How I Ended Up in a Congressional 'Choke Point' Report
After nearly two years, the Justice Department so far has accused just one bank of facilitating consumer fraud. And the aftermath of that case suggests that prosecutors' strategy is not as effective as they hoped it would be.December 3
The Department of Justice and the Federal Deposit Insurance Corp. have agreed to launch preliminary investigations into Operation Choke Point.November 14
The Federal Deposit Insurance Corp. is facing accusations that it is forcing banks to cut ties with online payday lenders, but the agency says it is only urging banks to be on guard about merchant relationships that elevate their risk.September 20
WASHINGTON There is something strange about reading a congressional report and unexpectedly finding yourself mentioned in it.
That's what happened to me Dec. 8 when the House Oversight Committee released its latest report on "Operation Choke Point," this one focusing on the Federal Deposit Insurance Corp.'s involvement with the controversial Justice Department program.
The report is meant to prove that the FDIC went too far in targeting payday lenders which, according to documents attached in the report, some FDIC officials clearly detest via the banks it supervises.
"It's appalling that our government is working around the law to vindictively attack businesses they find objectionable," said Rep. Darrell Issa, R-Calif., the committee's chairman. "Internal FDIC documents confirm that Operation Choke Point is an extraordinary abuse of government power.
But like too much of this debate over Choke Point, the report is dominated by opinion, innuendo and the omission of critically important context. I ought to know. In one section, the report takes a conversation that occurred between an FDIC official and myself out of context in order to support the committee's conclusions.
The reference comes on page 12, which details an e-mail that David Barr, an FDIC spokesman, wrote to other agency officials. The e-mail clearly describes a phone conversation Barr and I had in September 2013 about a story I was working on at the time with my colleague, Kevin Wack. The article detailed the agency's reviews of banks' relationship with third-party processors, and industry claims that the FDIC was forcing banks to end ties with even legal online payday lenders.
Barr's email accurately portrayed our conversation, which involved my informing him of the story's angle based partly on what Kevin and I were hearing from industry sources in the process of my trying to get the FDIC to comment. During the call, I relayed to Barr that second- and third-hand sources were telling us that, among other things, a senior FDIC official was said to have called online lending "immoral"; some lawmakers object to a regulator judging the morality of a business; and the FDIC has in response to the pushback denied that it is forcing banks to end business relationships.
The problem is the committee's report lifts and highlights pieces from the email as if Barr was stating them directly as his own view. For example, the report, quoting the email, says Barr "noted that '[s]ome of the pushback from the Hill is that it is not up to the FDIC'" to '"decide what is moral and immoral, but rather what type of lending is legal.'"
In truth, Barr never said that. I did, and was relaying the message which, again, we had received through second-hand and third-hand sources to him, which he was in turn forwarding to others at the agency. The committee report went on to say that "the spokesman continues by stating that the FDIC has denied that they are forcing banks to end relationships with payday lenders."
Again, he didn't deny anything. He was relaying what I understood from industry sources. Ironically, it's possible those sources may have even gotten their information from people on Capitol Hill, and so the Oversight Committee's report completes a weird circle of information emanating from somewhere on Capitol Hill that then finds its way into a congressional report criticizing the FDIC.
Asked about the email, Becca Watkins, the committee's communications director, said no clarification about the context was necessary since the email was included in the report "in its entirety."
"We've given all of the documentation around that that one would need to," she said. "To me, it stands."
There are revealing aspects of the House Oversight Committee's report. For one thing, it is quite clear now that FDIC officials have pretty strong negative views of payday lenders and sought to compel banks to stop partnering with them. Perhaps the most revealing email disclosed by the report came from FDIC official Thomas Dujenski, in which he told Mark Pearce, head of the FDIC's depositor and consumer protection division, that he "literally cannot stand pay day lending" and it was an issue he was "sincerely passionate about."
The report also shows clear efforts by FDIC and DOJ officials to discuss jointly their approach to dealing with issues regarding payment processors. "FDIC, in cooperation with the Justice Department, made sure banks understood or in their own language, 'got the message' that maintaining relationships with certain disfavored business lines would incur enormous regulatory risk," the report said.
But the definitiveness of the committee report's findings is a bit of a stretch. Sure, FDIC officials have misgivings about payday lenders and their access to consumers' deposit accounts, but those officials are hardly alone. Mentioned nowhere in the report is the highly uncertain legal status of several online payday lenders trying to navigate an array of state licensing and usury laws, and the actions that have already been taken by state regulators to curb several lending practices.
(In a statement for this blog post, an FDIC spokeswoman said "insured institutions that properly manage customer relationships are neither prohibited nor discouraged from providing services to any customer operating in compliance with applicable law" and banks are encouraged to inform agency management "if they feel this policy is not being followed.")
More troubling, however, is that the blatant mischaracterization of internal FDIC communications and an unwillingness to acknowledge it suggests that congressional interest in this matter is driven more by pressuring regulators to stop cracking down on an industry that is supported by GOP lawmakers than it is in getting to the truth of what really happened.
The report also seemed to gloss over accounts in the internal FDIC communications that portrayed certain types of payday lending in a positive light, and efforts by officials to distinguish between legal and illegal companies.
For example, one August 2013 email, in which the names were redacted, said: "Payday lending may be illegal [in] some places, but it is legal IN ABOUT 35 STATES!!! In other words, in about 2/3 of the states (depending on which assessment of the various state laws you accept.) And, whether we agree with them or not, there is still an argument made by some advocates of the payday lending industry beyond the usual industry shills that payday lending done right serves a legitimate purpose for the unbanked that regular banks won't/can't meet. Failing to make that distinction between illegal and legal payday lending and instead lumping it in with purely objectionable products seems to me to feed the impression that we are trying to combat: that this is not a full-blown assault on payday lending but is instead targeted to on-line payday lending in states where it is illegal."
A close read of the documents suggests there is evidence to suit both sides in this debate. It's a shame that the committee appeared to cherry-pick evidence to further its own argument instead of trying to get a more complete picture of what was really going on.