Sens. Elizabeth Warren, D-Mass., and Tom Coburn, R-Okla., introduced the Truth in Settlements Act Wednesday to smoke out hidden financial information whenever a bank settles mortgage or banking issues with a regulator.
"When government agencies reach settlements with companies that break the law, they should disclose the terms of those deals to the public,” Sen. Warren said Wednesday.
"Anytime an agency decides that an enforcement action is needed, but it is not willing to go to court, that agency should be willing to disclose the key terms and conditions of the agreement," she added.
The bill is highly relevant given banks tendency to settle with regulators for massive sums of money without disclosing the reasoning behind those agreements. Very generic descriptions are often provided to the public.
But that is not enough, the two senators say. Warren and Coburn claim misleading dollar amounts are reported since tax deductions and other credits become baked into the final deal.
In other cases — like the $9.3 billion Independent Foreclosure Review (IFR) settlement cut last year — issues emerged with background details hidden from lawmakers and homeowners. Warren started tackling IFR last year, claiming the deal quickly ended detailed probes into crisis-era foreclosure files, making it impossible for lawmakers to know how final payouts to borrowers were calculated.
"Taxpayers deserve to know the settlement details corporations arrange with the government, and the best place for Congress to start is with policies that enhance transparency," Coburn said.
"Since agencies are not currently required to disclose the financial structure of government settlements, too often the true value of those settlements is not known because often companies are allowed to deduct part of the payment. Our bill gives taxpayers the transparency tools they need to access real information and numbers regarding enforcement settlements," he added.
Under the bill's proposed guidelines, all written and public statements that reference settlements will need to be accompanied by detailed explanations, while ensuring the appropriate categorization for tax purposes. It also must be clear if the parties plan to calculate in credits that could make the deal look more robust than it really is.
If a company chooses to keep a settlement confidential, it should openly justify why that is necessary, the senators say.
The act also directs the Government Accountability Office to conduct a study of confidentiality procedures and to offer additional recommendations for increasing transparency.
