Money

Federal officials often tout the dollar amounts in settlements, but credits and tax deductions reduce the actual amount paid.

By Jim Puzzanghera
January 8, 2014, 6:30 p.m.

WASHINGTON — Concerned that targets of federal investigations are getting off lightly, two senators proposed legislation requiring the government to disclose all the details about settlements that allow companies to duck trials on allegations of wrongdoing.

The bipartisan legislation, unveiled Wednesday by Sens. Elizabeth Warren (D-Mass.) and Tom Coburn (R-Okla.), reflects concern on Capitol Hill that big banks such as JPMorgan Chase & Co. and other companies involved in the subprime housing boom and financial crisis often settle to avoid potentially steeper penalties and court costs.

Federal officials often tout the dollar amounts obtained in settlements, Warren and Coburn said, but those figures can be misleading because credits and tax deductions reduce the actual amount paid by the companies.

“Too often, the details of these agreements … are hidden from the public,” Warren said. “Agencies tout a top-line sticker price of the settlement but don’t disclose significant details that dramatically alter the cost” to the companies.

Warren cited an $8.5-billion settlement last year between federal regulators and 10 financial firms over claims of deficient practices in servicing mortgages and processing foreclosures.

The settlement included $5.2 billion to modify homeowners’ mortgages, but the public announcement left out a key detail: The companies got inflated credits for forgiving fractions of unpaid loans. A bank, for example, could get a $500,000 credit for reducing the balance of a $500,000 mortgage by just $15,000, she said.

With federal authorities seemingly stymied on criminal prosecutions stemming from the mortgage and financial crises, lawmakers are pushing for tougher terms in settlements.

Their efforts already are having an effect.

Securities and Exchange Commission Chairwoman Mary Jo White said last year that the agency would push for admissions of wrongdoing when settling some of its civil cases, reversing a policy of allowing companies and individuals to neither admit nor deny liability.

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