A Republican-led congressional panel is accusing the Department of Justice of overstepping its legal authority and unfairly harming legitimate merchants as part of an investigation into fraudsters' use of the banking system.
In a 12-page report released Thursday, the staff of the House Oversight Committee calls for the dismantling of the DOJ's investigation, which is known as Operation Choke Point.
"Operation Choke Point is the Justice Department's newest abuse of power," Oversight Committee Chairman Darrell Issa, R-Calif., said in a news release. "If the administration believes some businesses should be out of business, they should prosecute them before a judge and jury. By forcibly conscripting banks to do their bidding, the Justice Department has avoided any review and any check on their power."
The report draws on previously unreleased documents that the Justice Department turned over to the committee.
Those documents include an internal memo from Nov. 21, 2013, which reveals for the first time that Operation Choke Point has led to criminal investigations of financial firms.
As of November, the DOJ had opened criminal investigations into four unnamed payment processors and one bank, plus civil investigations into more than 10 banks and payment processors, according to the memo.
The House Oversight Committee report lodges three main objections to Operation Choke Point.
First, the report argues that the probe has led to lawful businesses including firearms merchants and adult entertainment operators to lose their banking relationships, and that the Justice Department is not sufficiently concerned about that impact.
Emily Pierce, a DOJ spokeswoman, responded by email: "We only investigate banks and third-party payment processors that violate federal law, and these documents suggest nothing to the contrary. When financial institutions choose to process transactions, even though they know the transactions are fraudulent or are willfully ignorant of that fact, they are breaking federal law and we will not hesitate to hold them accountable."
The Republican report also argues that the Justice Department lacks sufficient legal justification for Operation Choke Point, and that prosecutors are misapplying a 1989 statute, the Financial Institutions Reform, Recovery, and Enforcement Act. The law was intended to provide a new tool for prosecuting fraud against banks, but the DOJ is now using it to combat merchant fraud, the congressional report argues.
Finally, the report argues that the Justice Department's goal is to shut down online payday lending, despite DOJ's repeated public assertions that it is targeting mass-market fraud more generally. The DOJ has argued that numerous online payday lenders are operating in violation of state law.
Lisa McGreevy, president of the Online Lenders Alliance and a vocal critic of Operation Choke Point, said Thursday's report vindicates what she's been saying for months.
"The report confirms what we've known all along DOJ and other government regulators were engaged in a coordinated effort to eliminate the online lending industry and choke off consumer access to the short-term credit millions of Americans need," McGreevy said in a news release.
As part of Operation Choke Point, approximately 50 banks and six payment processors have received subpoenas, according to the November 2013 Justice Department memo. Four Oaks Bank in Four Oaks, N.C., is the only institution to reach a settlement as part of the probe.
Other banks that have said in regulatory filings that they have received Justice Department subpoenas related to payment processing include PNC Financial Services (PNC) and Zions Bancorp. (ZION).