July 2, 2014

Opposition to Operation Choke Point Grows

image by skambalu foter.com
Opposition to Operation Choke Point continues to mount.
"Operation Choke Point" is an ongoing program of the U.S. Department of Justice under which it investigates banks' relationships with payment processors, so-called "payday lenders," and other companies believed to be at higher risk for violations of law. Bankers report being pressured to terminate relationships with these businesses even if no malfeasance is identified. Operation Choke Point is controversial because it has the potential to penalize banks and other lawful businesses simply because an agency of the executive branch disfavors certain types of businesses. Industries that have reportedly been targeted by Operation Choke Point include the following:
  • Ammunition Sales
  • Coin Dealers
  • Credit Repair Services
  • Dating Services
  • Firearms Sales
  • Fireworks Sales
  • Government Grants
  • Home-Based Charities
  • Life-Time Guarantees
  • Life-Time Memberships
  • Money Transfer Networks
  • Online Gambling
  • Payday Loans
  • Pharmaceutical Sales
  • Ponzi Schemes
  • Pornography
  • Multi-Level Marketing
  • Surveillance Equipment
  • Telemarketing
  • Tobacco Sales
  • Travel Clubs

A bill has recently been introduced in Congress to prevent federal banking regulators from exerting similar pressure. The bill would prohibit bank regulators from using their "safety and soundness" authority over banks to discourage banks from serving customers engaged in legal activities. Banks would benefit from a safe harbor with respect to business customers that are licensed, registered as a money services business, or have obtained a reasoned legal opinion confirming the legality of the business.

The bill was introduced by Representative Blaine Luetkemeyer (R-MO). Luetkemeyer explained that the legislation "would ensure that existing laws are interpreted as intended, overzealous and inappropriate use of regulatory and enforcement tools is curbed, and financial institutions have the security and ability to return to the business of offering products and services to a variety of industries including ammunition sales, fireworks sales and pharmaceutical sales." He went on to write that "[i]n an effort to drive legally-operating, licensed and regulated companies out of business, federal banking regulators in cahoots with the Department of Justice are placing so much regulatory pressure on financial institutions that certain businesses not viewed favorably by the Attorney General and the Administration are eventually choked-off from the financial services they need to survive. That notion goes against the very nature of our free market system. It is time to stop these backdoor attempts by government bureaucrats to blackmail and threaten businesses simply because they morally object to entire sectors of our economy.”

The bill was referred to the House Committee on Financial Services last week. 

At least one group has taken the litigation route. An association of consumer lending companies (Community Financial Services Association of America) filed a lawsuit against the federal financial regulators in early June, claiming that through Operation Choke Point, the FDIC, the Fed, and the OCC have informally pressured banks to cut off consumer lenders' access to banking services, which "exceeds the agencies’ statutory authority." You can read the Complaint here.

image material by martialartsnomad.com via foter
It remains to be seen whether legislation or litigation will force the Operation Choke Point to "tap out."


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