Skip to comments.Congress needs to choke off Operation Choke Point
Posted on 07/16/2014 5:16:02 PM PDT by 2ndDivisionVet
From small businesses on Main Street to the halls of Congress and the state legislatures, concern is mounting over Operation Choke Point, a coordinated effort among the Department of Justice (DOJ) and bank regulators to cut off banking services for a variety of legal, state-regulated businesses. This week alone, there are three congressional hearings on Operation Choke Point, hearings which will hopefully bring an end this misguided operation.
Operation Choke Point is one of the most dangerous programs I have experienced in my 45 years of service as a bank regulator, bank attorney and consultant, and bank board member. Operating without legal authority and guided by a political agenda, unelected officials at the DOJ are discouraging banks from providing basic banking services -- deposit accounts, payments processing services, and payroll accounts to lawful businesses simply because they dont like them. Bankers are being cowed into submission by an oppressive regulatory regime.
According to the Six Month Status Report issued on Operation Choke Point by the House Oversight and Reform Committee, the DOJ launched Operation Choke Point in 2013, working in concert with a wide range of agencies including the FTC, FDIC, OCC, CFPB, and FBI. The stated goal of Operation Choke Point was to sensitize the banking industry to the risk of doing business with legal but undesirable businesses through the issuance of non-public FIRREA subpoenas ( as opposed to enforcement actions where the authority could be challenged).
Regulators and the DOJ highlight some two-dozen businesses that they consider high risk or undesirable, including ammunition dealers, producers of adult films, check cashers, short-term unsecured loans (commonly called payday loans), telemarketers, firearms/fireworks vendors, raffles, pharmaceutical firms, life-time guarantees, surveillance equipment firms, and home-based charities. I have spent my entire professional career in banking and bank regulation, and I do not discern any meaningful increase in risk in providing basic banking services such as deposit accounts, payroll processing, or check clearing services to any of these businesses compared to a host of other legitimate businesses.
Operation Choke Point is fundamentally unfair to the banks and to the legal businesses that find their banking services cut off. Once banking services are cut off to these state-licensed and regulated businesses, there is no chance for the business to appeal the decision. The company is simply in a business that, while legal, has been determined undesirable and therefore high risk by the federal bureaucracy. This Orwellian result is frightening.
The DOJ claims it is interested only in fighting consumer fraud and other illegal activities. If that is the case, why are the DOJ and regulators pushing banks to cease doing business with companies engaged in lawful businesses, rather than focusing on prosecuting the people and businesses actually engaged in criminal behavior?
The point is simple and incredibly important. Under our constitutional republic and market-based economic system, unelected government employees should not decide which businesses may have access to banking services and which are to be denied. Those who have serious concerns about payday loans, check cashing services, adult films, family planning clinics, or other products and services should take their concerns to state or federal legislatures and attempt to enact reforms.
We cannot allow this to continue. If government employees, acting without statutory authority, can coerce banks into denying services to firms engaged in lawful behavior that the government does not like, where does it stop? The same power that the DOJ uses today to choke off check cashers and ammunition vendors from banking services could tomorrow be used on convenience stores selling sugary sodas, restaurants offering foods with high trans-fat content, gun manufacturers, gambling casinos, adult film companies or family planning clinics.
Fortunately, a solution is on the table. The House Committee on Financial Services is holding a subcommittee hearing on Operation Choke Point and H.R. 4986, the End Operation Choke Point Act of 2014. This bipartisan proposal includes several provisions that would stop the DOJ from continuing to skirt the law. The bill creates a safe-harbor for banks that provide services for business that operate legally and ensures small businesses operating lawfully have access to the payments system.
The bill is an extremely important step in reining in government agencies that are greatly overstepping their authority and breaching the Constitutional separation of powers among the three branches of government, and between the states and federal government. While some of us may applaud the attack against payday lending, ammunition distributors, or home-based charities, we will likely take a different position when a new administration decides to attack activities more near and dear to our hearts.
The Constitution requires that decisions about whether businesses should be allowed to operate and have access to the banking system must be made in Congress and state legislatures, not in the backrooms of government bureaucracies. Its time for Congress to choke off Operation Choke Point.
Isaac, former chairman of the Federal Deposit Insurance Corporation, is senior managing director and global head of Financial Institutions at FTI Consulting. Isaac and his firm provide services to many clients, including some who have an interest in the issues discussed in this article. The views expressed are his own.
Eric Holder is a contemptuous criminal who HATES our Constitution (and white people).
The Constitution was the creation of white people, so naturally he hates it.
The root cause of the problem is the arrogance of the Obama Administration. And the fact that banks are under federal regulation. You can pass laws against what DOJ is doing until the cows come home - but if the banks dont have confidence in enforcement, they wont dare cross the regime. Whatever law you pass in such a context needs to be self-enforcing somehow. And I dont see how in this case. Unless you pass a law saying that if a bank cries reprisal for obeying the anti-Chokepoint law (which itself must overcome a presidential veto) the bank is presumptively correct.
banglist is for Second Amendment issues. If it has to do with guns then banglist it.
Umm, I thought I already did...
My mistake. I complained thinking this was about mortgages.
It’s partially about loans, so you were close.
Plank 5 of the 10 planks of the Communist Manifesto:
5. Centralization of credit in the hands of the state
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.