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Consumer protection exemption has blocked the state from millions



Last modified: Sunday, February 22, 2015
Earlier this month, the federal government announced a massive legal settlement with Standard & Poor’s, one of the country’s three largest ratings agencies. After months of impasse, company officials had finally agreed to pay $1.37 billion to the government and several states that had each accused it of defrauding mortgage investors in the build-up to the 2008 financial collapse.

Not that New Hampshire had any reason to celebrate. In fact, quite the opposite.

The state had taken part in initial settlement discussions, but an exemption in its consumer protection law prohibited prosecutors from suing the company alongside the U.S. Department of Justice, 19 states and the District of Columbia. The estimated lost revenue: $20 million.

This is at least the second time New Hampshire has missed out on tens of millions because of the exemption, RSA 358:A-3, according to Senior Assistant Attorney General Jim Boffetti, head of the Consumer Protection and Antitrust Bureau.

The exemption blocks prosecutors from taking civil or criminal action under the consumer protection law against business activity that is regulated by “the bank commissioner, the director of securities regulation, the insurance commissioner, the public utilities commission, the financial institutions and insurance regulators of other states, or federal banking or securities regulators who possess the authority to regulate unfair or deceptive trade practices.”

The current exemption was created in 2002, but Assistant Attorney General David Rienzo said the story dates back to the mid-1980s, when the consumer protection law was still in its infancy. At that time, activity was exempted if it was “otherwise permitted” under law by state or federal regulators. The clause was meant to weed out unfounded allegations, Rienzo said, but it was so broad that no one, including the state Supreme Court, seemed to know exactly what businesses were and were not subject to legal action.

In 2002, lawmakers passed a rewrite. Rep. John Hunt, a Rindge Republican who led the effort, said the new phrasing had a primary goal: to protect companies already heavily regulated from additional action from the attorney general’s office. State regulators each have their own consumer protection laws, and Hunt said businesses that violate those can and should be held accountable.

But lawmakers at the time did not discuss the implications the new exemption might have on multistate litigation. That is because the practice was not that common, Rienzo said. It emerged in the late 1990s, he said, with the attack on big tobacco.

In the case of S&P, which was accused of inflating the ratings of shoddy mortgage investments, state prosecutors were unable to sue because the company is regulated by the federal Securities and Exchange Commission, which falls under the state’s exemption.

New Hampshire is one of a few states with the exemption, Boffetti said.

He said there have been some legislative efforts to amend the exemption since 2002, and that the attorney general’s office has established better communications with state regulators. Last year, lawmakers passed a bill that gave the banking commissioner the authority to refer violations to its consumer protection statutes to the attorney general for prosecution. (Deputy Commissioner Ingrid White said the bill clarified what the department already believed it could do.)

The state was able to profit $10.5 million in the 2012 national mortgage settlement because, unlike the S&P case, it was one of multiple states named in a single pleading. That had been the original tactic against S&P, Boffetti said, but when the company refused to meet initial demands, the group opted to divide and conquer, each filing separate suits under their individual consumer protection acts.

The state used part of the 2012 settlement money to create a three-year program to help struggling homeowners through free mortgage counseling and legal representation. Boffetti and participating nonprofits have been searching for cash to continue the effort this year.

Asked whether the S&P settlement could have helped fund that, Boffetti said it would have been up to Gov. Maggie Hassan and the Executive Council. But, he said, “there is critical work going on that is going to run out at the end of this year, so yeah, helping to fund that would have been a great use of the money.”

Hassan’s spokesman, William Hinkle, said she is open to discussing potential reforms to the law.

“Gov. Hassan supported revisiting this exemption in the state’s consumer protection act when she was a state senator and believes a broad discussion about the issue and its fiscal impact makes sense,” he said in an email.

Hunt said he too is willing to look at ways to allow the state to take part in multistate lawsuits, as long as those do not open businesses up to essentially double regulation.



(Jeremy Blackman can be reached at 369-3319, jblackman@cmonitor.com or on Twitter @JBlackmanCM.)