Last Friday, Advance America and the Community Financial Services Association of America (CFSA) amended its lawsuit against federal regulators over Operation Choke Point, the backdoor government program to choke off legitimate short-term lenders’ and other businesses’ access to the banking system.
The agencies have not ended Operation Choke Point, as they claim, but rather have expanded their ideological campaign to end short-term lending. This expansion of Operation Choke Point is in sharp contrast with FDIC Chairman Martin Gruenberg’s recent testimony before the House Financial Services Subcommittee on Oversight and Investigations.
Chairman Gruenberg admitted that his agency’s actions – specifically its “hit list” of targeted industries –“was a mistake on our part.” His testimony did little to assuage small business owners, national consumer lenders such as Advance America, or anyone else who was caught in the cross-hairs of Operation Choke Point. In fact, Gruenberg only left more questions about Operation Choke Point unanswered:
1. Is Operation Choke Point over?
Gruenberg listed changes made – under pressure from Congress – to prevent a repeat of the abuses of Operation Choke Point. But those changes are to be implemented by the same officials who Gruenberg said violated agency policy in the first place. An order to cut off banking access now requires the approval of a regional supervisor – like the one who wrote to a bank’s Board of Directors “that activities related to payday lending are unacceptable for an insured depository institution,” and who remains in his position today.
Rep. Mick Mulvaney noted, “I have had information come to me as recently as last week that not only has Choke Point not stopped, it is expanding.” As Advance America and CFSA’s amended complaint clearly documents, banks continue to close legal lenders’ accounts and to attribute those closures to Operation Choke Point’s campaign of coercion. And, the government has now pressured credit reporting company Early Warning Services to cut off lenders’ access to account data used to evaluate borrowers’ ability to repay their loans. This is an interesting development given the Consumer Financial Protection Bureau’s (CFPB) recent proposal to require lenders to consider ability to repay.
2. Why have no FDIC officials been held accountable?
When pressed by Chair Sean Duffy and other subcommittee members, Gruenberg admitted that high-ranking FDIC officials violated the agency’s official policy, inserting their personal disdain for payday lending into their regulatory guidance. Gruenberg says that he is waiting for an inspector general report – a report the FDIC only requested at Congress’ urging – before taking any action against these officials. However, he has written proof of their actions, which he has testified were inconsistent with agency policy. Has the FDIC only ever disciplined employees after receiving an IG report? If not, what are they waiting for?
3. What level of coordination is there between the FDIC and the White House?
The White House has clearly indicated its ideological bias against small-dollar consumer lenders. And we know from the mounting revelations about the Net Neutrality rulemaking that the Administration has exercised influence over allegedly independent regulatory agencies before. According to Chair Duffy, the White House Counsel’s office raised objections to the FDIC’s former general counsel cooperating with his investigation. What is the extent of the White House involvement with the FDIC and other agencies at the center of Operation Choke Point?
4. How will the government repair the damage inflicted upon legitimate businesses by Operation Choke Point?
Allison Deguisne, the owner of a small payday lending chain who attended the hearing, told the Washington Times, “My retirement is gone. I have nothing to sell of the business.” Even if the FDIC has ended the abuses of Operation Choke Point, how will they restore the banking relationships lost for those businesses that managed to survive? What will they do to remunerate Ms. Deguisne and others who had their livelihood taken away?
Combined with the CFPB’s proposed regulations on payday lending, it is clear that elitist Washington bureaucrats are on an ideological crusade to eliminate small-dollar, short-term credit products, along with other products and services it finds objectionable.