Operation Choke Point: Life Imitating Arts

Category: Short-term Lending Published: Sunday, 28 February 2016 Written by Super User

Life imitates art far more than art imitates Life. So said Oscar Wilde.

The Obama administrations scorn for due process is exemplary.

In Chapter III of Alices Adventures in Wonderland, Mouse relates a long and sad tale of his history and encounter with Fury. Let us both go to law: I will prosecute you, the Fury responds. When Mouse observes that a trial would be futile without a judge and jury, Fury retorts: Ill be judge, Ill be jury...Ill try the whole case, and condemn you to death.

Alices Adventures were apparently the inspiration for Department of Justices Operation Choke Point.

As revealed in a 2014 Staff Report of the House Committee on Oversight and Government Reform, the program would be envied by the Fury.

The Department decides whether a legal industry skates to close to the line. Since close is in the eyes of the beholder, Operation Choke Point leaves the Department with limitless discretion.

Its prime target is the short-term lending industry that is as legal as selling gasoline. Other targets include online tobacco, firearms, ammunition, or pharmaceutical sales.

After an industry is identified, the Department issues subpoenas to federally regulated banks under section 951 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 for records of members searching for evidence of mail or wire fraud. The banks are encouraged to shut down accounts marked as questionable by the Department without notice to the holder or an opportunity to respond.

Compliance is typically forthcoming. Banks are hostage to the regulatory state. Their financial fate is in the hands of federal regulators. Why would they risk an expensive lawsuit or audit headaches with federal overseers like the FDIC, the Federal Reserve Board, or the Comptroller of the Currency over a single or few high maintenance accounts?

An inability to maintain a bank account, however, is the death knell for many companies. Thus, like Alices Fury, the Department plays judge, jury, and prosecutor in Operation Choke Point to wreak financial destruction on members of targeted industries.

Two samples of bank termination letters to licensed money service businesses and lenders illustrate the success of the Departments friendly persuasion:

*Bank of America: [W]e reviewed the nature of your business in light of current regulatory trends affecting your industry. After careful consideration weve decided to close your existing Small Business checking account....

*Bank of Hawaii: Bank of Hawaii has made a business decision to close your above-referenced business deposit accounts. The primary reason for this account closure is the Banks increasing business expenses involved with servicing this type of account for a customer that operates as a money service business and/or payday lender.

Operation Choke Point de facto makes banks agents of the government. That makes bank terminations of blacklisted accounts without due process constitutionally suspect under the Supreme Courts ruling in Bantam Books v. Sullivan (1963). In that case, the Court condemned as unconstitutional censorship the practice a State Commissions practice of sending book distributers a list of forbidden books whose distribution should cease if they wished to avoid the risk prosecution. The distributors predictably dropped all books on the list without any notice or opportunity to the book publishers to defend them as protected under the First Amendment.

Representative Blaine Luetkemeyer (R-Mo) and Jeb Hensarling (R-Tx) deserve credit for introducing the Financial Institution Customer Protection Act of 2015 (HR 766) to diminish Operation Choke Points due process shortcomings. It would prohibit federal banking agencies from requesting a depository institution to terminate a specific customer account or group of customer accounts absent a material justification beyond the reputational risk of the customers industry. Under the bill, all banking agency requests would be in writing, and would delineate the need the account termination and any suspected violations of laws or regulations by the account holder.

HR 766 would be a constructive first step towards inserting due process into Operation Choke Point and making it less like a page from Alices Adventures.



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