By Dan Epstein
The Department of Justice’s war against the financial industry shows no sign of ending. The agency is now suing Quicken Loans over alleged issues with its taxpayer-backed housing loans. This follows a string of multibillion dollar settlements with major banks for their alleged actions prior to the Great Recession, most notably the record $16.65 billion deal with Bank of America and $7 billion settlement with Citigroup in 2014 and the $13 billion deal with JP Morgan Chase in 2013.
To date, the DOJ has extracted at least $127 billion from these and other companies in the wake of the financial crisis.
Yet while the DOJ says that its actions are in the public interest, the public has no way of verifying whether this is true. Moreover, the agency’s opaque administrative process has resulted in settlements that raise more questions than answers.
The DOJ has not explained which laws or regulations allow it to divert a bare minimum of $150 million, and potentially billions, from its bank settlements to third-party organizations — a historically unprecedented arrangement.
Before the Department of Justice can squeeze a similar settlement out of Quicken Loans, the public deserves to learn the details about how — and why — such deals were reached.
On June 15, government watchdog Cause of Action, where I am executive director, filed a Freedom of Information Act request with the DOJ concerning its recent settlements with Bank of America, Citigroup and JP Morgan Chase. We seek an explanation of the DOJ’s statutory authority to direct a private organization’s settlement money to third-party organizations — and why specific organizations were chosen.
The settlements’ problems primarily stem from their “consumer relief” sections. Under the terms of their respective deals, Citigroup must commit $2.5 billion, JP Morgan must pay $4 billion, and Bank of America must remit $7 billion on this item.
Normally, consumer relief money would go to actual victims of fraud. Instead, the Department of Justice provided a menu of organizations to which the banks could give their money.
The Bank of America settlement, for instance, included a minimum of $20 million to “housing counseling agencies” approved by the Department of Housing and Urban Development and a minimum $50 million to “Community Development Financial Institutions” approved by the U.S. Treasury. The settlement also offers to forgive $2 of money owed for every $1 given to such groups — a powerful incentive to direct money their way.
Moreover, such arrangements conveniently dovetail with several of the Obama administration’s other policy goals.
The money to community development financial institutions, or CDFIs, is the most obvious example. They are marketed as taxpayer-backed alternatives to payday lenders and check-cashing services in low-income communities. Not coincidentally, the DOJ is also engaged in a multiyear campaign — “Operation Choke Point” — that’s effectively shutting down payday lenders and giving CDFIs an opportunity to gain market share. Bank of America is now legally obliged to assist them.
The money to housing counseling agencies is also troublesome. By directing cash to these groups, the DOJ is forcing Bank of America to fund a program whose budget was eliminated by Congress in 2014. In effect, the Obama administration is using the private sector’s money in lieu of taxpayer dollars.
Another eyebrow-raising provision requires that Bank of America and JP Morgan Chase spend a combined $4.15 billion on loan forgiveness and forbearance. Both settlements note that this money can be given to the “Making Home Affordable Program,” a taxpayer-funded federal program created by the Obama administration as part of the 2009 stimulus bill.
MHA is set to expire at the end of 2016, but before that day comes, it can likely count on an influx of cash from the private sector.
Finally, there’s the matter of what happens if the three banks haven’t disbursed their consumer relief budgets by December 2017 for JP Morgan Chase, August 2018 for Bank of America and December 2018 for Citigroup. At that point, all of the money still owed by Citigroup and JP Morgan Chase, and 25% of Bank of America’s outstanding obligation, will go to the third-party organization NeighborWorks America, which will spend the money on many of the programs and causes listed above.
Imagine if a Republican administration directed billions of dollars of “small business relief” into the coffers of the U.S. Chamber of Commerce, the National Federation of Independent Business and the National Restaurant Association, all while hiding the details from the public. The media and political outcry would be severe.
Yet that’s essentially what the Obama administration has done with its campaign against the financial industry, forcing banks to bankroll organizations and causes that advance its political agenda.
The Justice Department must release the documents that make clear why it structured the Bank of America, Citigroup and JP Morgan Chase settlements in such a way, and why that is legally acceptable. The American people deserve to know if the federal government is disguising political shakedowns as a public service.
