Congress and Responsibility

As a former government employee, I have seen this happen before. Congress gets all wrapped up in something special - or something that Congress deems special - and overlooks its basic responsibilities. One of Congress' responsibilities is to fund government activities and agencies so that government keeps going. It is basic administrative and budget work. But Congress doesn't always manage to finish this basic work when it is much more excited about something else, such as getting re-elected.

This year, one of the budget omissions was re-authorization of the NFIP. Congress considered that it had more important things to do. Never mind the fact that there is an entire, complex process in place mandating responsibilities of both government and private sector organizations to ensure that flood insurance is placed. Never mind that, because of this omission or delay, Congress has unwittingly generated thousands of hours of compliance effort. Never mind that Congress has undermined the hard compliance work of persuading lenders - especially commercial lenders - that flood hazard insurance is important. Presumably, Congress believed that whatever it did give time to (such as being elected) was more important than needless and unproductive compliance burden dumped on an already overwhelmed industry.

Congress has no regulatory or oversight agency other than the voters. Congress isn't examined - except by the fickle press. So no one is poised to hold Congress accountable - much less cite Congress for violations and impose civil money penalties. But it is those very consequences that financial institutions face if they don't take steps to develop contingency plans and if they don't guess correctly about Congress' future actions or inactions.

So financial institutions and the secondary market entities subject to flood insurance requirements spent much of December 2002 trying to decide how to respond to the regulatory crisis. Fannie Mae and Freddie Mac had to decide whether they could legally purchase loans secured by improved real property located in a flood hazard zone without flood insurance. Then the choices involved if so, how? Financial institutions had to choose between the mandates for the flood insurance program and FEMA's cleverly crafted excuse - that the loan isn't a designated loan if the NFIP doesn't function.

Everyone affected had to evaluate the risk that consumers present. How will a customer react if their property is flooded and insurance from the NFIP doesn't happen? Whom will they sue? Because someone other than the property owner is going to pay. What will a court do when a consumer presents visible damage from flooding, there is a law that says you weren't supposed to make the loan without flood insurance, and the lender-defendant tries to present FEMA's technical argument that because federal insurance wasn't available and therefore the loan wasn't designated.

When Congress fails to complete its budget responsibilities, we get much more than confusion; we get expense. And the expense is usually something that didn't need to happen. Moreover, the expense is often wasteful.

For example, when Congress fails to fund an agency (until later when they get around to it) the agency can no longer function legally. But it isn't a temporary vacation for employees. When the agency isn't funded it isn't authorized to exist. The agency has to shut down and this involves work - wasteful work.

When I was at the Federal Trade Commission, Congress let the agency's budget authorization lapse. FTC staff had to dismantle all projects. We worked every day at undoing the projects we had been working on. Files were cleaned up, sorted, closed and packed for storage. Investigations were halted. Research was canceled. Needless to say, Congress eventually came through with a budget and we turned around and started it all up again.

This is what is happening with the NFIP and it is incredibly wasteful. If money is a precious resource, and according to the US Treasury Department it is, then why is Congress wasting it this way?

Can you imagine what would happen if banks operated this way?

Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 16, 12/02