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Financial Institutions and Congressional Investigations - 2020 into 2021

February 18, 2021, Covington Alert

Financial institutions are consistently targets of congressional oversight interest.In the last Congress, House and Senate committees held hearings with, demanded documents from, requested interviews with, and hosted briefings from a number of bank and non-bank financial institutions regarding a variety of issues.In this client alert, we look at the recent trends in congressional investigations of financial services companies and predict the future trajectory of investigations related to this industry. 

Even as we publish this alert, Congress is gearing up for investigations and hearings related to the stock trading controversy concerning GameStop, Reddit, and Robinhood.These inquiries fit with recent trends in congressional investigations of the financial service sector, such as the focus on financial companies of all sizes and concerns about consumer harm.


Several themes characterized recent financial services investigations.First, committees broadened their target lists.  It is not just the largest banks and institutions in the crosshairs.Second, committees demanded individualized and sensitive data, including customer data and materials covered by the bank examiner privilege.Responding to these requests required that financial institutions navigate the competing interests of Congress, customers, regulators, and others.Third, members of both the House Financial Services Committee and the House Oversight and Reform Committee, particularly Rep. Katie Porter (D-CA) and Rep. Alexandria Ocasio-Cortez (D-NY), brought new questioning styles for public hearings that were carefully crafted and designed to generate damaging viral moments on social media.Finally, the COVID-19 pandemic dramatically redirected the investigative priorities across Congress, bringing new focus on financial institutions’ responses to the pandemic and the uses of recovery funds.

We expect that the volume of investigations will increase in the new Congress, particularly with Democratic majorities in both the House and Senate.With less interest in investigating the Biden administration than the Trump administration, congressional investigators will increasingly focus investigations on the private sector.The overall pace of investigations will likely quicken with the addition of a Democratic Senate.Every major financial institution should be prepared for congressional scrutiny this Congress.

Oversight Environment

As expected, the Democratic takeover of the House of Representatives in 2019 led to an increase in inquiries and investigations of financial institutions, including from the House Financial Services Committee and the House Oversight and Reform Committee.The Trump administration drew a significant share of oversight attention from Congress, of course, but plenty of financial institutions were also involved in investigations either directly or collaterally through investigations involving the administration and President Trump’s business interests. 

Meanwhile, oversight of financial institutions by the Republican Senate were generally driven by events.For example, financial institutions could expect to hear from Senate committees, including the Senate Banking Committee and the Permanent Subcommittee on Investigations, following high-profile public events such as data breaches.Although former Banking Committee Chairman Mike Crapo (R-ID), from time-to-time, sent letters to financial institutions regarding politically charged issues, this outreach tended not to turn into significant investigative activity.Democratic Senators, including Senator Sherrod Brown (D-OH) and Senator Elizabeth Warren (D-MA), also sent inquiries to a number of financial institutions, but as they came from the minority at that time, they did not carry the implicit threat of a subpoena or hearing that would have come with a letter from a committee.

Given the overall stability in the leadership of key committees in the House, we predict that the rate of House investigations of financial institutions will continue at its accelerated pace in the new Congress.  In the Senate, the Banking Committee, now led by Sen. Sherrod Brown promises to be considerably more active.Chairman Brown’s populist outlook will be a marked change from the approach of former Chairman Crapo.Chairman Brown’s ascendance to the chair will also likely further empower other active Senators on the Committee, including Senator Warren, who is expected to continue to launch inquiries of financial institutions.

Broadened Scope of Targets

In the years after the financial crisis, the last wave of congressional investigations in the financial services sector, much of the attention focused on the largest financial institutions.Although big banks continued to be the highest-profile targets in the past Congress, smaller banks and other financial institutions were subject to committee inquiries more frequently than in past years.We expect this phenomenon to continue.

One particular area of focus has been on consumer issues.For instance, in May 2020, the House Financial Services Committee sent letters to 11 mortgage servicers requesting information on communications with borrowers regarding pandemic-related forbearance options.The Financial Services Committee also made diversity a priority and sent letters to a broad array of banks, requesting information about the demographics of employees and other diversity measures.   

The broadened scope of targets did not come at the expense of its focus on the largest banks, and big banks unsurprisingly remain significant objects of committee attention. For example, the House Financial Services Committee held hearings in March and April 2019 called “Holding Megabanks Accountable.” 

Demands for Customer Data

Committees also showed a willingness to request (and fight for in court) individualized customer information from financial institutions.These requests can put financial institutions in a difficult position between the demands of Congress and the interests of regulators and customers.

Sharing individualized customer information with congressional investigators may also implicate a number of federal and state statutes.The Right to Financial Privacy Act of 1978 prescribes certain steps that government agencies must undertake when pursuing customer information from a financial institution and adds restrictions on how financial institutions may share customer information with the government.Congress has long taken the position that the Right to Financial Privacy Act does not apply to congressional investigations, and the Second Circuit last year agreed.

The Gramm–Leach–Bliley Act imposes additional restrictions on financial institutions and the sharing of customer information.As with the Right to Financial Privacy Act, Congress does not believe that the Gramm–Leach–Bliley Act restrictions apply to properly authorized congressional investigations.

States may also have privacy laws affecting financial institutions’ ability to provide customer information to Congress.An Illinois statute, for instance, limits certain disclosures absent a subpoena and requires that financial institutions provide notice to customers before sharing information.Financial institutions should consider their obligations under these and other laws when deciding the circumstances under which they provide customer information to Congress.

The Katie Porter Effect

Although only just entering her second term in Congress, Rep. Katie Porter has become well known for her ability to make witnesses squirm and create moments that go viral.She uses her experience as a law professor to design lines of questioning that lead to a difficult result for the witness.Her main approaches thus far have included getting corporate witnesses to say one thing and then surprising the witness with litigation filings by the corporation that appear to say the opposite and forcing witnesses to account for corporate decisions that are outside the scope of the hearing. Sometimes she just asks arcane trivia questions, like when she asked the U.S. postmaster general about the prices of various Postal Service products.Rep. Porter’s hearing performances have led to fawning media coverage in outlets as varied as Vanity Fair, The Late Show with Stephen Colbert, and InStyle.

Those under the jurisdiction of the House Financial Services Committee likely took notice that she will no longer be a member of the Committee in the coming Congress, but her impact on hearings will likely persist.Other members have observed her successes at using oversight hearings and have tried to emulate her questioning style, albeit at varying levels of success. Additionally, Rep. Alexandria Ocasio-Cortez has also been successful at making her witness interactions go viral, often to the detriment of the witness. 

The evolution in questioning styles is not solely a reflection of the new members.It is also a result of the growth in importance of social media.It is hardly a new phenomenon for members of Congress to seek attention.In the past, hearing performances got attention through later newspaper or television coverage.These media reward pithy soundbites, which led members to use their hearing time to make quotable speeches and ask distinct questions that stood on their own.Many members further up the dais in seniority continue to take this approach.Much of the hearing content that goes viral on social media, however, is longer-form and more intricate.Newer members tend to recognize this, and they have modified their questioning styles accordingly.


Of all the themes of financial services investigations this past Congress, the COVID-19 pandemic caused, unsurprisingly, the most pronounced adjustment.The pandemic crisis, the government’s response, and industry’s reaction to the pandemic spurred a number of new investigations, many of which have been pursued by the Select Subcommittee on the Coronavirus Crisis.That subcommittee, which is housed within the House Oversight and Reform Committee, has its own staff.Rep. Maxine Waters (D-CA), who chairs the House Financial Services Committee, sits on the subcommittee, and her Financial Services Committee staff have joined portions of the Subcommittee’s investigations.

The shift to remote committee work has also had a major effect on the type and tenor of committee investigations.Briefings and interviews that would have been in person in the past are now done by telephone or video teleconference, providing a bit of a buffer for witnesses in dealings with committees that can get heated.Remote hearings are an entirely different experience for witnesses than live hearings, with more sequential engagement, technical challenges, and a greater remove from hostile questions.

* * *

Although committee priorities and practices may evolve and change, the best practices for responding to congressional inquiries often remain the same.Most important, an organization of any size that receives an inquiry from a congressional committee in its investigatory capacity should take that inquiry seriously.Businesses, and particularly financial institutions, can face significant legal and reputational hazards when responding to Congress. Responding even to friendly requests for briefings or background information can create risks and lead to assertions of misleading Congress. Working with experienced congressional investigations counsel is key to managing these risks.

If you have any questions concerning the material discussed in this client alert, please contact the following members of our Congressional Investigations practice.

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