The House Financial Services Committee will hold a hearing Thursday looking into the Obama administration’s practice of diverting funds from settlements with major financial institutions to independent nonprofit groups, a practice that skirts several federal laws designed to keep public money from going to private parties.
The administration has defended the practice, saying that it redirects funds to people who have been harmed by the institutions. Republicans have been highly critical, arguing that by funneling the money through third parties with no congressional oversight, the practice effectively creates a slush fund that can be used to benefit favored groups.
“For more than a year, the House Financial Services and Judiciary committees have been investigating settlements between the Department of Justice and several state attorneys general and JP Morgan Chase, Citigroup and Bank of America, which funneled settlement money to third parties, including left-leaning activist groups” said Financial Services Committee spokesman Jeff Emerson. The hearing is set for Thursday morning.
The Washington Examiner did an extensive investigation of the practice earlier this year. Under the $7 billion settlement Citigroup signed with the Justice Department in 2014 on financial fraud charges, the bank is obligated to pay at least $10 million in “community relief” to housing-related nonprofit groups from a list the government maintains. It also must pay $15 million to legal aid funds and $25 million to public or private community development funds. Bank of America must pay at least $20 million to housing groups, $30 million to legal aid groups and $50 million to public or private community development funds as part of a settlement it signed the same year.
There is no limit on the amount of funds the corporations can direct to the third-party groups, and they have a strong incentive to exceed the minimums: For each dollar they donate, they get credited for two dollars toward paying down the settlements. Among the eligible groups they can donate to are liberal activist groups such as the National Council of La Raza. Direct consumer relief, on the other hand, such as forgiving delinquent loans, earns the financial institutions at best only $1 of credit for each dollar they spend.
Ordinarily this practice would be illegal under federal law, which says that any funds obtained by a government official, such as a Justice Department prosecutor, must be deposited with the Treasury. The administration has evaded this requirement by pushing the companies to make “voluntary” donations before charges against them are officially filed.
Deputy Assistant Attorney General Geoffrey Graber told the House Judiciary Committee last year, “This kind of relief could not have been ordered by a court, even if the government had prevailed at trial.”
