Supporters of the rule of law will be overjoyed to hear that the Department of Justice has officially closed down Operation Choke Point. In a letter to House Judiciary Committee Chairman, Bob Goodlatte (R.-VA), Assistant Attorney General Stephen Boyd confirmed that the Department of Justice has closed down all its initiatives that formed part of the Operation.
Operation Choke Point ostensibly used legal and regulatory pressure to “choke off” the financial oxygen for businesses that were exploiting consumers. In fact, the operation had a far wider effect. Early subpoenas issued to banks had attached a guidance document (regulatory “dark matter,” as my colleague Wayne Crews puts it) from the Federal Deposit Insurance Corporation (FDIC) that warned banks to consider “reputational risk” in their banking relations. The list of industries that could engender such risk included firearms and ammunition sales, pornography, and short-term (“payday”) lending. In other words, industries that were not illegal but of which the previous administration disapproved. Banks responded by cutting off relationships with all these businesses, even ones with whom they had long and trouble-free histories.
After an outcry, the FDIC withdrew its guidance. Nevertheless, businesses continued to report trouble in continuing or establishing banking relationships.
Mr. Boyd’s letter calls Choke Point “misguided” and goes on to say “We reiterate that the Department will not discourage the provision of financial services to lawful industries, including businesses engaged in short-term lending and firearms-related activities.” This should go some way towards persuading banks that they will not come under pressure from the Justice Department for establishing banking relationships with non-politically correct industries.
His letter was followed up by another from Acting Comptroller of the Currency, Keith Noreika, to House Financial Services Committee Chairman Jeb Hensarling (R.-TX) that welcomed the DoJ’s confirmation that Choke Point was over and stated that his office “reject[ed] the tactics and goals” of the operation. He went on to say that OCC “rejects the targeting of any business operating within state and federal law as well as any intimidation of regulated financial institutions into banking or denying banking services to particular businesses.”
Both these letters are welcome, as this means that three agencies (including FDIC) have now repudiated the abuse of due process that Choke Point represented. Whether this will stand them in good stead in their defense against a lawsuit brought by payday lenders remains to be seen – the case was allowed to proceed last month on the basis that the plaintiffs had a plausible case for relief.
There is however one player in this game who has yet to fold its hand. The Consumer Financial Protection Bureau (CFPB) appears in the DoJ records to have distanced itself from Choke Point at the beginning, but there are clear signs that it has been aping the operation’s tactics. The CFPB’s supervisory powers allow it not only to investigate banks that deal with certain businesses but to instruct them not to tell anyone about it.
If the Bureau, which is unaccountable to Congress, is now the de facto home of Operation Choke Point, even if it is not called that there, then these letters will be of small comfort to business owners and their customers. All the more reason for President Trump to fire Richard Cordray and rein in this unconstitutional agency.