House Committee Releases Report on FDIC’s Involvement in Operation Choke Point

The U.S. House of Representatives Committee on Oversight and Government Reform released the latest chapter in the investigation into Operation Choke Point earlier today, a 20-page document detailing the involvement of the Federal Deposit Insurance Corporation (FDIC) in a program that was described as violating “the most fundamental principles of the rule of law and accountable, transparent government.”

Since its launch in 2013, Operation Choke Point has been causing numerous retailers across the country to be denied banking services, including at least five premium cigar retailers since late September. The program was launched in what has been described as an attempt to prevent consumer fraud and to deny banking services to illegal businesses, but speculation has suggested that there may be personal vendettas by senior administration officials against certain types of businesses as well.

Among the key findings in the report, it was determined that the FDIC targeted legal industries as part of the operation via “circular agreement” policymaking, as there was no articulated justification or rationale for the original list of high-risk merchants. Additionally, FDIC was found to have used this list of high risk merchants to make sure that banks “got the message” that offering services to a certain group of businesses would carry enormous regulatory risk and the possibility of full-blown investigations.

In other words, the FDIC bullied banks into dropping certain accounts with the threat of lengthy and costly federal investigations.

Additionally, a number of e-mails produced as part of the report showed that senior FDIC officials had personal animus towards payday lenders, and used FDIC’s supervisory authority to try and eliminate them. E-mails released as part of the report reveal that FDIC’s senior-most bank examiners “literally cannot stand payday,” leading for the directive to banks “to terminate all relationships with the industry.” To convey their disdain, directives from a senior FDIC official directed FDIC Chairman Martin Gruenberg to always mention pornography when mentioning payday lenders and other targeted industries, in an effort to convey a “good picture regarding the unsavory nature of the businesses at issue.”

Finally, it was determined that the FDIC did indeed partner with the Department of Justice on Operation Choke Point, and may have misled Congress about this partnership.

While the focus of the report focuses primarily around payday lenders and firearms sales, tobacco retailers get a pair of mentions that chronicle their addition to the list of high-risk retailers. In September 2011, online sales of tobacco products became part of the Financial Institution Letter (FIL) being drafted on the matter, getting lumped in with offshore companies, online gambling-related operations, online payday lenders, credit repair schemes, debt consolidation and forgiveness, pharmaceutical sales and telemarketing entities. In a December 2011 draft, tobacco retailers were put side by side with firearms retailers in a list of high-risk businesses for fraud.

That doesn’t mean that cigar stores aren’t part of the conversation about Operation Choke Point.

In an interview with the Washington Examiner published the same day the report came out, Rep. Darrell Issa, R-Calif., chairman of the House Committee on Oversight and Government Reform, specifically mentions cigar shops as being one of the retailers targeted by the FDIC and Obama Administration under Operation Choke Point. He said that “the FDIC and others are trying to put entities out of business, including payday lenders but also including cigar shops and a host of other companies.”

The report furthers the case of numerous retailers and trade organizations, including the International Premium Cigar & Pipe Retailers Association (IPCPR) in fighting Operation Choke Point.

“The House Oversight and Government Reform Committee has proven what we have suspected throughout our advocacy against Operation Choke Point,” said Kip Talley, senior director of federal legislative affairs for the IPCPR, to halfwheel. “The Department of Justice (DOJ) and Federal Deposit Insurance Corporation (FDIC) have been pressuring banks to cut off financial services and payment processing for businesses they view as ‘high risk’ – including premium cigar stores. The IPCPR will continue to fight for our constituents and educate Members of Congress about this deeply troubling program aimed at small business retailers.”