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Amending FIRREA: An Alternative Proposal

The Banking Law Journal

Andrew W. Schilling

Near the end of his tenure, Attorney General Eric Holder publicly raised the prospect of amending FIRREA—the Financial Institutions Reform, Recovery, and Enforcement Act of 1989—to increase the incentives for blowing the whistle on financial fraud. FIRREA is the federal statute the Department of Justice (“DOJ”) has been using to bring fraud lawsuits against banks in theaftermath of the financial crisis, raking in billions for the federal treasury. Critics have not been satisfied by the government’s enforcement efforts to date, and perhaps in response, the Attorney General suggested that the relatively low whistleblower bounties available under FIRREA—they are capped at $1.6 million, regardless of the government’s recovery—were partly to blame. His proposal, which would have brought FIRREA’s whistleblower bounties in line with the more generous rewards available under the False Claims Act, apparently received no traction on Capitol Hill: No bill was introduced and FIRREA’s whistleblower provisions remain unchanged.

Recently, however, Congress has shown renewed interest in amending FIRREA—but to limit its reach, not to further empower the government. Specifically, on February 4, 2016, the House passed H.R. 766, the “Financial Institutions Consumer Protection Act of 2016,” a bill that responds to the government’s aggressive use of FIRREA to target financial institutions, and responds in particular to the DOJ’s controversial enforcement initiative known as “Operation Choke Point.” In that operation, the government reportedly issued at least 50 FIRREA subpoenas to banks as part of an enforcement initiative designed to hold the banks accountable for allegedly facilitating consumer fraud committed by the merchant clients of the banks’ payment processor customers. The idea was to use FIRREA to target the banks for allegedly facilitating fraud committed principally by their “customer’s customers.” The Justice Department considered it more efficient to apply pressure on banks to “choke off ” the merchants’ access to the payment system, rather than engage in the “whack-a-mole” pursuit of each of these merchants themselves, who may simply move from bank to bank.

If you listen to the congressional debate on H.R. 766, it is hard to know how to gauge its potential impact on FIRREA enforcement. On the one hand, proponents have said that the bill would work only a “modest change” to FIRREA enforcement. Opponents of the bill, in contrast, claimed that the bill was about “crippling the Department of Justice” and “stripping the Justice Department of its investigatory powers and its subpoena powers.”

The truth lies, as it often does, between these two extremes.

Originally published in The Banking Law Journal; reprinted with permission.