Bank of America has pulled out of its agreement to facilitate Chicago's unprecedented sale of approximately $1 billion in overdue vehicular debt, including unpaid parking, speeding, and red-light camera tickets. The bank informed Chicago officials that its decision was based on new company policies regarding such transactions. This withdrawal leaves the city without a placement agent for the controversial debt sale, which was intended to help address a projected $1.2 billion budget deficit for the year.
The city had selected Bank of America as the placement agent on June 5, following a request for proposals that garnered only one other bid. Bank of America's role was to identify potential buyers for the debt, determine which types of debt to sell, assess their profit potential based on age, and estimate the city's expected earnings, which were anticipated to be at least $89.6 million (roughly $0.09 on the dollar). The city council approved the debt sale in December, over Mayor Brandon Johnson's objections, as part of an alternative budget strategy.
The sale of this debt sparked concerns because it would make individuals who owe debt to the city ineligible for existing city-run relief programs like Clear Path Relief or Fresh Start Debt Relief, as the debt would no longer be owed directly to the city. Furthermore, third-party buyers could employ various collection methods, including contacting debtors by phone, mail, and at work, reporting to credit bureaus, or even suing to garnish wages or seize assets. The city has stated it would ensure guardrails are in place, but the specifics of enforcement by private collectors remain largely unknown.
This marks a significant setback for Chicago's financial strategy, which aimed to address its substantial budget gap through this innovative, albeit controversial, debt sale. Comptroller Michael Belsky had previously warned that the offering was expected to be costly and faced uncertain investor appetite, given its unprecedented nature. The city will now need to re-evaluate its approach to selling the overdue debt after Bank of America's unexpected exit from the deal, which was announced on July 16.
