Push for More Details on Bank Settlements Likely to Intensify

WASHINGTON — The Justice Department's recent $16.6 billion deal with Bank of America over crisis-era mortgage fraud has raised fresh questions over a perceived lack of transparency in the settlement process.

The deal is the latest in a long line of settlements and deferred-prosecution agreements with the country's largest banks over the past few years, including similar mortgage agreements penned with JPMorgan Chase and Citigroup. While the headline figures in these cases are almost inconceivably large — JPMorgan settled for $13 billion and Citigroup for $7 billion — consumer groups and some lawmakers continue to raise questions about how these penalties are decided and ultimately implemented.

"Regulators have always loved to have the headline number — there's been a lot of focus on the headline number," said Edward Mills, an analyst at FBR Capital Markets. "But there's a real push towards the fact that the devil is in the details. People are much more focused on details than ever before."

Sens. Elizabeth Warren, D-Mass., and Tom Coburn, R-Okla., introduced a bill in January, the Truth in Settlements Act, aimed at increasing accountability around settlement figures. The bill would mandate clearer information around whether fines are tax deductible and if companies would offset payments via credits for certain conduct. The Senate Homeland Security and Governmental Affairs Committee approved the legislation in July.

While observers predict that the bill is unlikely to be signed into law anytime soon, Warren's use of the bully pulpit has already proven influential on other issues, such as requiring banks to admit guilt as part of the settlement process. Earlier this year, Credit Suisse become the first major bank in decades to admit guilt in its settlement with the Securities and Exchange Commission over charges that it helped Americans evade their taxes.

"We've yet to see Sen. Warren demonstrate her legislative capacity, and instead there are numerous instances where her command of the issues and very public persona have forced a change without legislation," said Isaac Boltansky, an analyst at Compass Point Research & Trading.

It's possible that ongoing pressure from her and other lawmakers could nudge the Justice Department and regulators into providing more public information around their settlements with big banks and other companies.

Moreover, even if the bill doesn't pass, the issue is one that cuts across Democratic and Republican lines.

"It's a fantastic talking point for liberals and conservatives because it has a double benefit," said Boltansky. "First, it's an attack on the 'too big to fail' banks, and second, it's been advanced in the interest of taxpayer protection. That's a win-win."

Indeed, consumer advocates said that lawmakers on both sides of the aisle have taken an increasing interest in the issue, as the deals with banks over illegal activity keep popping up.

"We've got calls from innumerable Republican and Democratic staffers on the House and Senate sides following up on our statements in response to these settlements — so the level of interest is very high," said Dennis Kelleher, president and chief executive of Better Markets, an advocacy group. "I think people on a bipartisan basis have extremely grave concerns about the way the Department of Justice is cutting these backroom deals."

Chief among those concerns is that there's little transparency in how the fines these banks pay compare with any fraudulent gains or investor losses related to the illegal activity. A spokeswoman for the Justice Department did not respond to a request for comment on this story.

"Right now nobody but the banks and DOJ have any idea about investors losses or the ill-gotten gains — if you think about it that's nuts in a democracy," said Kelleher. "That means nobody will ever know whether the punishment meets the crime."

Some are also worried about how the requirements included in the settlements will bear out over time. Many of the deals install an independent monitor at the banks, but that oversight process has not typically been made public.

There are also ongoing questions about whether some of the consumer relief components of the deals will prove effective. B of A, for example, is required to set aside $7 billion of its $16.6 billion deal towards helping struggling borrowers and communities. But critics have raised concerns that it and the other banks will earn credits for activity they would have undertaken regardless, such as conducting short sales and modifying certain nonperforming loans.

"If we're going to continue relying on consumer relief to be a part of these settlements, then there should be some sort of assessment as to whether taxpayers and borrowers actually benefit," said Boltansky.

Others argue that the record deals with the big banks continue to obscure the need for individual punishment for participating in widespread fraud.

"'If no one is going to jail, we want to make sure they suffer financially as much as possible' — that's the populist take," said Mills. "And almost no dollar amount would ever truly satisfy some of them."

Even when the statements of fact released with the settlements include evidence of specific wrongdoing by an employee, they tend to omit the names of the parties involved. While the Justice Department has typically made clear that the agreements do not preclude criminal cases against the institution or individuals, it has been slow to put that process into motion — if it plans to do so at all.

"B of A has emails showing that people knowingly engaged in fraud, and what's troubling … is that they have taken the names out of the emails" in the statement of facts, said Bart Naylor, a financial policy advocate at Public Citizen.

He added: "Individuals are the ones that commit these frauds and crimes, and I think that if a person isn't named and spends no time in jail, it tells other individuals that they will be protected or they will not suffer any personal consequences."