Goodlatte & Hensarling to Ag: Why does Justice Dept. Require Banks to Donate to Activist Groups?
House Judiciary Committee Chairman Bob Goodlatte (R-Va.) and House Financial Services Chairman Jeb Hensarling (R-Tex.) wrote a letter to Attorney General Eric Holder requesting information about two questionable terms in the Justice Department’s recent mortgage-lending settlement agreements with two major banks.
The Department’s most recent settlements with Bank of America and Citigroup required millions of dollars in minimum donations to activist groups from an approved list, which includes La Raza and NeighborWorks, which has been described as “fund(ing) a national network of left-wing community organizers operating in the mold of Acorn.”
In addition, as an incentive for donations above the minimum to these groups, settling banks earn two dollars’ worth of credit against their Department-mandated consumer relief commitment for every one dollar donated. As stated in the letter, “[T]hese startling terms in the Justice Department’s two latest settlements make them look less like consumer relief and more like bank ‘shakedowns’ to benefit special interest groups.”
Read more about the unprecedented terms of the Justice Department’s mortgage-lending settlements in the text of the letter to Attorney General Holder below:
Dear Attorney General Holder:
We request information about the Justice Department’s mortgage-lending lawsuits and whether they actually deliver redress to consumers genuinely harmed.
Relief for these consumers is long overdue, yet the Justice Department’s record settlements have left homeowners disappointed. It seems that the alleged victims are not the primary beneficiaries of these multi-billion dollar settlements. Instead, the terms in the Justice Department’s two latest settlements look less like consumer relief and more like a scheme to funnel money to politically favored special interest groups.
First, the settling banks must donate a minimum of $150 million to activist groups like La Raza and NeighborWorks, which funds a national network of community organizers. Second, for each dollar donated above the minimum, banks earn two dollars’ worth of credit against their overall consumer relief commitment. By contrast, direct forms of consumer relief, such as loan modifications, earn only dollar-for-dollar credit. This makes donations to activist groups far more attractive to banks than providing direct relief to injured consumers. As a result, the settlements appear to serve as a vehicle for funding activist groups rather than as a means of securing relief for consumers actually harmed.
On July 14, 2014, the Justice Department announced a $7 billion mortgage-lending settlement with Citigroup that included $2.5 billion in “consumer relief.” In its press release touting the settlement, the Department described the relief as “innovative” and as going beyond the “principal reductions and loan modifications . . . built into previous resolutions.” The details of this relief were contained in Annex 2 of the agreement. Menu item 4F of the annex requires a minimum $10 million in donations to HUD-approved “housing counseling agencies,” which include La Raza and NeighborWorks. Menu items 4D and 4E require an additional minimum $40 million in donations for housing-related organizations, including “legal aid” and community development “non-profits.”
For every dollar donated above the $50 million minimum, Citigroup will earn two dollars’ worth of credit against its $2.5 billion consumer relief commitment. By contrast, for direct forms of consumer relief, like principal forgiveness, the base credit is merely dollar-for-dollar.
Nearly identical terms appear in the Department’s August 21, 2014 settlement with Bank of America (BoA). This settlement, which the Department has described as “historic,” demands a minimum of $100 million in donations to housing-related organizations, including counseling agencies, “legal aid” organizations and community development “non-profits.” For every dollar donated above the minimum, BoA’s credit against its overall $7 billion consumer relief obligation is two-for-one. Again, the base credit for direct forms of consumer relief is just dollar-for-dollar.
These terms appear unprecedented. The Department’s November 2013 mortgage-lending settlement with J.P. Morgan Chase, for example, included only direct forms of consumer relief. Certain previous agreements, including during the George W. Bush Administration, provided that any funds remaining after all consumer injury had been redressed could go to third-party groups. But that is far different from earmarking mandatory minimum donations to activist groups as central provisions of settlements, and giving banks twice the incentive to funnel settlement funds to third-party groups instead of to harmed consumers.
In light of these concerns, we request that the Department conduct a briefing for the Judiciary and Financial Services Committees as soon as possible on the foregoing settlement terms and ask that you provide the following answers and information before the briefing and no later than December 9, 2014:
Thank you for your prompt attention to this request.