Bring Back the Good Old Civil Fine...

In these days of Ponzi schemes and pernicious hedging, there arises once again the call for increased criminal penalties.  Why burden our regulators with the attendant procedural obstacles?

Any agency fashioning a "penalty" or "fine" is subject to 28 U.S.C. sec. 2462, which imposes a 5-year statute of limitations.

And the Supreme Court's decision in U.S. v. Halper, 490 US 435 (1989), clarified that a civil fine so large as to be punitive in nature can trigger considerations of double jeopardy.

Which makes the announcement yesterday of the FTC's $108 million civil settlement with two Countrywide subsidiaries all the more exemplary.  The activities underlying the settlement were tawdry.  The subsidiaries of the failed mortgage servicer were alleged to have imposed and collected inflated fees from subprime mortgagors who had fallen behind on payments and also "made false or unsupported claims...about amounts owed " to bankrupt borrowers; the FTC Chairman himself was quoted as saying, "Life is hard enough for homeowners who are having trouble paying their mortgage.  To have a  major loan servicer like Countrywide piling on illegal and excessive fees is indefensible." 

The settlement - fashioned as a reimbursement to the victimized homeowners - reaches events before July 2008, when Countrywide was acquired by Bank of America.  FTC settlements avoid characterization as a fine and do not constitute an admission by defendants, but the current order permanently bars the defendants from recurring violations and requires the subsidiaries to change their bankruptcy servicing practices.

Which reminds us that there are effective regulators of banking practices besides the Fed, the Treasury, and the Securities and Exchange Commission.  And that it was the FTC who actually enforced the Securities Act of 1933 for one year until the birth of the SEC.  And that the most effective regulation may just be those actions that place money directly back in the hands of customers at the heart of (and yet most marginalized by) current events.

---JSC, 6/8/10