The End of Operation Choke Point: More Questions Than Answers
The U.S. Department of Justice (DOJ) finally declared an end to Operation Choke Point, the Obama-era initiative that sought to eliminate legitimate short-term lenders’ access to the banking system through the coordinated backroom dealings of the DOJ, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC). This long-overdue move was followed by a letter from Acting Comptroller of the Currency Keith Noreika “rejecting the tactics and goals” of this prime example of government overreach.
However, even with the announcement of its end at DOJ, a few important questions about Operation Choke Point remain unresolved, particularly as the Consumer Financial Protection Bureau (CFPB) puts the finishing touches on its short-term lending rule, which stands to have even more significant consequences for regulated lenders.
What is being done to ensure that banking regulators follow the DOJ’s lead to officially end Operation Choke Point and to provide relief for affected companies?
Operation Choke Point resulted in Advance America’s loss of more than 20 banking relationships, and other short-term lenders and companies in a variety of legal industries deemed questionable by the Obama Administration endured similar consequences, affecting their ability to serve their customers. Prudential banking regulators must assure banks that there should be no reservations to resuming business with regulated, legal industries such as short-term lending.
Will there be any repercussions for those who masterminded Operation Choke Point?
Many of the bureaucrats behind Operation Choke Point remain in government positions, particularly at the FDIC. As documented in a House Oversight and Government Reform report and the FDIC Inspector General’s report, these individuals very clearly allowed their personal disdain for and bias against short-term lending to motivate their regulatory actions. Operation Choke Point and the CFPB’s rulemaking process suggest a toxic culture within government agencies, which has empowered officials to unjustly attack and disadvantage legal businesses out of personal animus. This culture is no doubt in part due to the revolving door between agencies such as the FDIC and CFPB and activist organizations.
To what extent did the CFPB coordinate with the agencies involved in Operation Choke Point?
It seems more than coincidence that just as the CFPB was researching and preparing its short-term lending rule, the Obama Administration’s DOJ, FDIC, OCC, and Federal Reserve deployed an effort designed to cut off these very same regulated lenders’ access to the banking system - a necessity for any business’s operations, but especially for retail financial services companies. CFPB Director Richard Cordray dodged Congressional inquiries about the CFPB’s knowledge of and involvement in Operation Choke Point, but the CFPB did use Choke Point-like measures in going after the payment processors for debt collectors. On Friday, a U.S. District Court judge dismissed the CFPB’s lawsuit against the payment processors, saying the Bureau acted in “bad faith” and demonstrated a "willful disregard" for, and "an unwillingness to comply" with, court instructions. The case was widely seen as an example of overreach by the CFPB. The judge’s ruling serves as a stinging rebuke of the Bureau’s conduct.
Oversight from government agencies’ independent inspectors general exposed the illegal practices of Operation Choke Point. The CFPB doesn’t have its own inspector general, nor is it subject to Congressional oversight. Meanwhile, in just the latest example of activist groups’ regulatory capture of the CFPB, The Wall Street Journal reports that the Bureau has decided to short circuit its rulemaking, and will narrow the scope of its short-term, small-dollar lending rule to focus only on two-week payday loans. This approach, designed to expedite the rule’s issuance, was first urged by activist Michael Calhoun of the Center for Responsible Lending in a May 18, 2017 ex parte meeting, and comes as rumors fly about Director Cordray’s potential plans to leave the CFPB in the coming days to declare his candidacy for governor of Ohio.