New Report on Operation Choke Point Reinforces Need for Answers

United States Department of Justice building (Washington, D.C.)

Rep. Darrell Issa’s (R-Calif.) final month as Chairman of the House Committee on Government Oversight and Reform was extremely eventful. One of the final contributions was a report on Operation Choke Point, a program for which Rep. Issa has been a vocal critic, highlighting some of the extreme abuses of the federal government by specific agencies going after legal businesses. Rep. Issa noted that, “It’s appalling that our government is working around the law to vindictively attack businesses they find objectionable.”

The Taxpayers Protection Alliance (TPA) has been closely monitoring Operation Choke Point for much of the year shortly after the secret program began having its layers peeled back by the media and Congress.  Operation Choke Point has been the subject of many critical reports about how Department of Justice (DOJ) officials were intimidating banks from doing businesses with certain legal entities and using financial regulations as a weapon to target particular businesses.

Pete Kasperowicz of The Blaze detailed some of the major findings of Rep. Issa’s committee’s December 8, 2014 report:

The House Oversight and Government Reform Committee released a report Monday that said the Federal Deposit Insurance Corporation unfairly treated gun dealers and other companies as illegal entities, and convinced banks to stop doing business with them under the Obama administration’s Operation Choke Point.

Another industry listed were payday lenders — the report found that FDIC had what amounted to a moral vendetta against these companies, even though they are legal.

“Personal animus towards payday lending is apparent throughout the documents produced to the committee,” the report said. “Emails reveal that FDIC’s senior-most bank examiners ‘literally cannot stand payday,’ and effectively ordered banks to terminate all relationships with the industry.”

Here are some of the key findings from the House Oversight Committee report:

• The Federal Deposit Insurance Corporation, the primary federal regulator of over 4,500 banks, targeted legal industries. FDIC equated legitimate and regulated activities such as coin dealers and firearms and ammunition sales with inherently pernicious or patently illegal activities such as Ponzi schemes, debt consolidation scams, and drug paraphernalia.

• FDIC achieved this via “circular argument” policymaking: there was no articulated justification or rationale for the original list of “high-risk merchants.” Yet a list of “potentially illegal activities” included in FDIC’s formal guidance to banks justified itself by claiming that the categories had been previously “noted by the FDIC.”

• FDIC’s explicitly intended its list of “high-risk merchants” to influence banks’ business decisions. FDIC policymakers debated ways to ensure that bank officials saw the list and “get the message.”

• Documents produced to the Committee reveal that senior FDIC policymakers oppose payday lending on personal grounds, and attempted to use FDIC’s supervisory authority to prohibit the practice. Personal animus towards payday lending is apparent throughout the documents produced to the Committee. Emails reveal that FDIC’s senior-most bank examiners “literally cannot stand payday,” and effectively ordered banks to terminate all relationships with the industry.

• In a particularly egregious example, a senior official in the Division of Depositor and Consumer Protection insisted that FDIC Chairman Martin Gruenberg’s letters to Congress and talking points always mention pornography when discussing payday lenders and other industries, in an effort to convey a “good picture regarding the unsavory nature of the businesses at issue.”

• FDIC actively partnered with Department of Justice to implement Operation Choke Point, and may have misled Congress about this partnership.

This information should also be uniquely useful to Loretta Lynch, who is the current nominee to replace Attorney General Eric Holder at DOJ. Ms. Lynch is still awaiting a confirmation hearing and that process will now likely head into January.  The confirmation process will likely be a contentious one with republicans controlling the Senate.  Among a list of issues to ask Lynch about is her position on Operation Choke Point. The program is an abuse of power and challenges the very basic principles of transparency and open government. Her answers will be very instructive about her views on DOJ overreach.