House Committee Passes Crackdown on ‘Operation Choke Point’

Published October 14, 2015

The U.S. House of Representatives Financial Services Committee approved a bill to prevent government agencies from using regulatory powers to force businesses in disfavored industries, such as adult entertainment or firearm sales, to stop doing business.

The Financial Institution Customer Protection Act of 2015, sponsored by   Rep. Blain Luetkemeyer (R-MO), “prohibits a federal banking agency from formally or informally suggesting, requesting, or ordering a depository institution to terminate … specific customer account” without good reason, and it excludes “reputation risk” as a reason.

Operation Choke Point (OCP) is a U.S. Department of Justice (DOJ) initiative, first disclosed in 2013, to investigate banks doing business with merchants selling products such as firearms or tobacco. OCP was executed by auditors from the Federal Deposit Insurance Corporation (FDIC). FDIC pressured banks to drop companies in certain industries as clients.

‘Good First Step’

David Williams, president of the Taxpayers Protection Alliance, says Luetkemeyer’s bill is a good start, but more safeguards are needed.

“It’s a good first step as far as what the banks are doing, but it really needs to encompass the DOJ, because this is really happening because of what the Department of Justice is doing with Operation Choke Point,” Williams said. “And here’s the problem: … Operation Choke Point today is being used for services that this administration doesn’t like. Whether it’s firearms sales, fireworks, lottery sales, payday lending, … these sort of things.” 

‘Bastardization’ of Process

Todd Zywicki, a professor of law at George Mason University, says OCP is a “bastardization” of normal regulatory procedures.

“Here’s the interesting thing about Operation Choke Point: It’s a bastardization of something that is arguably okay or all right,” Zywicki said. “If a bank is … knowingly participating in a scheme of fraud or money-laundering or something like that, the authorities have [customarily] basically said to the bank, ‘Look, you can’t do that.’

“That’s what they’ve tried to dress this [Operation Choke Point] up as,” Zywicki said.

Zywicki says the government is using financial rules as political tools.

“They’re weaponizing private banks, … that is what they are doing here,” Zywicki said. “It’s not just the government, but what they are doing is strong-arming the banks and basically turning the banks into arms of the federal government to police private actors that they don’t like.”

Andrea Dillon ([email protected]) writes from Holly Springs, North Carolina.