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Momentum Shifting Against Operation Choke Point?

Friday, January 30, 2015

Momentum Shifting Against Operation Choke Point?

When last we reported on the ongoing scandal that is Operation Choke Point, the House Oversight and Government Reform Committee had issued a report condemning the participation of the Federal Deposit Insurance Corporation (FDIC) in the program. Earlier, the same committee had faulted the Department of Justice (DOJ) for its actions in pressuring banks to sever or avoid business relationships with legitimate industries that are considered politically objectionable, including firearms and ammunition sales. Internal investigators at both FDIC and DOJ had also launched their own probes into allegations of abusive practices under the guise of Operation Choke Point.

Since then, a series of events has helped further apply the brakes to this ill-conceived scheme, with some observers hopeful that a turning point has been reached.

First, a Wisconsin gun dealer reportedly captured audio tapes of his conversations with employees of his credit union, in which they acknowledge they were terminating his account because of pressure from federal regulators who objected to the nature of his business. The recordings appeared to substantiate the central criticism of Operation Choke Point: that it is seeking to deny entire lawful industries of access to banking services, rather than specific bad actors within those industries.

On Wednesday, Loretta Lynch, current U.S. Attorney for the Eastern District of New York, was questioned about Operation Choke Point by Senator Mike Lee (R-Utah) during Lynch’s confirmation hearing to replace Eric Holder as U.S. Attorney General. Lynch confirmed that she was “generally familiar” with the program, although she claimed not to have been involved in its creation or implementation. She also pledged, if confirmed as attorney general, to listen to any concerns Sen. Lee had about the program and to work with him on addressing any adverse effects the program might have on persons lawfully exercising their Second Amendment rights. Sen. David Vitter (R-La.) had also raised concerns about the program during a January 7th meeting with Lynch.  The prospect of a new attorney general replacing self-professed “activist” Holder could portend a shift in DOJ’s approach to this program.

The same day, the FDIC issued an internal memorandum to supervisory staff requiring that any recommendations by examiners to terminate a customer’s deposit account must be made in writing, vetted by legal staff, and discussed with bank managers. According to a report by the Washington Times, “The memorandum makes it very clear that ‘reputational risk’ alone is not enough reason to end a client’s banking account.” Rather, the written recommendation must cite laws or rules that are being violated. Representative Blaine Luetkemeyer (R-Missouri), who has been leading the charge to curb Operation Choke Point’s excesses, characterized FDIC’s move as an acknowledgement of wrongdoing.

Also on Wednesday, FDIC publicly issued a Financial Institution Letter that beneficially addresses several issues relevant to Operation Choke Point. The letter begins by “encourage[ing] insured depository institutions to serve their communities” and recogniz[ing] the importance of the services they provide.” Second, it specifically encourages “institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers, without regard to the risks presented by an individual customer or the financial institution’s ability to manage the risk.” The letter further instructs that “[f]inancial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of customer accounts or individual customer operating in compliance with applicable state and federal law.” The letter concludes by providing contact information for the FDIC’s Office of Inspector General, which handles complaints of abuses by the agency, as well as its Office of the Ombudsman, to which institutions may confidentially complain that publicly-stated policies are not being followed.

Only time will tell whether these developments signal the end of Operation Choke Point’s abuses and overreaching. Certainly they are encouraging signs, and we will continue to report on further developments.

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