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

Key findings:

·  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.