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Internal memos and emails show that the controversial probe was not exclusively focused on payday lending. At the same time, Justice officials did not think it was their problem if lawfully operating payday lenders lost their banking relationships as a result of the investigation.
May 30 -
House Financial Services Committee Chairman Jeb Hensarling is challenging the idea that regulators should restrict banks' activities based on a judgment about the potential harm to their reputations.
May 23 -
Bankers have complained that the federal government's crackdown on their relationships with payday lenders and other merchants has gone too far, but Justice officials said in a blog post that banks that abet fraudsters' use of the payment system should be punished.
May 8
WASHINGTON Lawmakers are ramping up pressure on the Justice Department and banking regulators to curtail Operation Choke Point, including prepping legislation that would grant institutions a safe harbor in certain circumstances.
The draft bill by Rep. Blaine Luetkemeyer, R-Mo., is still in the early stages of development, but shows the increasing frustration that bankers and many House Republicans have with the law enforcement program, which is designed to choke off fraudsters' access to the payment system.
Banks have complained that regulators are effectively forcing them to deny financial services to many legitimate businesses in an effort to target bad actors.
In an interview, Luetkemeyer said he is hopeful that regulators will craft a safe harbor to law-abiding banks and related businesses protecting them from the crackdown. But he is prepared to step in with legislation if regulators can't or won't act.
"We're going to continue to work with DOJ and especially the [Federal Deposit Insurance Corp.], because we feel that if the FDIC puts a safe harbor in place, the other regulators will fall behind them," said Luetkemeyer in a recent interview. "But if they don't, we'll put some legislation together we're working on that as we speak."
The bill's chances are unclear, particularly given that it's uncertain when it would be introduced and that the legislative environment is incredibly tough in the run-up to mid-term elections in November.
Still, banking industry representatives said it is an important step to get the Justice Department and other regulators to realize the impact Operation Choke Point is having on them.
"If the banking agencies and DOJ don't back off, I really do think Congress will step in and take action," said Camden Fine, president and chief executive of the Independent Community Bankers of America. "What may have started out as something well intentioned has morphed into this out-of-control entity that is just wreaking havoc among many banks and legitimate businesses."
Lawmakers have already taken several tentative steps to address Operation Choke Point in other areas.
Financial Services Committee Chairman Jeb Hensarling, R-Texas, penned a letter to bank regulators last month raising questions about the probe, and the Oversight and Government Reform Committee last week issued a highly critical report, warning that officials have overstepped their legal authority.
The House also approved an amendment last week to the appropriations bill for the Department of Justice, mandating that none of the funds made available for the agency be used to carry out Operation Choke Point.
"I just think those types of efforts are going to thrive until folks are satisfied," said James Ballentine, executive vice president of congressional relations and political affairs for the American Bankers Association.
The "no funds" measure was spearheaded by Luetkemeyer, a former banker and bank examiner, who said he is still working out the details of his safe harbor proposal. He said it would be patterned like other safe harbor provisions.
"I believe it's necessary to have a safe harbor for the banks and the businesses doing business with those banks that want to continue their relationship, as long as they are behaving in a legal fashion," he said. "Safe harbor only provides protection as long as you are within the confines of the law that are within the prescribed tenants of that safe harbor."
But representatives from the Justice Department underscored that the operation is already intended to focus solely on those involved in illegal activity.
Emily Pierce, a spokeswoman for the Justice Department, said that the department "only investigate[s] banks and third-party payment processors suspected of violating federal law."
"When financial institutions choose to process transactions, even though they know the transactions are fraudulent or are willfully ignorant of that fact, they are breaking federal law and we will not hesitate to hold them accountable," she added.
The FDIC has conducted its own separate program examining bank relationships with third-party vendors that has also drawn criticism from the industry. But a spokesman for the agency, Andrew Gray, emphasized that it was not trying to impede the provision of banking services to legitimate businesses.
"The FDIC has issued a policy statement clearly stating that financial institutions that properly manage relationships and effectively mitigate risks are neither prohibited nor discouraged from providing banking services directly or through payment processing services to customers operating in compliance with applicable federal and state law," Gray said. "Financial institutions that have appropriate systems and controls will not be criticized for providing payment processing services to businesses operating in compliance with applicable law."
Analysts, meanwhile, noted that overall increasing scrutiny from Congress could impact the probe in several ways, including forcing DOJ to defend its efforts in a more public manner.
"There has not been a public relations campaign on this and I think that's going to change," said Mark Calabria, director of financial regulation studies at the Cato Institute. "The ability of DOJ to do this in the shadows is lessened. DOJ is going to have to make fairly stronger public arguments in defense of their position in trying to rationalize this."
The Justice Department, for example, published a
Efforts by Congress to introduce legislation or otherwise curtail Operation Choke Point also puts regulators and law enforcement on notice, Calabria added, though he noted it's unlikely such actions will end the crackdown all together.
"They're really just going to try to soft-pedal on this not back off, but be more selective about who they're going to go after," he said.
The ability to influence agency action at the margins is particularly crucial in the current political environment, given the difficulties of passing legislation through either or both chambers of Congress.
"From a practical perspective, it appears that the Justice Department and the bank regulators believe they are on safe footing when it comes to pursuing Operation Choke Point," said Isaac Boltansky, an analyst at Compass Point Research & Trading. "I think there's going to be a considerable amount of headlines coming from Capitol Hill in the weeks and months ahead, but it's incredibly doubtful that any legislation will pass this Congress."
