WASHINGTON – Cause of Action (CoA), a nonpartisan strategic oversight group committed to ensuring that discretionary decision-making is accountable, transparent and fair, has filed a Freedom of Information Act request seeking clarity from the Justice Department on its legal authority to enter into financial settlements and arbitrarily allocate settlement funds.

Additionally, CoA is petitioning the Treasury and Justice Departments to show how the bank settlements comply with the Miscellaneous Receipts Act and the Government Corporation Control Act.

Click here to view the FOIA and the petition for rule making

Last August, the Department of Justice entered into a record $16.65 billion settlement with Bank of America, marking the agency’s largest victory against major banks that sold residential mortgage-backed securities (RMBS) prior to the 2008 financial crisis. Related settlements reached with Citigroup and JP Morgan brought the total DOJ victory against these three banks to a whopping $36.65 billion.

Typically, settlement funds are directed to the Treasury for appropriation by Congress. Of that nearly $37 billion dollars in settlement funds, the Justice Department has directed $13.5 billion to consumer relief efforts and third-party consumer groups – that’s more than the entire IRS budget in FY2014.

For example, provisions of the BofA settlement require the bank to pay at least $20 million to housing counseling agencies approved by the Department of Housing and Urban Development and at least $50 million to Community Development Financial Institutions certified by the Treasury Department.

The payouts raise the question of whether the Justice Department has the legal authority to enter into these colossal settlements, and distribute funds to unrelated third parties instead of victims aggrieved by the Banks’ actions.

Cause of Action Executive Director Dan Epstein issued the following statement:

“Lacking accountability and proven effectiveness, when the government forces economic redistributions through discretionary grants, it not only hinders long-term social change, it encourages waste fraud and abuse by grant recipients who are not held accountable for protecting the poor versus protecting themselves.”

Policy experts have written and testified before Congress expressing their concern that the settlements impermissibly settle claims of DOJ and other agencies, improperly distribute funds to unrelated third parties, and do not ensure that the funds DOJ and third parties receive are used to redress the harms identified in the settlements.

To date, the Justice Department has failed to identify any legal authority allowing itself to arbitrarily mandate these measures. Absent regulatory guidance, federal agencies are required to go through the rulemaking process, which the Justice Department has not done.

During a recent House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law hearing, Epstein testified that the “Bank of America settlements were not subject to notice and comment. These were unelected officials engaging in decision-making that the public had no stake in.”

Responding to inquiry from Rep. Hank Johnson (D-GA), Epstein noted, “in the case of Bank of America, that settlement agreement was never approved by a court. As you pointed out in your arguments about arbitration, you actually believe in a very robust court system. Yet that robust court system has nothing to do with the programs and policies that have been discussed here today.”

To ensure that government decision-making is transparent and fair in order to protect against the misuse of tax dollars and arbitrary abuses of discretion by the unelected, Cause of Action has requested access to the following documents pursuant to the Freedom of Information Act:

  • All records referring or relating to DOJ’s authority to agree to the Consumer Relief Donation Provisions of the RMBS Settlements.
  • All records referring or relating to DOJ’s authority to assume the contractual claims/settlement terms of the FDIC and SEC.
  • All records referring or relating to DOJ’s authority to enter into and/or reasons to execute the RMBS Settlements without notice and comment rulemaking.
  • All communications within DOJ, and/or between DOJ and any of the following: a) Bank of America; b) Citigroup; c) JP Morgan; d) FDIC; e) SEC; f) HUD; g) Treasury; h) the White House; i) the RMBS Working Group; and j) the states of California, Delaware, Illinois, Kentucky, Maryland, Massachusetts, and New York, regarding the RMBS Settlements.  You may limit the scope of this search to communications referring or relating to “Operation ChokePoint”, “CDFI”, HUD-approved housing counsel*”, “Neighborworks”, “Home Affordable Mortgage Program” and “HAMP”.
  • All records referring or relating to DOJ’s authority to bind private parties to comply with HAMP by entering into the RMBS Settlements.
  • All records referring or relating to (a) Huduser.org; (b) OMB Circular A-25; (c) the Chief Financial Officers Act; (d) the Anti-Deficiency Act; (e) “publicity or propaganda”; (f) the Colorado Division of Housing; (g) Empire Justice Center; (h) Center for New York City Neighborhoods.  You may limit the scope of this search to records concerning the Consumer Relief Donation Provisions.