have caused consumers to sign, complete, and return the policy enrollment form without fully understanding that they were signing up for a policy and were agreeing to have premiums deducted automatically from their credit union savings or checking account. For example, the solicitations featured prominent language advising consumers that their signature was requested on the enclosed “STATEMENT OF BENEFITS” and directed consumers to “SIGN and RETURN” in large red letters at the top of the page.

“New Yorkers have a basic right not to be misled by those seeking their business,” said Attorney General Schneiderman. “This settlement ensures full restitution for impacted consumers, as well as key reforms to Trustage’s business practices.”

The settlement requires Trustage to make a number of reforms to its solicitations for insurance products, including:

• Prominently including its logo at the top of any solicitation.
• Clearly and conspicuously disclosing that the solicitation is for an insurance product offered by Trustage.
• Requiring consumers to supply the account number from which they are authorizing Trustage to deduct premiums.

Pursuant to the settlement, Trustage will pay $75,000 to be used for restitution to any consumers who were harmed by the solicitations and file complaints within the next six months. Any remaining funds will be retained as penalties, costs, and fees.

Consumers who believe they may be entitled to a refund should notify the Attorney General’s office by filing a complaint online or by calling 1-800-771-7755.

A.G. Schneiderman Announces Guilty Pleas Of “Three-Quarter” Housing Operators Yury Baumblit And Rimma Baumblit

Yury Baumblit and Rimma Baumblit Will Each Serve State Prison Sentences For Medicaid Fraud Scheme that Forced Residents to Attend Treatment Programs Regardless of Medical Need

NY’s Medicaid Program Expects To Recoup $1.5 to $2.5 Million From Sale Of Baumblit Assets

   Attorney General Eric T. Schneiderman announced the guilty pleas and expected prison sentences of Yury and Rimma Baumblit, the operators of “three-quarter” homes in New York City for a scheme to defraud Medicaid through kickbacks. Kings Country Acting Supreme Court Justice Daniel Chun accepted the guilty pleas of both defendants on two counts each of Grand Larceny in the Third Degree. Three-quarter homes in New York City are private entities that provide housing to indigent, formerly homeless individuals and those transitioning out of periods of incarceration.

Both defendants were indicted in 2016 by the Attorney General’s Medicaid Fraud Control Unit for having defrauded the State Medicaid program through a systematic scheme whereby, in exchange for money, Yury  Baumblit and Rimma Baumblit mandated that the residents of their three-quarter homes attend substance abuse treatment at designated treatment programs regardless of medical need. At a later date, Yury Baumblit will be sentenced to concurrent terms of 2 ½ to 5 years in state prison for each crime; Rimma Baumblit will be sentenced to concurrent terms of 2 to 4 years in state prison for each crime.

“Yury Baumblit and Rimma Baumblit lined their pockets by preying on our most vulnerable New Yorkers,” said Attorney General Eric T. Schneiderman. “This should serve as yet another reminder that my office will aggressively pursue and prosecute those who seek to get rich by taking advantage of New Yorkers.”

In addition to their guilty pleas, Yury Baumblit and Rimma Baumblit each executed civil settlement agreements with the Attorney General’s Medicaid Fraud Control Unit. Under the terms of those agreements, each of them agreed to forfeit assets, including two properties they own in Brooklyn: a 5,000 square foot home in Manhattan Beach and a cooperative apartment in Brighton Beach. Each of them also agreed to forfeit luxury goods seized in connection with the civil action against them, including jewelry, watches, over 200 designer handbags, and 21 fur coats. The sale of assets is projected to realize between $1.5 and $2.5 million dollars in civil restitution for the State Medicaid program.

As part of their guilty pleas, Yury Baumblit and Rimma Baumblit admitted they had engaged in a kickback scheme with Medicaid-enrolled drug treatment providers Narco Freedom Inc., NRI Group, LLC, and Canarsie A.W.A.R.E. Inc. In exchange for monthly payments, the two individuals forced the residents at their three-quarter homes to attend treatment at these three drug programs, irrespective of the residents’ actual medical need for drug treatment services, and in violation of numerous State laws. Had the patients refused, they would have been evicted by the Baumblits and left homeless. The payments that Yury Baumblit and Rimma Baumblit received were based on the number of substance-abuse treatment sessions attended by residents of their three-quarter homes. During the course of the scheme dating back to 2010, the Baumblits received over $1.5 million in illegal kickbacks through five corporations they controlled: #1 Marketing Service, Inc., R Y B Realty, LLC, Steps to Better Living Inc., Orbit Management Group Inc., and Back on Track Group, Inc. As a result of this kickback scheme, the Medicaid program also paid over $2 Million to Narco Freedom Inc., NRI Group, LLC, and Canarsie A.W.A.R.E. Inc.

In 2016, the Attorney General’s Medicaid Fraud Control Unit also indicted NRI Group, LLC, Canarsie A.W.A.R.E. Inc., and the owner of both treatment programs, Anthony Cornachio, for their participation in the kickback scheme to which the Yury Baumblit and Rimma Baumblit pled guilty. Criminal charges remain pending against NRI Group, LLC, Canarsie A.W.A.R.E. Inc., and Anthony Cornachio. A trial is expected later this year. Narco Freedom was convicted last year of Enterprise Corruption for defrauding the Medicaid program in a related scheme. The charges against the remaining defendants are merely accusations and the defendants are presumed innocent unless and until proven guilty in a court of law.

Four of the Baumblits’ corporate entities – #1 Marketing Service, Inc., R Y B Realty, LLC, Steps to Better Living Inc., and Orbit Management Group Inc. – were previously convicted of Grand Larceny in the Second Degree. The other charged corporate entity, Back on Track Group, Inc. was previously convicted of Grand Larceny in the First Degree.  All the corporate entities were sentenced to a conditional discharge. 

Yury Baumblit and Rimma Baumblit were each previously convicted in 2009 by the Attorney General’s Automobile Insurance Fraud Unit for having participated in a no-fault insurance scam.

Throughout this investigation, the Attorney General’s office has worked closely with the various City, State, and Federal Agencies. The Attorney General would like to thank the New York City Human Resources Administration for its cooperation, partnership and valuable assistance throughout the investigation and especially note the work of its Medicaid Provider Investigations and Audit Unit. In addition, the Attorney General thanks the New York State Office of Alcoholism and Substance Abuse Services, the Office of the Medicaid Inspector General, and the United States Department of Homeland Security for their assistance. 

A.G. Schneiderman Announces Trial Conviction Of Long Island Man For Stealing From Bronx Medicaid-Funded Charity

Bronx Jury Found John Cornachio Guilty of Grand Larceny in the Second Degree for “No-Show” Job at Substance Abuse Treatment Provider through Which He Stole Over $800,000 

  Attorney General Eric T. Schneiderman today announced that a Bronx County jury found John Cornachio, 63, of Oyster Bay, NY, guilty of Grand Larceny in the Second Degree, a class C felony, for holding “no-show” job in order to steal from Narco Freedom Inc., a former Bronx-based, Medicaid-funded, not-for-profit corporation that was founded to provide substance abuse services throughout New York City. Cornachio faces up to 15 years in state prison when he is sentenced on March 2, 2018. Cornachio was remanded to jail pending sentencing.

“The defendant crafted an elaborate scheme in order to hide a no-show job and steal from New York taxpayers – exploiting a Medicaid-funded program that was intended to help those suffering from substance abuse,” said Attorney General Eric T. Schneiderman. “We will continue to aggressively pursue those who perpetuate these fraudulent schemes and bring scammers to justice.”

During the jury trial before Hon. Jeanette Rodriguez-Morick in Bronx County Supreme Court, the Attorney General presented evidence that Cornachio colluded with Narco Freedom’s corrupt management to have a “no-show” job at Narco Freedom. For over five years, Cornachio collected over $500,000 in salary and benefits paid by Narco Freedom. As part of his “no-show job,” Narco provided Cornachio with health insurance and a generous car allowance that he used to lease a Land Rover, among other benefits. The evidence also showed that Cornachio obtained over $300,000 from Narco Freedom through B&C Management, a shell company with no actual business that submitted fake invoices to Narco Freedom for services it never provided to the not-for-profit. Some of the payments were made in the names of John Cornachio’s minor children, who were supposedly rendering substance abuse counseling.

In 2015, the Attorney General’s Medicaid Fraud Control Unit (“MFCU”) indicted Cornachio, Narco Freedom Inc., its CEO, Alan Brand, and 12 other individuals and corporations for defrauding the state Medicaid program. All defendants indicted in connection with Narco Freedom have now been convicted of various crimes including Enterprise Corruption, Grand Larceny, and filing false information with government offices.

As part of the Narco Freedom investigation, the Attorney General also filed a civil action against Narco Freedom Inc. seeking asset forfeiture and other remedies, including treble damages and penalties under the New York State False Claims Act. The arrests and civil action by the Attorney General put an end to Narco Freedom’s illegal activity that exploited the Medicaid program and the vulnerability of thousands of Medicaid recipients – resulting in many millions of dollars in savings to Medicaid. As part of its plea and civil agreements, Narco Freedom acknowledged that it stole from Medicaid and admitted to filing false statements with various state agencies, including the New York State Department of Health and the Office of the New York State Attorney General’s Charities Bureau, in efforts to deceive and defraud these agencies. Narco Freedom filed for bankruptcy in January 2016. A bankruptcy court approved a $118 million settlement to settle Narco Freedom’s outstanding government claims, including those of New York State and the federal governments; the precise amount to be recovered in the bankruptcy proceeding is yet to be determined. 

In 2016, as part of the Attorney General’s investigation into fraudulent substance abuse providers and their exploitation of individuals living in substance abuse transitional housing, also known as “three-quarter houses,” MFCU also indicted Yuri Baumblit, Rimma Baumblit, Canarsie A.W.A.R.E. Inc., NRI Group, Inc., and Anthony Cornachio, John Cornachio’s brother and the owner of Canarsie A.W.A.R.E. Inc. and NRI Group, Inc., for defrauding Medicaid. Yuri Baumblit, Rimma Baumblit, and their companies have been convicted for that scheme. Criminal charges remain pending against Canarsie A.W.A.R.E. Inc. and Anthony Cornachio. The charges against those remaining defendants are merely accusations and those defendants are presumed innocent unless and until proven guilty in a court of law.

The Attorney General would like to thank the New York State Office of Alcoholism and Substance Abuse Services, the Office of the New York State Medicaid Inspector General, the New York State Department of Health, the Human Resources Administration of the City of New York, and the Civil Division of the United States Attorney’s Office for the Southern District of New York.

BRONX DISTRICT ATTORNEY DARCEL D. CLARK STATEMENT ON NOT GUILTY VERDICT FOR NYPD SERGEANT HUGH BARRY

  “The judge has issued his verdict in this case. We are disappointed but we accept his decision. However, I believe the death of Deborah Danner illustrates the larger issue of how we need changes in the way we address people with mental health issues.

 “There must be serious reforms to improve access to treatment so the situation does not rise to a crisis. Mental health professionals should be part of the response to emotionally disturbed persons.

 “I hope that measures will be taken to prevent another tragedy such as this.”

BRONX MAN INDICTED IN FATAL STABBING OF PIT BULL DOG LEFT IN HIS CARE BY OWNER

Defendant Charged With Animal Cruelty in Gruesome Death of “Onyx” 

  Bronx District Attorney Darcel D. Clark today announced that a Bronx man has been indicted on a felony Animal Cruelty charge for fatally stabbing and slitting the throat of an 18- month-old pit bull that was left in his care by the dog’s owner. 

 District Attorney Clark said, “The defendant allegedly stabbed the young dog more than 50 times and slit his throat, allegedly because the dog had bit him. This is an incredibly vicious crime and if the defendant is convicted he can face two years in prison. Cruelty against animals will not be tolerated.” 

 District Attorney Clark said the defendant, Stephen Richardson, 33, of 1237 Fulton Avenue, was arraigned today on a charge of felony Animal Cruelty before Bronx Supreme Court Justice George Villegas. Bail was set at $10,000 and he is due back in court on May 18, 2018. If convicted, he faces up to two years in prison.

 According to the investigation, on December 29, 2017, the defendant was watching “Onyx,” an 18-month-old male pit bull, in his apartment, as he had been doing for about six months. The dog’s owner stopped to check on him as she did frequently, and found him in the bathtub dead with multiple stab wounds primarily to the face and neck.

 At the same time, police were responding to a 311 complaint about possible animal abuse at the building, and went to the apartment and arrested the defendant. A knife was recovered.

 According to the investigation, the defendant said the dog bit him and in return he stabbed the dog in the park. Veterinarians said the dog died of a minimum of 55 sharp force wounds, including several that caused lacerations deep into the skin and tissue.

 District Attorney Clark thanked P o l i c e Officer Anthony Alvino of the 42 ND Precinct and Dr. Alison Liu of the ASPCA for their assistance. 

An indictment is an accusatory instrument and not proof of a defendant’s guilt.

Comptroller Stringer Announces NYC’s First “Making Rent Count” Pilot Program

In partnership with Banana Kelly, Comptroller Stringer to pilot new program to help New Yorkers boost their credit scores just by paying their rent

Over 600 New Yorkers across 27 buildings in the Bronx will be eligible for new pilot

  Comptroller Stringer, in partnership with the Banana Kelly Community Improvement Association, announced a new pilot program for the Comptroller’s “Making Rent Count” initiative, which will help New York City tenants establish or boost their credit scores just by paying their monthly rent. Working with Banana Kelly leadership, more than 600 tenants across 27 buildings in the south Bronx will now be able to add their rent payments to their credit histories, just like homeowners do for mortgage payments. Banana Kelly has agreed to report rent information directly to the credit bureaus for those who choose to participate in the pilot.

In October 2017, Comptroller Stringer’s “Making Rent Count” report showed deep disparities in credit scores across the five boroughs. A shocking one in five New Yorkers do not have a credit score and nearly one-third of city residents have sub-prime credit scores, which puts a ceiling on  financial success. Using never-before-analyzed data, the Comptroller’s Office found that in NYC communities where the average credit score is sub-prime, or below 630:

According to a 2015 study by the New York City Department of Consumer Affairs:

* 78% of residents are renters

* Black and Hispanic New Yorkers account for more than 90% of the population

* NYCHA residents comprise one in ten residents.

While renters’ credit scores are often penalized by landlords, bill collectors, and others when they fall behind on payments, renters do not see currently a benefit to their credit scores for paying their rent responsibly and are not given credit for the largest check they may write every month. This pilot project aims to correct that imbalance.

Through an opt-in program, the Comptroller’s Office has found that adding rent to credit scores would grant a new credit score to approximately 30% of renters for the first time. Research by the Comptroller’s Office shows that adding rent to credit would either raise scores or add additional depth to credit files for 94% of projected participants who currently hold a credit score. Specifically:

* More than half (57%) would see their score rise between 1 and 10 points;

* Nearly one in five (19%) would have their score boosted by 11 points or more;

* 18% would see no change at all;

* 6% would see a minor decline in their scores.

“We’re facing an affordability crisis, and we all know how soaring prices and sky-high rents make life difficult for New Yorkers across the five-boroughs. One of the hidden roadblocks to financial success is credit – and access to it. This innovative new program empowers tenants, helps level the playing field, and reflects another step to unstack the economic deck. It’s breaking new ground – and it will help make our city fairer,” said City Comptroller Scott Stringer. “To tenants, our message is simple. If you pay your rent on time every month, this pilot could ultimately be a game-changer. At a time when we need to use every tool in the kit to make our city more affordable, this new pilot could be the start of something important. I cannot thank our partners at Banana Kelly enough for their efforts and their work. Their participation reflects just how committed its leadership is to moving New York into the future.”

The 27 buildings in the Bronx in which the program will be piloted fall within three zip codes. All three zip codes rank among the bottom 10 percent of zip codes across the city by median credit score. More than 40 percent of residents in of each zip code have subprime median credit scores between 600 and 610. Moreover, over 40% of residents in each zip code have “thin file” credit meaning they may have never had a credit score or are new or re-establishing their credit. Given the opportunity to boost their credit scores or obtain scores for the first time, many residents will see real financial benefits, including the potential to pay much less on auto insurance, credit card interest rates, loans, cell phones, or other bills.

To read the full October “Making Rent Count” report, click here.