Opponents of Government’s ‘Choke Point’ Program Work to Loosen Its Grip

Published August 8, 2014

Two federal agencies have backed off—slightly—from a program critics say has been intimidating banks into canceling services for legitimate, law-abiding businesses and making it difficult if not impossible for them to operate.

The Federal Deposit Insurance Corporation (FDIC) and U.S. Department of Justice (DOJ) launched “Operation Choke Point” without warning or public discussion in March 2013. 

Some businesses were classified as “high risk,” and banks were informed they would come under tighter government scrutiny and face more liabilities if they provided services to businesses in those industries. 

In response, banks have been dropping, without warning, businesses in industries such as firearms, payday lending, home-based charities, check cashing, and tobacco. 

As knowledge of the program has spread, pushback has grown. Congressional hearings have been held, including one in mid-July before the House Financial Services Subcommittee. Two weeks later the FDIC announced firearms retailers and payday lenders were being taken off of Operation Choke Point’s “high risk” list.

‘Chilling Effect … Still Exists’

In an Aug. 7 letter to FDIC Chairman Martin Gruenberg, Rep. Blaine Luetkemeyer (R-MO) wrote, “The need for a safe harbor still exists because the chilling effect caused by Operation Choke Point still exists. We must continue to address this issue until a financial institution can operate without fear of retaliation or threat of subpoena for no wrong-doing.”

In subcommittee testimony, Assistant Attorney General Stuart F. Delery explained the basis for the program: “Consumer fraud comes in many forms—from telemarketing fraud to mortgage fraud, from lottery scams to predatory and deceptive on-line lending—and often strips our most vulnerable citizens of their savings and even their homes.” 

‘Similar to Anti-Terror Tactics’

David H. Thompson, managing partner at the Cooper & Kirk law firm in Washington, countered in his testimony:

“DOJ is now using against legitimate American businesses tactics that are strikingly similar to those that have been used against corrupt foreign institutions serving terrorists. Working with DOJ, the Federal Deposit Insurance Corporation (“FDIC”), the Office of the Comptroller of the Currency (‘OCC’), and the Board of Governors of the Federal Reserve System (‘the Board’) have conspired to choke off and strangle legitimate businesses by depriving them of their access to the financial system. Many of the victims of Operation Choke Point are law-abiding companies, ranging from coin dealers to dating services. With their ability to open a bank account or even to deposit a check now taken from them, these law-abiding companies are being deprived of their right to pursue their chosen trade and of their very right to exist.”

Scott Talbott, senior vice president of government affairs for the Electronic Transactions Association, also testified: 

“[E]nforcement actions against payment systems are an inappropriate tool for regulators to use to limit the ability of consumers to access legal but currently disfavored industries. There has been much debate about the attempts by Operation Choke Point and similar regulatory efforts to compel payments companies to sever relationships with a variety of legal but disfavored industries, ranging from coin dealers and short-term lenders, to home-based charities and pharmaceutical sales.”

Failed Attempt at Secrecy

The government tried to keep Operation Choke Point secret. It became known by accident, said Brian Wise, senior adviser to the U.S. Consumer Coalition, which opposes the program.

“We eventually were able to identify the program in September of 2013, when a presentation was mistakenly put on a public Web site that detailed the entire program and was actually given to a number of banking regulators as guidelines for how they should approach the banks in their jurisdiction,” Wise said.

In a Cato Institute policy forum on July 8, Rep. Darrell Issa (R-CA), chairman of the House Committee on Oversight and Government Reform, said, “The FDIC’s power in Choke Point, and DOJ’s power in Choke Point, comes from never filing a criminal case and never actually closing down a bank, but simply threatening banks so they get out of something that is lawful and is risky based on this weird situation that you might be embarrassed by a particular enterprise.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute.