A Two-Front War

The opponents of Operation Choke Point (a group also known as "The Heimlich Maneuverers") have recently decided to proceed against touch points within the Executive Branch through the other two branches of the federal government. On the judicial front, the payday lending industry filed a lawsuit against the Gang of Three (OCC, FDIC, and FRB) for "illegally" forcing banks that they regulate to choke off access to the financial system to "disfavored" businesses (including, apparently E-Harmony.com, inasmuch as the FDIC has determined that online dating services are "high risk." According to friends that use online dating services, there may or may not be a high risk of illegal activity associated with them, but there sure is plenty of bald-faced lying).

I hope the payday lenders enjoy dancing with a bear.

In the US Congress, House Financial Services Committee Chairman Jeb Hensarling (with a name like "Jeb," you simply know he's from Texas) wrote to Janet Yellen to express his "concern" about the use by the federal bank regulators of the nebulously defined concept of "reputation risk" as a pretext for forcing banks to stop serving legitimate business (for example, payday lending businesses) that the regulators, subjectively, determine pose "undue reputation risk." Hensarling's questions to Yellen are an obviously transparent attempt to set the stage for an argument that the regulators can't define "reputation risk" any better than they can define "obscenity," except they know it when they see it.

While Hensarling harasses Yellen, his running buddy at the House Oversight and Government Reform Committee, Chairman Darrell Issa, decided to poke a stick in the eye of the FDIC (paid subscription required).

Issa sent a letter Monday to FDIC Chairman Martin Gruenberg charging that the agency has been working closely with the Department of Justice as part of its law enforcement effort to root out fraud through the payments processing system.

The California Republican says he doubts testimony by Richard Osterman, acting general counsel at the FDIC, during a House Financial Services Committee hearing last month, in which Osterman repeatedly downplays the FDIC's role, referring to the initiative as a Justice Department program.

"Documents produced to the Committee by the Department of Justice call into question the sincerity and truthfulness of Mr. Osterman's testimony. In fact, the FDIC has been intimately involved in Operation Choke Point since its inception," the letter says.

Calling the FDIC's Acting General Counsel, in effect, a liar might actually prod a tart response from the FDIC. We'll see. Issa wants requested documents delivered to his office by a week from next Monday.

In case people were confused about what Issa's concern about a love match between the DOJ and the FDIC might be, he explained.

"The committee has obtained substantial evidence suggesting that as a result of coordinated actions by the FDIC and the Department of Justice, banks are terminating relationships with entirely legitimate and licensed businesses," the letter adds.

In other words, he'd like the FDIC to hand over a smoking gun that proves his point and also supports his allegation that Mr. Osterman's testimony was less than "sincere" and "truthful." What are the odds the FDIC will produce such documents?

There is little doubt to a cynic that the fact that these serial counter punches are coming in such a short sequence is not coincidental. The opponents of Operation Choke Point, especially of the role of the federal banking regulators in picking winners and losers in the game of gaining access to financial services, without affording any of the parties, banks or their customers, with due process, are pushing back. This is only the early stages of what promises to be a nasty tussle.

Stay tuned.