A federal judge has okayed the use of a rarely used law that the Justice Department is trying to use in lawsuits against major banks, according to a Reuters report.
The Financial Institutional Reform, Recovery and Enforcement Act (FIRREA) has enhanced subpoena power, a 10-year statute of limitations and a lower burden of proof than similar finance laws. The law was rarely asserted until recently, when it became the basis of litigation against several banks, including Bank of America and Wells Fargo, Reuters reported.
U.S. District Court Judge Jed Rakoff said in his ruling that a “straightforward application of the plain words” of FIRREA allowed the savings and loan-era law to be applied to the new litigation.
The ruling will encourage the government to go after “a wider range of targets in the financial services industry, and a much broader range of alleged misconduct, including potentially consumer fraud,” Andrew Schilling, former head of the civil division in the Manhattan U.S. Attorney's Office, told Reuters
The judge’s decision was handed down in the government’s case against Bank of America. The DOJ contends that Bank of America’s Countrywide Financial unit sold troubled mortgages to Fannie Mae and Freddie Mac.
The sales came as a result of a 2007 Countrywide program called “High Speed Swim Lane” – also known as HSSL or “hustle.” Prosecutors allege that Countrywide sped mortgages through the approval process by removing quality controls – which resulted in thousands of fraudulent or defective mortgages being sold to Fannie and Freddie, according to Reuters.