The summer weather may be keeping Washington D.C. hot, but this month the Department of Justice (DOJ) finally put the egregious, anti-consumer “Operation Choke Point” (Choke Point) on ice. However, without a legislative fix from Congress, Choke Point could be resurrected under a future administration, once again harming legitimate businesses and the consumers they serve.
The ostensible intent of Choke Point was to prevent criminal fraud. Instead, the initiative resulted in the Federal Deposit Insurance Corporation (FDIC) and the DOJ targeting and cutting off banking access for legitimate businesses determined to be undesirable by the agencies.
Once labeled undesirable, the increased compliance costs and regulatory scrutiny associated with servicing these entities forced financial institutions to sever relationships with these “high-risk” businesses. Choke Point created a new class of unbankable businesses using tactics that were outside the scope of the law and the mandates of the enforcement agencies.
In a letter to the House Judiciary Chairman Bob Goodlatte, Assistant Attorney General Stephen Boyd “committed to bringing enforcement actions only where warranted by the facts and the applicable law, without regard to political preferences.”
This change was long overdue and the attorney general was right to finally bring an end to the abusive program. However, a program terminated unilaterally can be resumed unilaterally.
In his letter, Boyd writes that the DOJ will now operate with a “view that law abiding businesses should not be targeted simply for operating in an industry that a particular administration might disfavor. Enforcement must be made on the facts and the applicable law.”
Government initiatives must be carried out on solid legal ground to be credible and not undermine faith in government agencies and the rule of law. Limiting the availability of lawful goods and services to consumers in an attempt to punish politically disfavored businesses harms consumers. Doing so without any basis in law is an abuse of power.
In 2014, the House Oversight Committee issued a report on Operation Choke Point that concluded that the actions of the DOJ and the FDIC “forced banks to terminate relationships with a wide variety of entirely lawful and legitimate merchants.” The DOJ and FDIC documents referenced in the report consistently point to bank “reputational risk” as one of the leading drivers of the initiative. Unfortunately, officials from the FDIC and DOJ failed to consider the unintended consequences of the program on consumers and the resulting damage to their own reputations for the consequences of overstepping their mandates.
By forcing banks to stop doing business with companies Choke Point initiators deemed politically or socially unsavory, such as pawn brokers or pornography producers, legitimate businesses lost access to banking and shuttered, some of the banks that relied heavily on revenue from those businesses closed, and consumers lost access to both legitimate businesses and banking services, including short-term lending and independently operated ATMs.
While ending Choke Point within the DOJ and the FDIC is laudable, Congress still has work to do to ensure the end this harmful, subjective practice.
In the two previous Congresses, the House of Representatives passed the Financial Institution Customer Protection Act, which would require an agency to prove that a business poses a material risk before requiring a financial institution to terminate a banking relationship with that business. While the Senate has yet to take up the measure, in May, Representative Blaine Luetkemeyer (R-Mo.) once again reintroduced the bill as H.R. 2706.
A critic of Operation Choke Point, Luetkemeyer, strikes at the heart of the initiative; the government’s use of reputational risk as a tool for bank coercion. The passage of such a law would draw a bright line between what is an authorized action by the DOJ and the FDIC and what is beyond the scope of their authority (i.e. coercion).
Operation Choke Point was a truly unprecedented enforcement program. In their zeal to take on legal, but socially or politically unpopular businesses, the DOJ and the FDIC ended up harming consumers by taking goods off shelves, forcing legitimate business to close, and making financial access harder for both.
Members of Congress return from August Recess to a sizable list of must-pass legislation covering a range of issues from national defense to government funding and operations. However, the big-ticket items cannot be the only measures Congress focuses on this fall.
It is in the best interest of consumers for the House take up and pass the Financial Institution Customer Protection Act, and the Senate should follow suit. Operation Choke Point may be dead for now, but only Congress can put consumers first and ensure that future administrations do not unilaterally raise Choke Point from the grave.
Beau Brunson is a senior policy adviser at Consumers’ Research, the nation’s oldest consumers organization.