There's no downplaying the impact of Operation Choke Point
Operation Choke Point was real, and it exceeded legal limits. Overwhelming evidence, in the form of more than 900 pages of newly unsealed emails and depositions, proves government officials illegally targeted lawful businesses in an ideological crusade based on personal disdain. If there were other reasons at play, these regulators would not have needed to resort to backroom pressure tactics, including threatening the jobs of Federal Deposit Insurance Corp. officials and bank executives with criminal prosecution unless they cut off banking relationships with small-dollar lenders and other lawful businesses.
The small-dollar lending industry has long known that government bureaucrats with a partisan agenda were determined to bring the industry to its knees, but this illegal campaign went farther than anyone could have imagined — with those at the very highest levels of the Department of Justice, FDIC and Office of the Comptroller of the Currency targeting customers of regulated banks based on their personal bias.
The emails and depositions newly unsealed in a lawsuit against the government show that through Operation Choke Point, senior federal officials — most notably at the FDIC — fostered a culture of open criticism and disdain for the small-dollar lending industry. At the same time, they publicly denied any knowledge or involvement of the program. In 2015, former FDIC Chairman Martin Gruenberg testified to Congress that “our supervised banks understand that the FDIC will not criticize, discourage or prohibit banks that have appropriate controls in place from doing business with customers who are operating consistent with federal and state law.” However, according to the new documents, we now know that former FDIC Atlanta Regional Director Thomas Dujenski wrote in an email, “I literally cannot stand pay day lending” — and every bank under his supervision ultimately terminated their relationships with small-dollar lenders. Similarly, former FDIC Chicago Regional Director Anthony Lowe recounted in a deposition a conversation with top FDIC officials in which a directive was given to all regional directors that “if a bank was found to be involved in payday lending, someone was going to be fired.” Lowe subsequently used his power over banks in his region to ensure banking relationships with small-dollar lenders were terminated.
Those involved in Operation Choke Point demonstrated a blatant disregard for the rule of law and due process, as well as the U.S. regulatory system, and the effect of their actions will resonate for years to come. All Americans should demand answers and corrective action, including the immediate removal of all those involved from their current positions — including both Gruenberg and Lowe, who still serve in FDIC leadership.
Now, in new attempts to downplay the true nature of Operation Choke Point, some are claiming that small-dollar lenders’ bank accounts were terminated for anti-money-laundering or Bank Secrecy Act reasons. The idea that these concerns were the genuine reason for bank terminations is nonsense. The statements of prominent officials in the regulatory agencies make their aim obvious — to end the ability of small-dollar lenders to have a banking relationship. If it were true that small-dollar lenders’ bank relationships were terminated because of money laundering issues, then regulators would have used that power, sufficient by itself, to terminate relationships with small-dollar lenders. The attempt to use money laundering to justify the denial of banking services to legal business did not work, so Operation Choke Point was put in place. A familiar pattern ensued. Government officials abused their power to press forward with their own ideological agenda. Then, faced with a demand for accountability, they denied wrongdoing and sought to cover up their misdeeds. This is not a small-dollar lending story; this is a story of government agencies debasing their missions through the abuse of power.
A dangerous precedent has been set here. If government regulators under one administration can target businesses they personally disfavor, any subsequent administration can do the same. Personal prejudices cannot be the standard for regulation, and the government should never disregard due process or regulatory procedures to choke off lawful businesses. Fortunately, the Community Financial Services Association, which I run, could afford the cost of a lawsuit and seek redress in the courts. CFSA was an original party to the lawsuit brought against the government and we participated in the preparation leading up to its filing in 2014. Our reasons for pursing a legal challenge to the actions of the FDIC and OCC were simple. First, we were seeking justice for our members who were harmed. Second, we were convinced there was a deliberate pattern of terminations of banking relationships that we wanted to bring to light. Third, if there was indeed a pattern, we’d be rendering a genuine public service by establishing the principle that no agency or group of people within an agency should be allowed to abuse their authority by exercising it in an unlawful or prejudicial manner. The last reason is essential because if it were true that bank regulators, who hold immense power over banks and their customers, could exercise personal preferences through regulation, there would be no end to the ideological games that could be played.
We don’t yet know how many more victims of this scheme exist, nor do we know how many are still being injured by regulators who are assuming a power they have no right to use. The ordinary citizen or lawful business shouldn’t have to bear the burden of paying to redress the illegal acts of regulators. Now that the recently unsealed court documents reveal the true lengths of this secretive campaign, no amount of rationalization can excuse it. The proof is in their own words — they intended to end banking relationships and then tried to cover it up. Democrats and Republicans alike must come together to hold those who arranged such a scheme responsible so such an abuse of power can never happen again.