In light of whose DoJ it’s been doing this most recently, it’s easy to say it was nefarious.  But the whole thing could be eliminated with either of a couple of steps and a change in underlying procedure.

What is “it?”  It’s a secret (or merely secretive) slush fund fed by settlement proceeds from DoJ civil suits against large banks.

When big banks are sued by the government for discrimination or mortgage abuse, they can settle the cases by donating to third-party non-victims. The settlements do not specify how these third-party groups could use the windfall.

So far, investigators have accounted for $3 billion paid to “non-victim entities.”

Those third-party non-victims, under the Obama administration, were grassroots activist organizations favored by the Obama crowd.  These organizations consisted of the National Council of La Raza, the National Community Reinvestment Coalition, the National Urban League, and the like.

That arouses suspicion.  As Ted Frank, Competitive Enterprise Institute’s Director of the Center for Class Action Fairness, put it,

The underlying problem with the slush funds is we don’t know exactly where the money is going. Using enforcement authority to go after corporate defendants, DoJ bureaucrats are taking billions away from taxpayers to fund their pet projects overriding congressional preferences.

It’s bad enough that the money is going to those favored groups—directly to them and not going through DoJ or Treasury enroute—but as Frank noted, it’s taxpayer monies once the banks have paid the settlements, whether these were legitimate settlements or coerced ones.

It also turns out that much of the funding of the slush funds are “voluntary” extra payments, “encouraged” by DoJ.  Except that when DoJ is holding a lawsuit over the banks’ heads, there’s very little voluntary about acceding to “encouragement.”

The better solution is one of two: pay the money exclusively to the Treasury Department for the use of the Federal government.  That, though, leaves in place incentives for DoJ to browbeat the banks rather than seek justice for those the banks have been alleged to be cheating.  The better alternative, then, is for the banks to pay the money directly to the alleged victims.

The change in underlying procedure—the best solution—is for DoJ to stop being spring-loaded to settling.  If they have a case, bring it to court, and push the pace on it (the banks should do this, too; neither side should be allowed to stall the other).  If DoJ isn’t ready to bring the case, it should drop it altogether.  The settlements, even well-intended ones, just look like lawfare extortion.

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