In 2012 and 2013, the Department of Justice brought a slew of actions against several financial institutions under a rarely used and little-known statute from the late 1980s for conduct related to the mortgage crisis. Outcomes in these cases in recent months show the statute’s potency and likely indicate that the government will continue to use this statute in the future.

The statute involved is the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Originally passed by Congress in response to the savings-and-loan crisis of the late 1980s, FIRREA was enacted as a tool to protect financial institutions and others from fraud and insider actions by allowing the government to bring civil actions when certain criminal statutes (including mail and wire fraud) have been violated, as long as the violation “affected a federally insured financial institution.” Essentially, FIRREA allows the government to prosecute alleged criminal conduct while taking advantage of the lower burden of proof used in civil cases. In addition, the Act comes with a 10-year statute of limitations, as opposed to the typical five- year limitation common in criminal statutes.

Courts have strengthened the government’s ability to bring FIRREA cases in the future by declining to limit the scope of the law. The Act allows the government to bring an action for civil penalties against anyone who violates certain criminal statutes when the conduct “affects[s] a federally insured financial institution.” District Courts faced with the issue have ruled that the defendant financial institution can, in the same case, be both the defendant and the financial institution “affected” by the conduct (as opposed to frauds by third parties that affect the bank). The Courts of Appeals have not yet been afforded the opportunity of limiting the statute’s use.

In addition, Attorney General Eric Holder recently proposed raising FIRREA’s whistleblower payment from the current $1.6 million cap, yet another indication that the government plans on bringing additional FIRREA actions in the future.