Operation Choke Point

Judicial Watch Sues DOJ for Operation Choke Point Records

DOJ Program Pressures Banks to Cut Ties With Law Abiding Businesses; House Financial Services Committee Chair Warns Enforcement Could Be Used as “a Pretext for the Advancement of Political Objectives…”

WASHINGTON, DC — (Marketwired) — 10/16/14 — Judicial Watch announced today that on September 4, 2014, it filed a Freedom of Information Act (FOIA) lawsuit against the Department of Justice (DOJ) to obtain records relating to Operations Choke Point (OCP), the Obama administration’s controversial new program to pressure banks to shut down merchant accounts of legal businesses. The program, initiated by the DOJ in the early part of 2013 in coordination with the Federal Deposit Insurance Commission (FDIC) and the Consumer Financial Protection Bureau (CFPB), can force banks and other financial service providers to cut off services to businesses that have not been found guilty of or even charged with breaking the law. The suit was filed in the United States District Court for the District of Columbia (Judicial Watch v U.S. Department of Justice(No. 1:14-cv-01510)).

The FOIA lawsuit, filed pursuant to a May 1, 2014, FOIA request to the DOJ, seeks the following:

• Any and all records regarding, concerning or related to the legal basis for the targeting of legal business entities under Operation Choke Point.
• Any and all records depicting the criteria for businesses and/or industries to be targeted for any type of scrutiny and/or enforcement or regulatory action under Operation Choke Point.
• Any and all records depicting the business types and/or industries targeted for any type of enforcement or regulatory action under Operation Choke Point.

The Operation Choke Point program emerged from President Barack Obama’s 2009 executive order creating the Financial Fraud Enforcement Task Force, led by outgoing Attorney General Eric Holder. Enforcement actions arising out of the Task Force have been criticized for pursuing abusive political and retaliatory legal actions to force banks and other financial sector business to settle for billions without any proof of wrongdoing.

In initiating the Operation Choke Program, the FDIC listed on its website 30 merchant categories that had been targeted as “high risk,” including coin dealers, credit repair services, dating and escort services, firearms and fireworks sales, mailing lists, lottery sales, payday loans, pharmaceutical sales, travel clubs, and tobacco sales. In a 2011 bulletin, the FDIC warned banks that associating with any of these merchants could expose the banks to “reputational risk.” Under the OCP program, if a bank does not shut down a questionable account when directed to do so, it can be penalized even if the “high risk” merchant has broken no laws. Though in July 2014, the FDIC removed the merchant list from its website, it still insisted that the merchants continuing to be targeted had been associated with “higher-risk activity.”

In August 2013, thirty-one members of Congress sent a letter to Attorney General Eric Holder and FDIC Chairman Martin Gruenberg requesting a briefing of congressional staff members on the project. At the time, according toBreitbart.com, “the details of which were so obscure they did not yet know it had obtained the status of a federal initiative and was called ‘Operation Choke Point.'” In response to that letter, according to the Breitbart report, “a Department of Justice official met with congressional staff members at the Capitol in late September, but refused to answer any questions about the project.”

In an April 24, 2014, op-ed in the Wall Street Journal, American Banking Association president Frank Keating accused the Obama Justice Department of “compelling banks to deny service to unpopular but perfectly legal industries by threatening penalties.” He added:

“Justice is pressuring banks to shut down accounts without pressing charges against a merchant or even establishing that the merchant broke the law. It’s clear enough that there’s fraud to shut down the account, Justice asserts, but apparently not clear enough for the highest law-enforcement agency in the land to prosecute.”

While the DOJ claims OCP was set up to combat massive consumer fraud, a May 29, 2014, report from the House Committee on Oversight and Government Reform strongly suggests that the primary target of OCP is the short-term lending industry, an entirely legal operation. And in a letter to Janet Yellen, the Chair of the Federal Reserve, sent that same week, House Financial Services Committee Chairman Jeb Hensarling warned: “The introduction of subjective criteria like ‘reputation risk’ into prudential bank supervision can all too easily become a pretext for the advancement of political objectives.”

“The highly secretive Operation Choke Point program is another abuse of power by the Obama administration. The federal government has no business forcing private sector banks and companies to choke off legitimate businesses that have broken no laws or have been charged with no crimes. President Obama cannot get Congress to target businesses on his political hit list, so he’s allowed his appointees to abuse their authority by choking off companies that offend liberal sensibilities,” said Judicial Watch President Tom Fitton. “Ironically, one of the ‘high risk’ indicators of fraud is a lack of transparency and non-disclosure. The Department of Justice won’t obey the Freedom of Information Act and disclose basic information as required about Operation Choke Point. Indeed, Attorney Eric Holder has turned his Justice Department into an agency that is one of the worst violators of FOIA. Maybe the Obama administration should stop strong-arming banks, and focus on policing its own well-deserved ‘reputational risk’ for fraud.”

Rep. Jim Jordan examines whether the feds made banks drop accounts of disfavored businesses

Champaign County GOP Rep. Jim Jordan has asked the Federal Reserve Board and Comptroller of the Currency to provide his subcommittee with documents on “Operation Choke Point.” (Sabrina Eaton, The Plain Dealer)

On Friday, Jordan and Committee Chairman Darrell Issa of California asked Federal Reserve Chair Janet Yellen and Comptroller of the Currency Thomas Curry to provide the committee with documents to help it determine whether they improperly cracked down on legitimate businesses as part of a program called “Operation Choke Point.“WASHINGTON, D.C. — Rep. Jim Jordan and the House Oversight and Government Reform Committee are probing whether the federal government inappropriately asked banks to terminate accounts of legal businesses it considers objectionable.

The Justice Department says its “Operation Choke Point” program protects consumers by cutting fraudulent businesses off from bank payment systems. It says it is targeting payday lenders and operators of mass-marketing schemes, as well as banks that ignore signs of fraud.

Critics of the program say many other categories of legitimate businesses have been targeted, including firms that sell firearms, coins, tobacco, lottery tickets, and pharmaceuticals.

“The government is compelling banks to deny service to unpopular but perfectly legal industries by threatening penalties,” American Bankers Association CEO Frank Keating said in a Wall Street Journal column. “This puts them in a difficult business position.”

The CEO of Community Choice Financial Inc. — the Ohio-based parent of several payday lending and check cashing businesses — told Columbus Business First that several banks stopped doing business with his company because of “Operation Choke Point.”

“It’s a bigger abuse of power than Watergate,” CEO Ted Saunders told the publication.

Issa and Jordan cite a February 2013 letter from the Federal Deposit Insurance Corporation’s Chicago office that criticizes an unnamed Ohio bank’s decision to process transactions on behalf of an unnamed payday lender. The name of the bank and payday lender were redacted from the document that Issa and Jordan released.

“It is our view that payday loans are costly and offer limited utility for consumers, as compared to traditional loan products,” said the letter to the bank’s board of directors. “Furthermore, the … relationship carries a high degree of risk to the institution, including third-party, reputational, compliance and legal risk, which may expose the bank to individual and class actions by borrowers and local regulatory authorities.”

An FDIC spokesman told American Banker the letter doesn’t reflect its current policies. He said those policies were set out in a a September 2013 statement that said banks operating with appropriate safeguards ” are neither prohibited nor discouraged from providing payment processing services to customers operating in compliance with applicable” state and federal laws.

Letters that Jordan and Issa sent to Yellen and Curry say their agencies may be “operating in a similar manner” to the FDIC office that sent the letter to the Ohio bank.

The letters from Jordan and Issa cite an Aug. 8 announcement that Sun Trust Bank will stop serving payday lenders, pawn shops and dedicated check-cashers “due to compliance requirements.”

Jordan and Issa said the Federal Reserve Board and Comptroller of the Currency’s “enforcement of a compliance regime that forces banks to sever all relations with legal and legitimate customers is totally unacceptable.”

They ask both agencies to give their committee any documents and communications that relate to “Operation Choke Point,” and financial institutions’ relationships with businesses including pawn shops, short-term lenders, and money service, tobacco, firearms and ammunition related businesses.

The agencies have until Oct. 30 to produce the records. Jordan is a Republican from Champaign County who chairs the Oversight Subcommittee on Economic Growth, Job Creation and Regulatory Affairs.

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