The war by the Obama administration on payday lenders, Native American online lenders, and other forms of politically incorrect businesses which provide financial services to the fog-brained amongst us, has a code name: "Operation Choke Point." Inasmuch as the targeted businesses are not actually illegal, the federal government can't force them to stop serving their customers. Instead, the federal government, including the all-too-willing federal banking regulatory agencies, are forcing banks to stop providing such businesses with access to the nation's financial system. According to Michael Patrick Leahy at Breitbart News, the operation is "secret." Well, apparently, it's not-so-secret any longer.
The operation is headed by political operatives and career bureaucrats at the Department of Justice, the FDIC, and the new Consumer Financial Protection Bureau ("CFPB"). It appears to be the latest example of the Obama administration's successful efforts to weaponize the apparatus of the federal government against people and industries it opposes ideologically.
It also appears to have been kicked off in secret by the Department of Justice, FDIC, and the CFPB in early 2013 without the requisite statutory authority. Officials at the Department of Justice have withheld information about the program from Congress, though they have eagerly shared details with federal financial institution examiners authorized to supervise and discipline the nation's banks and related financial institutions.
On August 22, thirty-one members of Congress sent a letter to Attorney General Eric Holder and FDIC Chairman Martin Gruenberg , requesting a briefing of Congressional staff members on the project, the details of which were so obscure they did not yet know it had obtained the status of a federal initiative and was called 'Operation Choke Point.'
In the letter, which was organized by Congressman Kevin Yoder (R-KS) and Congressman Blaine Luetkemeyer (R-MO), the members of Congress stated "[i]t has come to our attention that the DOJ and the FDIC are leading a joint effort that according to a DOJ official is intended to 'change the structures within the financial system...choking [online short term lenders] off from the very air they need to survive.' "
"We are especially troubled by reports that the DOJ and FDIC are intimidating some community banks and third party payment processors with threats of heightened regulatory scrutiny unless they cease doing business with online lenders," the letter read. "As a result, many bank and payment processors are terminating relationships with many of their long-term customers who provide underserved consumers with short-term credit options," it continued.
The members of Congress warned Holder and Gruenberg that these actions were undertaken by their respective agencies without statutory authority. "Your actions to 'choke off' short-term lenders by changing the structure of the financial system are outside your congressional mandate," they wrote. "With the enactment of the Dodd-Frank Act, Congress acknowledged the need for short-term credit products and did not try to limit online lender's or storefront operators' ability to offer such products."
Congress, they wrote, actually wanted to limit these type of actions."Dodd-Frank also included a specific provision designed to prohibit the Consumer Financial Protection Bureau from imposing rate limitations on short-term loans. Neither Dodd-Frank, nor any other legislation passed by Congress, has given the DOJ/FDIC or any other federal agency the authority to 'take away the very air' that online lenders 'need to survive.'
In response, a DOJ representative met with Congressional staff but refused to give them any information about the operation, telling them that it was none of their business. In fact, that representative also refused to give the staffers her name, although Leahy claims she's been outed. Another DOJ representative reportedly met with bank examiners to brief them on how to put a choke hold on third party payment processors and other "bad actors" that have been targeted.
Representatives of the targeted businesses are not amused.
Peter Barden of the Online Lenders Association agrees that the Obama administration's influence on bank regulators has overstepped its legal authority. "It should also send a troubling message to banks that at any point regulators can force them to stop processing legal transactions simply because they don't like a particular merchant or industry," he said.
There's a lot more in the linked article, and while Breitbart News is well-known to be a partisan right-wing publication, the facts should be disconcerting to anyone concerned about abuses of executive power, especially at the federal level. As a Washington Times editorial cited by Leahy observes, trying to destroy legal businesses in this fashion, as opposed to pushing a legislative solution or at least engaging in open, transparent rule-making, is bad precedent.
"[Our] system of checks and balances was put in place to prevent such abuses. Mr. Obama is determined to lend himself as much power as he can. If Congress won’t assert its constitutional authority by blocking such behavior, it will never retrieve the power and authority the Constitution gave it."
We'll see. In an election year, I don't see Congress, with a Senate controlled by the Democrats, doing much of anything. Republicans might make some noise, but that will have little impact in the partisan atmosphere that exists in that branch of government. On the other hand, it does give opponents of secret government programs to strangle legally operating businesses on ideological grounds extra incentives to seek a change in the composition of Congreess in 2014 and of the White House in 2016.