Report: DOJ’s Operation Choke Point Secretly Pressured Banks to Cut Ties with Legal Business

May 29, 2014

WASHINGTON – House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) today released a staff report, The Department of Justice’s “Operation Choke Point”:  Illegally Choking Off Legitimate Businesses?, on the DOJ’s wide-ranging investigation of banks and payment processors. The ostensible goal of the investigation is to combat mass-market consumer fraud by foreclosing fraudsters’ access to payment systems.  However, today’s report finds the true goal of Operation Choke Point is to target industries deemed objectionable by the Administration.

“Operation Choke Point is the Justice Department’s newest abuse of power,” Issa said. “If the administration believes some businesses should be out of business, they should prosecute them before a judge and jury.  By forcibly conscripting banks to do their bidding, the Justice Department has avoided any review and any check on their power.”

On January 8, 2014, Chairman Issa and Subcommittee Chairman Jordan requested documents and communications related to Operation Choke Point.

The report is available here.

First appendix of documents here.

Second appendix of documents here.

Key Findings

  • Operation Choke Point was created by the Justice Department to “choke out” companies the Administration considers a “high risk” or otherwise objectionable, despite the fact that they are legal businesses.  The goal of the initiative is to deny these merchants access to the banking and payments networks that every business needs to survive.
  • Operation Choke Point has forced banks to terminate relationships with a wide variety of entirely lawful and legitimate merchants.  The initiative is predicated on the claim that providing normal banking services to certain merchants creates a “reputational risk” sufficient to trigger a federal investigation.  Acting in coordination with Operation Choke Point, bank regulators labeled a wide range of lawful merchants as “high-risk” – including coin dealers, firearms and ammunition sales, and short-term lending.  Operation Choke Point effectively transformed this guidance into an implicit threat of a federal investigation.
  • The Department is aware of these impacts, and has dismissed them.  Internal memoranda on Operation Choke Point acknowledge the program’s impact on legitimate merchants.  Senior officials informed Attorney General Eric Holder that as a consequence of Operation Choke Point, banks are exiting entire lines of business deemed “high risk” by the government.
  • The Department lacks adequate legal authority for the initiative.  Operation Choke Point is being executed through subpoenas issued under Section 951 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.  The intent of Section 951 was to give the Department the tools to pursue civil penalties against entities that commit fraud against banks, not private companies doing legal business.  Documents produced to the Committee demonstrate the Department has radically and unjustifiably expanded its Section 951 authority.
  • Contrary to the Department’s public statements, Operation Choke Point was primarily focused on the payday lending industry.  Internal memoranda and communications demonstrate that Operation Choke Point was focused on short-term lending, and online lending in particular.  Senior officials expressed their belief that its elimination would be a “significant accomplishment” for consumers.

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