Originally published in American Banker
Picture this: the Treasury Department has just ordered you, a banker, to pay back money you never had. But the multimillion-dollar question is: Can the Treasury legally order you to pay up?
Certainly the Treasury, as well as all bank regulators, can order bankers to pay restitution for violating a law or for conducting an unsound banking practice. That is permitted by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, a statute granting bank regulators broad administrative powers.
Yet broad as this statute is, regulators' restitution power is meant to be limited. Firrea cabins the power to two circumstances: when a banker is unjustly enriched by her actions, or when she acts recklessly.
Courts have interpreted Firrea as adopting the traditional definition of recklessness. But they are split in defining unjust enrichment. Some courts use the phrase's traditional definition and require that the banker wrongly profit from her actions. Other courts have cast tradition aside and created a new definition that grants regulators limitless restitution powers. Under this definition, unjust enrichment occurs not just when the banker wrongly gains, but also when anybody is harmed by the banker's actions.
But all is not lost for bankers. Through appellate procedures, they can fight and overturn regulators' restitution orders.
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