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News
October 17, 2014

The FIRREA Finale: Bringing Back an Old Law to Treat New Ailments

by Matt Webb
Senior Vice President, Legal Reform Policy
U.S. Chamber Institute for Legal Reform

Like a well-stocked medicine cabinet, the United States Code contains many statutes Congress originally prescribed to address yesterday’s issues. As new challenges arise, it can be tempting to search the cabinet for older remedies. But care must be taken to ensure that they are not used to address ailments too different from Congress’ original purpose.

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) is one of those statutes. FIRREA was passed by Congress in 1981 to combat the fraud and insider abuse that contributed to the failure of numerous financial institutions during the savings and loan crisis of the 1980s.

Though the law went virtually untouched for the two decades that followed, it has reemerged in recent years as the Department of Justice’s (DOJ) go-to remedy for the investigation and prosecution of cases arising out of the recent financial crisis.

The statute’s appeal lies in its broad scope, reduced burden of proof, and nearly unrestrained authority for investigations going as far back as ten years. The law allows DOJ to cast a remarkably wide net, making it easier to win bigger cases.

Having realized the power of the once-shelved law, DOJ now wields FIRREA to generate headline-grabbing cases out of yesterday’s financial crisis. Additionally, the federal government’s use of FIRREA has not been limited to cases related to the sale of mortgages, or even to the financial crisis. For example, FIRREA penalties have been assessed for violations of mail and wire fraud statutes.

However, today’s crisis is not the same as yesterday’s, and FIRREA was not intended to be a generic law applicable in a whole swath of settings. The federal government uses the law the way one might reach for an old prescription to treat a new illness—an approach which is ill-advised at best and disastrous at worst.

Meanwhile, a close look at the case law interpreting FIRREA reveals that important, foundational questions about the statute’s scope and meaning have not yet been answered.

At the upcoming 15th Annual Legal Reform Summit, the U.S. Chamber Institute for Legal Reform will release a paper which outlines the legal and policy issues surrounding FIRREA. 

The paper will describe the parameters of FIRREA’s civil penalties provision; discuss recent case law interpreting key language in the statute; outline recent enforcement actions and court holdings; as well as identify trends to watch for as DOJ expands its use of the law.

FIRREA spent two decades at the back of the medicine cabinet. It is now on the countertop with its lid off, and is being used regularly and aggressively by DOJ. Important questions, however, remain about the statute’s legal and practical limits. 

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