This beast that is known as Operation Choke Point needs to be stopped once and for all.
Hopefully, the new Attorney General will finally kill this beast.
Many lawmakers and journalists decried “Operation Choke Point,” shrugging it off as the product of partisan paranoia. But new evidence shows that sometimes reality can be more conspiratorial than fiction: Recently unsealed court documents indicate that targeted attacks on a handful of legal industries was not only real but organized and executed by high-ranking government officials under the Obama administration.
In theory, Choke Point aimed to prevent criminals from using banks for criminal purposes. In practice, however, senior staff of the Department of Justice, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of Currency (OCC) used their authority to terminate the banking of legitimate businesses like pawnshops, fireworks dealers, and telemarketers.
The recently unsealed documents show that these regulators put pressure on banks to cut ties with certain businesses as part of a coordinated effort. The strategy was called Operation Choke Point because it enabled government regulators to effectively shut down legal businesses engaged in so-called “high-risk activity” by “choking” off their access to financial services.
Outlawing Legal Businesses
Outlawing entire industries, however, remains Congress’ prerogative. By attacking businesses through their access to banking services, the government agencies involved in Operation Choke Point clearly overstepped their mandates as regulators and stewards of the public trust. To protect consumers from these extra-legislative crusades, Congress should ensure something like Operation Choke Point never happens again.
Congress first began investigating Operation Choke Point in 2014. At the time, Rep. Maxine Waters, D-Calif., dismissed a House hearing as “a little bit ridiculous and a waste of time.” As to whether the Obama administration pushed the program, the Huffington Post said, “There is no evidence.”
The intervening four years have not been kind to those assertions. Although the Department of Justice formally killed the program last year, we are only now seeing how far regulators went in pressuring banks to end business relationships with Choke Point targets.
New evidence about Operation Choke Point comes from a lawsuit filed by a group of four payday lenders against the FDIC. According to the lawsuit’s documents, FDIC regional directors around the country regularly corresponded through email on how the FDIC could use its authority to pressure banks into severing ties with payday loan businesses.
Choke Point: Evidence Of Bias
One director wrote that payday lenders “bring reputational risk, compliance risk, legal risk, and risk management concerns … nothing good for our banks.” Another described his region’s “position” on payday lenders as using “available means” to discourage banks from providing “assistance to the business activities” of payday lenders.
Testimony from the lawsuit asserts that in late 2010 or early 2011 FDIC senior leadership communicated the following to the agency’s regional directors: “If a bank was found to be involved in payday lending (in any of the FDIC’s regional offices), someone was going to be fired.”
The lawsuit also asserts that FDIC officials, in preparing documents for the agency’s chairman, coupled payday loans with pornography so as to make payday loans look worse by association — or, as the lawsuit relates, “because associating the two gives ‘a good picture regarding the unsavory nature of the businesses at issue’ and thus ‘help(ed) with the messaging on this issue.'”
Each page of the lawsuit provides more evidence that FDIC and OCC officials actively targeted businesses they found morally unacceptable.
One FDIC regional director demanded that “(a)ny banks even remotely involved in payday (lending) should be promptly brought to my attention.” When a bank in his region ended its business relationships with payday lenders, this regional director wrote to a colleague: “Confidential: This guy no longer likes payday. … I think we got our message across.”
Regulators’ Bad Behavior
The FDIC lawsuit involves four payday lenders, but Operation Choke Point targeted a few dozen types of businesses in other industries. More evidence of bad behavior by regulators could be forthcoming.
However controversial payday loans may be, it is important to remember that they are legal. The “goodness” or “badness” of payday lenders — or of any other legitimate business harmed by Operation Choke Point — should not concern us here.
Rather, the heart of the matter is the surreptitious circumvention of the rule of law. Under Operation Choke Point, unelected regulators, without direction from Congress, clandestinely pursued the elimination of a legal industry. Legitimate businesses were denied banking (and due process), and consumers were denied legitimate goods and services. If politicians want to keep an industry out of the market, they should pass a bill.
Speaking of bills: After the Justice Department formally ended Operation Choke Point last year, lawmakers introduced a bill in the House of Representatives that would stifle any chance of a Choke Point resurrection. It passed 395-2. The Senate, however, has yet to consider its own version of the bill. Considering the new evidence, it’s time for the Senate to take matters into its own hands and “choke off” the program once and for all.