“Jeff Sessions in Alabama.” Credit: Gage Skidmore

June 7, 2017; Washington Post

Readers may recall that, under President Obama, corporations sued by the U.S. Department of Justice for civil or criminal infractions were sometimes, as a part of the settlements negotiated, encouraged or required to make payments to nonprofits working in communities on similar problems as those created by the offending party.

For instance, in 2015, the Justice Department required JPMorgan Chase to pay $7.5 million to the American Bankruptcy Institute’s endowment for financial education. And in 2016, Justice officials required Volkswagen to invest $2 billion to fund zero-emission technology and infrastructure and to promote zero-emission vehicles.

Perhaps the most high profile of these were the settlements made with large banks in connection with the residential mortgage-backed securities crisis. Among those organizations receiving money were NeighborWorks, National Council of La Raza, Habitat for Humanity, the National Urban League, and state legal assistance funds—all of which would have been working to help pick up the pieces, though perhaps not always with the individuals directly harmed.

A memo from Attorney General Jeff Sessions, which ends this practice effective immediately, reads in part:

These third-party organizations were neither victims nor parties to the lawsuits…When the federal government settles a case against a corporate wrongdoer, any settlement funds should go first to the victims and then to the American people—not to bankroll third-party special interest groups or the political friends of whoever is in power.

Unfortunately, in recent years, the Department of Justice has sometimes required or encouraged defendants to make these payments to third parties as a condition of settlement. With this directive, we are ending this practice and ensuring that settlement funds are only used to compensate victims, redress harm, and punish and deter unlawful conduct.

We imagine that Sessions believes such monies were used to enrich said organizations, because he does not appear to understand the link to the yeoman work being done by nonprofits in the wake of massive corporate malfeasance. Now, the U.S. treasury will receive any settlement funds—as if that makes any more sense—with some few exceptions including payments directly redressing the harm addressed in the settlement and payments for legal or other professional services.

These types of payments to third parties have been in the crosshairs of the GOP for some time, as Rick Cohen documented in 2015:

[It] was the banks, not DOJ, that typically chose the third party entities like NeighborWorks and La Raza, so long as they were HUD-certified housing counseling agencies, to implement the counseling components of the settlement agreements). After criticizing the Justice Department’s oversight of these settlement agreements, [Rep. Bob Goodlatte (R-VA)] concluded, “For DOJ to funnel money to third parties through settlements this way may violate the law and is undoubtedly bad policy.”

Subcommittee chairman Tom Marino (R-PA) grilled a Justice Department witness over whether anyone from the White House or some unknown outside group had guided Justice and the banks on the selection of the third-party implementers—again, the specter of the hand of ACORN all but flowing from Marino’s lips. Rep. David Trott (R-MI) concluded that the settlement agreement process “looks and smells a little bit like a slush fund” and raised suspicions about how the banks got access to the list of HUD-approved nonprofit counseling agencies (apparently unaware that they are on the HUD website). Marino then observed that the Justice Department’s prosecution of the banks on mortgage lending issues amounted to “using extortion to make banks appropriate funds to left-leaning organizations.”

The Bloomberg News article went on to question the impact of NeighborWorks foreclosure counseling efforts, noting that most people who received counseling were not able to successfully achieve loan modifications or might have succumbed to mortgage payment problems later on. The implication was that this was because of NeighborWorks, as opposed to the real problem in foreclosure counseling: Getting the banks to agree to substantial modifications of loan terms, as in reducing principal and interest, as opposed to modifying payment schedules. No offense to the Bloomberg News writers, but this seems to be the first sally of Republicans aiming at the Justice Department’s prosecution of banks such as Bank of America and Citi and questioning the use of settlement funds by third-party entities such as NW and La Raza. How the big banks, having deluged this nation with terrible lending practices, bringing the economy to its metaphorical knees, and requiring billions in taxpayer bailouts, could be turned into victims of the Justice Department conspiring with purported leftist housing counselors is difficult to understand. Somehow, Goodlatte and his fellow committee members made NeighborWorks groups, the National Council of La Raza, and other foreclosure counseling organizations into the bad guys in this scenario.

Bad guys or good guys, it appears that if Sessions has anything to say about it (and he does, at least for today), the use of settlement money to remediate a situation through a nonprofit, however much sense that may make, is prohibited.—Ruth McCambridge