The FDIC's 'Operation Chokepoint' Settlement Doesn't Make Victims Whole

The FDIC's 'Operation Chokepoint' Settlement Doesn't Make Victims Whole
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The Federal Deposit Insurance Corporation (FDIC) just settled a longstanding lawsuit over the agency’s participation in Operation Chokepoint, a nefarious plot launched during the Obama administration to cut off banking services to legitimate businesses the Administration wanted to punish without any statutory basis to do so. It is always welcome news when the government admits wrongdoing, especially when their actions were as egregious as they were in this case. But the work is far from done to ensure that government rights the wrongs that were committed and this type of government tyranny never happen again.

Launched in 2012 and publicly disclosed in 2013, Operation Chokepoint was a rogue effort by the Department of Justice (DOJ), the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corp. (FDIC) and the Consumer Financial Protection Bureau (CFPB) to pressure financial institutions to cut-off banking relationships with legally operating businesses the Obama Administration felt were unsavory and politically unfavorable but not illegal, including payday lenders and gun stores among others.

After the sinister plot was revealed, government denial ensued.

When asked about Operation Chokepoint during a 2014 Senate Banking Committee hearing, former CFPB Director Richard Cordray essentially evaded the questioning. He explained that while he was aware of the program the Bureau had not given advice to the DOJ regarding this effort and that for him, the standard for policing the financial industry was whether an activity is “legal or illegal,” not whether it is “favored or disfavored.” Current House Financial Services Chairwoman, Maxine Waters, once called a hearing examining this issue “a little bit ridiculous and a waste of time.”


Back in October, sobering public documents were unsealed as part of the lawsuit the FDIC just settled which lay bare the far reach and ruthlessness of this program. 

According to the documents, “in late 2010 or early 2011, the FDIC’s senior Washington officials convened a meeting of all Regional Directors. At the meeting, the FDIC’s Senior Deputy Director for the Division of Supervision and Consumer Protection conveyed the following message: “if a bank was found to be involved in payday lending, someone was going to be fired.”

We also have proof that the CFPB was very much in the know.

In 2013, a DOJ official “involved in the initiative” emailed officials at the FDIC, FTC and CFPB with “’a simple and elegant idea about how to protect consumers from predatory PD lenders,’” involving banning banks from “’originating debit transactions against the bank accounts of non-customer borrowers.’”

In another instance, a bank chairman was threatened with criminal prosecution by an FDIC reginal director in Atlanta if the bank did not end their relationships with payday lenders which the FDIC official called “a dirty business.”

In light of these revelations and the subsequent FDIC settlement, the damaging effects from these intimidation tactics are still being felt by banks and businesses alike.

Today, evidence suggests that banks are wary of doing business with targeted entities that have had to adjust their business models to stay in operation. Former Oklahoma Governor Frank Keating rightly pointed out that “ending the program doesn’t return the banking relationships that were terminated, and the stigma associated with Operation Choke Point will follow these businesses for years to come.”

So, where do we go from here?

The FDIC, in its settlement, acknowledged that Operation Choke Point was carried out by “certain employees” that “acted in a manner inconsistent with FDIC policies.” They reiterated their agency policies on how banks should conduct business with their customer. But these actions alone will not prevent this abuse of power from happening again.

Not only should the federal government help financial institutions regain their confidence to re-establish relationships with impacted customers, but Congress needs to send a strong message. 

Thankfully, that is being considered.

Right now, there is legislation pending in Congress to enable banks to do business with those that sell marijuana. In an effort to garner support for the bill, some Members are trying to get language added that would help prevent Choke Point from ever seeing the light of day again. Congressman Blaine Luetkemeyer (R-MO) is helping to lead that charge as his bill to end Choke Point passed the House two years ago by a vote of 395-2.

Of his legislation, Luetkemeyer has said “bureaucrats playing partisan politics with the livelihoods of American citizens is an appalling abuse of power, no matter your ideological leanings.”

For all Americans, and especially the many victims, I hope a federal law can help put an end to this tyranny once and for all. 

Ambassador C. Boyden Gray was White House Counsel under President George H.W. Bush. 

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