Tag: settlement

  • Foreclosure Fraud Settlement: The Empire Strikes Back (or Why Are Republicans So Obsessed with Backdoor Cramdown?)

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    Adam Levitin

    It's not surprising to see the banks and their supporters on the Hill pushing back on the proposed Foreclosure Fraud settlement term sheet. (See here and here and here).  There seem to be three major lines coming out of the banks:

     (1) It's "backdoor cramdown," and the agencies shouldn't be pursuing a policy rejected by Congress.  

    Thus, House Republicans wrote to Treasury Secretary Geithner that "The settlement agreement not only legislates new standards and practices for the servicing industry, it also resuscitates programs and policies [namely bankruptcy cramdown] that have not worked or that Congress has explicitly rejected."  These House Republicans want to know:  "What specific legal authority grants federal and state regulators and agencies the power to require mortgage principal reductions when the House and Senate have voted down such proposals?"  .  Similarly a coterie of bank-friendly pundits chimed in calling this sub rosa cramdown.  

    (2) CFPB has no business being involved given that it doesn't have a director.  

    This has to be read between the lines as a thinly veiled Elizabeth Warren witch hunt.  At least one commentator was upfront about that in the American Banker.   

    (3) The settlement could negatively affect the safety and soundness of the banks.  

    Let me address all of these points.  There's a lot of willful confusion about this term sheet and what it is.  

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  • Goldman Abacus Settlement: $550M in Hush Money

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    Adam Levitin

    The SEC settled with Goldman Sachs for $550M over Goldman's lack of disclosure in the Abacus 2007-AC1 CDO.  While this is a record settlement for the SEC, I think the settlement is a real disservice to the public because it means that we will never have the opportunity to really learn just what was going on in the bowels of Wall Street in the run up to the financial crisis.  The real value of the Abacus litigation was it was a chance to shine some sunlight on the inner workings of Wall Street.  The complaint and hearings gave us a taste, but if this litigation went further, we would likely have learned much, much more.  Instead, Goldman paid the SEC $550 in hush money and will succeed in keeping further details of its operations under wraps.  

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  • Interchange Fee Settlement

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    Adam Levitin

    MasterCard settled a lawsuit brought by the European Commission’s Directorate General for Competition, which alleged that MC (and Visa’s) “Multilateral Interchange Fee” (MIF) an interbank fee for cross-border transactions in Europe (basically good old US interchange) was anticompetitive. While the settlement allows MC to keep charging an MIF, MC agreed to drop the weighted average of the fee from between .8% and 1.9% to .3% for credit cards and .2% for debit cards. As the Commissioner for Competition Policy noted, “MasterCard could not justify their level with any solid methodology, or explain what, if any, efficiency gains were being passed on to merchants and consumers at the end of the day.” Visa has not settled in the litigation.

    MasterCard’s MIF was always much lower than US interchange, which is somewhere upwards of 2.0% (and that’s not the full merchant discount fee, just the interchange component). But now we see that MasterCard has decided that it can survive by charging just .3% interchange on credit cards in Europe. So why are American merchants going to pay seven times as much in interchange for credit card transactions? Are American banks or merchants seven times riskier? Or is US antitrust law just seven times weaker?