This article argues that an absence of accountability and interconnections of interest between rating agencies and their debt issuer clients fostered a system of lax ratings that provided false assurances on the risk exposure of subprime mortgage-backed securities and collateralized debt obligations. It lays out an innovative, yet practical pathway for reform by suggesting how debt purchasers, the primary beneficiaries of ratings, may bear both the burdens and benefits of rating agency accountability by financing ratings through an SEC-administered user fee system in exchange for enforceable rights. The SEC user fee system would require rating agencies both to bid for the right to rate debt issues and to assume certification and mandatory reporting duties to creditors. The article suggests how empowering creditors to seek capped damages against rating agencies for gross negligence, while reserving enforcement discretion with the SEC to pursue negligence actions, would create incentives for rating agency compliance, yet pose a manageable burden.
Jeffrey Manns, Rating Risk after the Subprime Mortgage Crisis: A User Fee Approach for Rating Agency Accountability, 87 N.C. L. Rev. 1011 (2009).