Washington Dc: FDIC United States Federal Deposit Insurance Corporation sign on wall of building with logo on 17th street in evening night closeup. Credit: Getty royalty free.
Last week brought new revelations regarding Operation Choke Point, the Obama administration’s effort to freeze politically disfavored businesses out of the financial system. Rep. Blaine Luetkemeyer (R-Mo.), who helped lead a multi-year effort to shut the program down, highlighted some of theses newest findings and pointed out that stopping Operation Choke Point is not a partisan issue.
Luetkemeyer’s legislation to prevent a redo of Choke Point – The Financial Institution Customer Protection Act of 2017 – overwhelmingly passed the House, with only two nay votes. Operation Choke Point was an egregious affront to the rule of law, so it is good to see that so many lawmakers want to prevent a repeat.
For those unfamiliar, Choke Point consisted of bureaucrats in several independent federal agencies taking it upon themselves to shut legal businesses – such as payday lenders and firearms dealers – out of the banking system. Given the nature of the U.S. regulatory framework, this operation was easy to pull off.
Officials at the Federal Deposit Insurance Corporation (FDIC), for instance, simply had to inform the banks they were overseeing that the government considered certain types of their customers “high risk.” The mere implication of a threat was enough to pressure banks into closing accounts, because no U.S. bank wants anything to do with extra audits or investigations from their regulator, much less additional operating restrictions or civil and criminal charges.
Banks are incredibly sensitive to any type of pressure from federal regulators, and they know that the regulators have enormous discretion. The new revelations are quite scary because they show exactly what federal regulators can do with that discretion – even to law-abiding citizens. As Rep. Luetkemeyer points out:
In one example of blatant intimidation, a bank terminated its relationship with a legal business after threats from the FDIC. The bank eventually surrendered to the pressure, and when the bank notified the FDIC of the decision, they admitted that a risk assessment showed the business “pose[d] no significant risk to the financial institution, including financial, reputation, and legal risk,” yet they still terminated the banking relationship.
For years, Office of the Comptroller of the Currency officials have continually denied any wrongdoing, yet in the newly-unsealed documents we see proof of a conscious decision to work in conjunction with the FDIC against payday lenders.
In fact, the evidence suggests that the highest-ranking officials at the FDIC were involved in Choke Point. For instance, on page 5, the following facts are revealed:
  • In late 2010 or early 2011, the FDIC’s senior Washington officials convened a meeting of all Regional Directors. (Emphasis added.)
  • At this meeting in which all of these Regional Directors (or their designees) were gathered, the Senior Deputy Director for the Division of Supervision and Consumer Protection informed them that “if an institution in their region was facilitating payday lending, the Regional Director should require the institution to submit a plan for exiting the business.”
  • These instructions, the Senior Deputy Director, conveyed, came from “the sixth floor”—the Chairman and senior leadership of the agency
  • At the meeting, the Senior Deputy Director conveyed the following message: “if a bank was found to be involved in payday lending, someone was going to be fired.”
Other sections of the unsealed documents show that government officials undertook a concerted effort to stop bank owners from publicly revealing these regulatory shakedowns. For instance:
  • [Associate Director] Mr. Brown responded that “because of legal considerations, the FDIC has never expressly stated publically that our supervised institutions are not permitted to do business with payday lenders but the payday lending guidance and our public posture makes clear that we view payday loans as extremely risky.” When [Deputy-Director] Mr. Miller inquired whether this hostility extended to “having a deposit rel’shp” with a payday lender, in addition to offering payday loans directly, Brown responded that “[w]e’re doing more leg work on this,” but that when such a relationship had been considered previously “the Chairman was unhappy about [that type of] arrangement.” (See page 14).
  • Later, in April 2013, Joel Sweet, a Justice Department official heavily involved in the initiative, emailed senior officials at the FDIC, the FTC, the CFPB and other federal agencies with “a simple and elegant idea about how to protect consumers from predatory PD lenders.” The idea involved banning banks from “originating debit transactions against the bank accounts of non-customer borrowers.” (See page 16).
  • In an email to Director Pearce, for example, [Atlanta Regional] Director Thomas Dujenski emphasized that he was “sincerely passionate” about the fact that “I literally cannot stand payday lending. They are abusive, fundamentally wrong, hurt people, and do not deserve to be in any way associated with banking.” Director Dujenski continued: “I really hope this bank we discussed truly gets out of this on their own as they are indicating….I hope my persuasion skills are still effective :)” (See page 22).
  • According to the bank chairman in question, Director Dujenski also asked him whether he was aware that bank directors could be subject to criminal prosecution. (See page 25).
  • In response to the email informing him about these efforts to dissuade the Chairman from referring to a “de facto” FDIC policy discouraging payday lending, Director Dujenski replied with an email consisting of a single emoticon: “J” (See page 26).
  • It is now clear that these unelected government officials set out to harm law-abiding citizens. Yet many of the government officials named in these documents are still employed by the same government agency. Most of these folks work at the FDIC, and one has even moved up from a regional director position to FDIC Ombudsman.
At the very least, the Trump administration owes the public a full investigation into Operation Choke Point and an explanation for why many of the people involved in this abuse of power are still working for the government.
I am a Research Fellow in Financial Regulations in The Heritage Foundation’s Roe Institute for Economic Policy Studies. I also research monetary policy and other issues…MORE