The new policy will block state and local police departments from using the federal asset forfeiture law in most cases. Some departments have been accused of improperly using the law to raise revenue.
David A. Harris, a law professor at the University of Pittsburgh, said Holder's action could help stop a long history of abuses by local and state law enforcement agencies.
"It was appalling at some levels that police powers were used to seize things and money as a primary purpose, not as a byproduct of a criminal investigation," Harris said.
Under civil forfeiture laws, police only need "probable cause" that cash or property has been obtained illegally in order to seize it. The burden then shifts to the property owner to go to court to prove otherwise, said Clifford Fishman, a law professor at Catholic University of America in Washington.
According to a Washington Post report last year, local and state agencies made 62,000 cash seizures without warrants under the federal program, and collected more than $2.5 billion. State and local authorities kept $1.7 billion, the newspaper said, with the rest going to the federal government.
Though state forfeiture laws generally funnel cash to the state's general fund, the federal program allowed police departments to keep the money or other property seized for their own budgets.
The program has drawn bipartisan criticism in
"The rule of law ought to be about protecting innocent people," Grassley said. "Too often we've seen just the opposite with civil asset forfeiture laws."
State forfeiture laws are not affected by the change in federal regulations, nor are seizures of guns, ammunition or child pornography.
The Drug Enforcement Administration and other federal law enforcement agencies can still seize assets used in federal crimes.
The Institute for Justice, a conservative legal group in Virginia, which urged Congress to pass federal legislation to make the new policy permanent, said more needed to be done on the federal and state level.
The policy announced by Holder leaves loopholes that allow for forfeitures under joint local and federal task forces, the group said.
"Civil forfeiture should not exist in a country that values the principles of private property rights and due process," said William H. "Chip" Mellor, the institute's president and general counsel.