Law360: Justice Dept. To End Obama-Era Operation Choke Point

By Evan Weinberger

The U.S. Department of Justice on Wednesday said it is set to end a controversial Obama-era program that sought to cut off scammers from the U.S. financial system but, critics say, ended up targeting payday lenders, gun shops and other businesses that were out of favor with the previous administration.

Assistant Attorney General Stephen E. Boyd said in a letter to House Judiciary Chairman Bob Goodlatte, R-Va., that the Justice Department had closed all cases that sprang from Operation Choke Point, the “initiative was no longer in effect, and it will not be undertaken again.”

“The department is committed to bringing enforcement actions only where warranted by the facts and the applicable law, without regard to political preferences,” Boyd’s letter said.

Critics of the program said that Choke Point, which sought to block banks and other financial firms from giving fraudsters and other criminals access to bank accounts and the payments system, swept up a host of legitimate businesses like payday lenders and firearms dealers. There are also allegations that the Federal Reserve and the Office of the Comptroller of the Currency exerted pressure on the banks they supervise to stop relationships with businesses swept up in Choke Point.

Both regulatory agencies deny the allegations, which are subject to a lawsuit from a group of payday lenders in federal district court in Washington.

According to Boyd’s letter to Goodlatte, that pressure will ease now that Choke Point is over.

“We reiterate that the department will not discourage the provision of financial services to lawful industries, including businesses engaged in short-term lending and firearms-related activities,” the letter said.

The Justice Department opened Operation Choke Point in 2013 by issuing a group of subpoenas. The Federal Deposit Insurance Corp. then set out a list of categories of businesses that could pose a “reputational risk” and should be subject to extra scrutiny by bank staff, drawing the ire of industry and Republican lawmakers.

The FDIC has largely not taken the same kind of criticism that the other two bank regulators have after changing the policy in 2015. That guidance stated that banks should make judgments about their business relationships on a case-by-case basis.

That left the OCC and the Fed taking the brunt of criticism, although both regulators told Congress that they were not applying pressure on banks to drop customers.

Despite the criticism of Operation Choke Point, Boyd’s letter said the responses to some of the subpoenas issued under the program led to the discovery of some criminal activity by individuals and nonbank entities.

“To the extent the department continues to pursue those ancillary investigations, none relates to or seeks to deter lawful conduct,” Boyd’s letter said.

Allied Progress, the liberal group that first released Boyd’s letter, called the decision to end Operation Choke Point a gift to the payday lending industry.

“Ending this program will make it easier for financial predators and other unscrupulous industries to get the resources they need to carry out their deceptive and frequently unlawful business practices,” Karl Frisch, Allied Progress’s executive director, said in a statement.

The Judiciary Committee confirmed that it had received the letter but had no further comment. Goodlatte and other Republican lawmakers had been pushing Attorney General Jeff Sessions to end the initiative.

The Justice Department could not immediately be reached for comment.

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