Commerce Department Hobbled by State Government Shutdown

On June 22, prosecutors took evidence gathered by a white-collar crimes unit of the Department of Commerce and charged four people with racketeering in an alleged mortgage fraud scheme.

Today, the division is inactive, the state government shutdown has passed its one-week mark, and the Department of Commerce is all but shuttered, leaving a wide range of consumer protection lapses that will persist long after the shutdown is resolved.

Ramsey County Judge Kathleen Gearin’s June 30 ruling forced the department to lay off about 285 of its 300 workers, said Chet Jorgenson, a Commerce Department analyst.

The department has two main divisions: enforcement and consumer protection. While some police officers in the enforcement branch have been retained, the consumer protection branch, which deals with fraud prevention, has been frozen, Jorgenson said.

In normal times, “we regulate out front to try to prevent fraud before it happens, but now folks who are ripping people off are not going to be caught as fast,” Jorgenson said.

As Minnesota law now stands, many financial products, such as homeowner insurance contracts and life insurance annuities, are automatically approved by the state after a certain period of time if Commerce Department regulators do not raise any objections.

In this way fraudulent financial products can be passed on to consumers who can go months or years without discovering the scam, Jorgenson said.

“The effect on the consumer will be six months to a couple years down the road,” Jorgenson said. “We’re going to have problems for years to come.”

Detective Jonathan Ferris is a fraud investigator for the Commerce Department and a member of the white-collar crimes unit that helped bring racketeering charges in June. Ferris is now without a job.

He testified in a special shutdown-related court hearing Thursday about a petition he filed to question, as Minnesota Public Radio reported, “why seven of 10 sworn officers in the Commerce Department have been laid off during the government shutdown.”

In addition to investigating financial scams, the Commerce Department is the state regulator for the insurance, mortgage, real estate, debt collection industries--all of which have been burdened by the shutdown.

Lisa Meyer, a broker manager at the Roseville office of Edina Realty, said that her real estate agents cannot apply to the Commerce Department to release potential buyers from state tax liens—a type of financial obligation tied to property. This could result in some delayed closings, Meyer said.

“If the seller had a lien against their property, we would not be able to find out how much that was in terms of the payoff amount,” she said.

That isn’t an issue that all real estate agents necessarily come across regularly, though. Ted Schatz, with in Hopkins, said he hasn’t been dealing with any state tax liens. Although the company normally does closings at the end of the month, the one it’s done since the shutdown proceeded normally.

“It could be an issue, but I just feel it would be in real specific cases,” he said.

Jorgenson said that when commerce department employees resume working, they will have to triage their financial investigations, leaving some consumers to fend for themselves as the department scrambles to catch up.

“There are going to be situations where we world normally intervene to help consumers where we simply would not have time,” he said.

For the last three-and-a-half years, Jorgenson has served as president of MAPE, one of the state’s two largest public employee unions. He has not drawn a pay check from either MAPE or the Commerce Department since the shutdown began.

“We're worried about paying the bills if this goes very long,”. "We've cut back spending dramatically. We normally do childcare in Stillwater, and we're not going to let our son stay at the daycare there during July because it's too expensive."

Jorgensen said he has been recommending that laid off state workers make the shutdown felt throughout their communities.

“We went them to talk to the manager when they go to the grocery store, when they get a car repair,” he said. “Say, “I have had to reduce what I’m spending here due to the shutdown.’ so small business owners understand that the shutdown is hurting them too.”

Jorgenson said the shutdown’s effects will be long-term.

“If you’re not going to the state parks, not getting your driver’s license, not getting your realtor’s license, you’re not going to feel this on day one,” he said. “But people need to understand that that day is coming to them.”