Report: FDIC Senior Officials Acted on Personal Animus against Legal Businesses

Published: Dec 8, 2014

The House Oversight and Government Reform Committee today released a new report, “Federal Deposit Insurance Corporation’s (FDIC) Involvement in ‘Operation Choke Point,” detailing the agency’s close relationship with the Department of Justice (DOJ) to effectively target legal businesses the administration deemed morally objectionable. Documents produced to the Committee reveal that the DOJ actively partnered with the FDIC in the prosecution of Operation Choke Point. FDIC’s participation in Operation Choke Point included requests for information about the investigation, discussions of legal theories and the application of banking laws, and the review of documents involving FDIC-supervised institutions obtained by DOJ in the course of its investigation. FDIC also originated the list of “high risk” industries included in the DOJ subpoenas. Documents provided to the Committee also show that senior leadership at the FDIC opposed certain industries on purely moral grounds.

The Committee released a report on the preliminary findings of its investigation into the Department of Justice’s actions in May of 2014.

“It’s appalling that our government is working around the law to vindictively attack businesses they find objectionable,” said Chairman Issa. “Internal FDIC documents confirm that Operation Choke Point is an extraordinary abuse of government power. In the most egregious cases, federal bureaucrats injected personal moral judgments into the regulatory process. Such practices are totally inconsistent with basic principles of good government, transparency, and the rule of law.”

Key findings in the report:

·  The Federal Deposit Insurance Corporation, the primary federal regulator of over 4,500 banks, targeted legal industries.  FDIC’s explicitly intended its list of “high-risk merchants” to influence banks’ business decisions.   FDIC policymakers debated ways to ensure that bank officials saw the list and “get the message.”

· Documents produced to the Committee reveal that senior FDIC policymakers oppose payday lending on personal grounds, and attempted to use FDIC’s supervisory authority to prohibit the practice.  Personal animus towards payday lending is apparent throughout the documents produced to the Committee.  Emails reveal that FDIC’s senior-most bank examiners “literally cannot stand payday,” and effectively ordered banks to terminate all relationships with the industry.

·  In a particularly egregious example, a senior official in the Division of Depositor and Consumer Protection insisted that FDIC Chairman Martin Gruenberg’s letters to Congress and talking points always mention pornography when discussing payday lenders and other industries, in an effort to convey a “good picture regarding the unsavory nature of the businesses at issue.”

·  FDIC equated legitimate and regulated activities such as coin dealers and firearms and ammunition sales with inherently pernicious or patently illegal activities such as Ponzi schemes, debt consolidation scams, and drug paraphernalia. 

·  FDIC achieved this via “circular argument” policymaking: there was no articulated justification or rationale for the original list of “high-risk merchants.” Yet a list of “potentially illegal activities” included in FDIC’s formal guidance to banks justified itself by claiming that the categories had been previously “noted by the FDIC.”

Appendix documents are available here.

The May report offered three primary conclusions:

1. Operation Choke Point is an abuse of the Department’s statutory authority.

2. While broadly concerned with all industries deemed “high risk,” the initiative is particularly focused on payday lending.

3. As a consequence of Operation Choke Point, banks are indiscriminately terminating relationships with legal and legitimate merchants across a variety of business lines.

Related Documents

Name Document
Federal Deposit Insurance Corporation’s (FDIC) Involvement in ‘Operation Choke Point’ Document