Author Archives: Geoffrey P Miller

Richard Cordray’s Pink Slip

by Geoffrey Parsons Miller

Like a hurricane forming off Cape Verde, an important constitutional issue may be on track to reach the Supreme Court in 2017.

As so often happens in great cases, the controversy arose in routine fashion. An administrative law judge employed by the Consumer Financial Protection Bureau imposed a $6 million fine on PHH Corporation for violating the Real Estate Settlement Procedures Act.[1]  Rather than meekly accepting the fine, as most private parties would have done, PHH appealed the matter to the director of the agency.

Here’s where things got interesting. Continue reading

Whistleblowing in the Wind

by Geoffrey Parsons Miller

How should the law protect employees who report bona fide evidence of violations, without also giving undue leverage to others who assert bad faith claims?

This policy tradeoff underlies the current split in the federal circuits over whether the Dodd-Frank Act’s whistleblower protections extend to people who report internally but do not contact the SEC. In Asahi v. G.E. Energy (USA) (PDF: 422 KB), the Fifth Circuit held that Dodd-Frank Act protects only people who report to the SEC; in Berman v. Neo@Ogilvy LLC (PDF: 1,469 KB), the Second Circuit, agreeing with the Commission, extended the Act’s protections to internal reporters as well.

The issue in these cases was not whether internal reporters enjoy any whistleblower protections at all. Continue reading

Banking’s Cultural Revolution

by Geoffrey Parsons Miller

Among the reforms emanating from the global financial crisis, few are as enticing as the idea of improving the culture of banking.

Nearly everyone agrees that there was something wrong with attitudes and behaviors in the financial services industry in the years before the crisis. Nearly everyone also endorses the proposition that inappropriate risk-taking and disdain for regulation contributed to the excesses characteristic of those years. And there’s broad consensus that a respectful attitude towards risk management and compliance can help protect against another crisis. There’s a lot of merit in these ideas.

But whenever one observes this sort of piling on, it’s useful to ask what we’re missing. Continue reading

Breach of Contract ≠ Fraud

by Geoffrey Parsons Miller

The Second Circuit’s May 23 “mortgage hustle” decision (PDF: 270 KB) corrects a questionable interpretation of the mail and wire fraud statutes.[1]

Countrywide Home Loans – now a subsidiary of Bank of America – entered into contracts to sell mortgages to Fannie Mae and Freddie Mac. The contracts contained representations regarding the quality of the mortgages that would be transferred. Allegedly, the loans didn’t measure up.

Freddie and Fannie might have sought redress on a simple breach of contract theory: Countrywide did not carry through on its promise to supply good quality loans, and as a result the purchasers were entitled to damages. Regrettably, however, the government litigated this action on a different theory. Continue reading

Judges Are Not Potted Plants

by Geoffrey Parsons Miller

Many have noted the impetuous growth of the administrative state: the massive expansion and awe-inspiring authority of official departments and commissions; the billions of dollars of penalties assessed against offenders; the modalities of agency action that seem to grow more refined and more pervasive with each passing year.

Less attention is given, however, to the necessary concomitant of this regulatory mission creep: the progressive disempowerment of the judicial branch. Judges in administrative cases are often relegated to the role of juridical Bob Cratchits – clerks who rubber-stamp documents without exercising substantive influence over the matters that come before them. Continue reading

Compliance Goes to School

by Geoffrey Parsons Miller

Compliance has exploded as a business line and a source of legal employment and scholarly research.  Responding to marketplace demand, a substantial number of law schools have instituted courses or programs in compliance, and more are contemplating doing so.  Convenient teaching materials are available. Every law school should consider providing instruction on this topic, and should encourage faculty members to become involved in compliance-related research. Continue reading

CFPB Issues Proposed Consumer Arbitration Rule

by Geoffrey Parsons Miller

The Consumer Financial Protection Bureau’s (CFPB) long-awaited pre-dispute arbitration proposal (PDF: 1,731KB) changes the ground rules in the conflict between plaintiffs’ attorneys and financial institutions.

Many companies currently include pre-dispute arbitration clauses in standardized contracts. Business interests insist that these clauses provide customers with a valuable opportunity to resolve their grievances without incurring the cost and anxiety of a lawsuit.  Even better, these clauses are consumer-friendly when judged by norms of arbitration: a given clause may provide for streamlined procedures, convenient venue, cost-free arbitration, and awards of attorneys’ fees and expenses to successful claimants.

For consumers, it sounds too good to be true.  And it is. Continue reading

FSOC Socked

By Geoffrey P. Miller

Judge Collyer’s order rejecting MetLife’s designation as a systemically important financial institution (SIFI) is a potential watershed moment for regulation in the aftermath of the crisis of 2007-2009 (MetLife, Inc. v. Financial Stability Oversight Council (PDF: 81KB), No 15-cv-0045 (D.D.C., March 30, 2016)).

Responding to legitimate concerns about the performance of financial regulators and central bankers who failed to understand the dangers posed by the credit bubble and the subprime mortgage boom, Congress in the Dodd Frank Act created the Financial Stability Oversight Council (FSOC) and charged it with responsibility for overseeing the stability of financial markets.

The FSOC’s most important substantive power is its authority to designate non-bank financial institutions as SIFIs and thereby subject them to supervision by the Fed under heightened prudential standards.

There is much to be said for the SIFI idea. The financial crisis demonstrated that shadow banks can pose systematic risks and warrant enhanced regulatory scrutiny.

But FSOC’s implementation of this idea has been problematic. Critics charge that FSOC’s standards for SIFI designation are vague and inconsistently applied and that its decisions are politicized and cloaked in secrecy. Continue reading