Don't Buy the Spin: Operation Choke Point Targets Legal Businesses
A recap of the informed opinions (and the discussions they generated) on BankThink this week, including thoughts on derisking, biometric technology and Paul Volckers proposal to reform the regulatory system.April 24
The National Pawnbrokers Association argues that its members have been unfairly swept up in the Justice Department initiative known as Operation Choke Point. But banks say Choke Point's not to blame: they're closing the accounts of cash-intensive businesses in order to ensure compliance with anti-money-laundering rules.April 21
If banks consider licensed and regularly supervised pawnbrokers with many compliance responsibilities to be too risky to bank, then what Main Street businesses are safe?April 21
Top Republicans on the House Financial Services Committee are asking federal regulators to cease all activity related to the Justice Department's "Operation Choke Point" and any related investigations.April 9
The agency announced Wednesday it had filed a massive lawsuit against more than a dozen debt collectors, payment processors and related entities that the agency said failed to detect fraudulent collection tactics. By including processors in its suit, observers said the CFPB's move resembles the Justice Department's Operation Choke Point.April 8
Under tough questioning on Capitol Hill, Federal Deposit Insurance Corp. Martin Gruenberg said the agency accepts blame for fallout over its "high risk" businesses list as an internal FDIC watchdog is still investigating.March 24
All Americans, entrepreneurs and small businesses across our great country come from very different walks of life. They have taken great risks and share a common dream to start a company that can one day become profitable and provide for their families. While businesses face incredible hurdles before they succeed, the ones that do survive provide the foundation for our local communities.
Unfortunately, the most alarming hurdle facing businesses today is a Department of Justice initiative known as Operation Choke Point.
Created under the guise of a program to root out fraud and illegal activity, this initiative has been used by White House administration bureaucrats to pressure banks to end relationships with businesses they consider to be objectionable or "high risk." The House Financial Services Committee, the House Oversight and Government Reform Committee and the House Judiciary have held hearings on this out-of-control program. Peter Weinstock, a partner at a Dallas law firm whose practice focuses on corporate and regulatory representation of financial institutions, testified before the House Judiciary Committee on July 17, 2014: "The U.S. Department of Justice created Operation Choke Point ostensibly to combat consumer fraud. However, it has become apparent that the program instead seeks to eradicate disfavored businesses." This administration has targeted small businesses such as firearm and ammunition dealers, cigar shops, fireworks retailers, pawn stores, payday lenders and others. This backdoor effort by this administration to target legitimate law-abiding businesses they do not like, and to coerce banks to choke off relationships with these businesses, is completely unacceptable.
Throughout the country, I have seen the reports in the news of business owners that have had their bank accounts suddenly closed. In Nevada, the owner of a firearms store had his bank account frozen by his bank. A gun manufacturer in Phoenix was dropped by their bank after 12 years of good credit history. In my home state of Florida, a premium cigar and tobacconist store owner in Orlando recently informed me about receiving a letter from their bank stating it could no longer provide basic financial services, such as processing credit card transactions and banking deposits.
In each of these cases, the consequences are swift and immediate. Without access to basic banking services, business owners cannot make deposits or make purchases, and are unable to meet their payroll and cannot pay their lease. In essence, the federal government is purposefully creating obstacles to choke legitimate businesses from doing business.
Unfortunately, these targeted business owners do not receive a note from the bank stating that "Due to Operation Choke Point, we regretfully must end our financial relationship with your business." They are not notified that due to overzealous DOJ employees, their bank made the difficult decision to end their business relationship to spare them the threat of a federal investigation down the road. Instead, these businesses that had their accounts closed are not provided notice prior to discontinuation of services. They simply receive a letter of termination from their banks, often without any explanation and without any level of recourse.
The banks themselves are also victims of overreaching federal bureaucrats. They face a difficult choice to either maintain the banking relationship with a business, some of whom they have had a banking relationship with for many years, or risk the high cost of defending themselves against a federal investigation.
To combat this, I have sent letters to the DOJ, FDIC, Federal Reserve and the Office of the Comptroller of the Currency underlining congressional concern about Operation Choke Point. I have also called on my colleagues to ensure that congressionally appropriated funding is prevented from being used to advance this unprecedented and inappropriate program.
Whether you utilize any of the targeted businesses or not, think about how future administrations could implement similar programs that "choke off" other forms of business. Where does it stop?
Legitimate businesses rely on their banks to grow, hire more employees, pay taxes and provide basic services and products vital to our communities. Moving forward, as a Member of the House Financial Services Committee, I will continue to fight to end Operation Choke Point.
Rep. Dennis A. Ross, R-Fla., is a Senior Deputy Majority Whip and a member of the Financial Services Committee.