The U.S. House of Representatives Financial Services Committee approved a bill to prevent government agencies from using regulatory actions to force out business owners working in disfavored industries such as adult entertainment and firearm sales.
The committee approved H.R. 2706, sponsored by U.S. Rep. Blaine Luetkemeyer (R-MO), on November 16, 2017. A vote by the full House has not been scheduled.
The bill would specify “that a federal banking agency may not request or order a depository institution to terminate a customer account, unless the agency has a material reason for doing so and that reason is not based solely on reputation risk.”
Operation Choke Point (OCP) was a U.S. Department of Justice (DOJ) program, first disclosed in 2013, in which Federal Deposit Insurance Corporation (FDIC) auditors and DOJ officials pressured banks to drop some businesses as clients.
DOJ officially terminated OCP in 2017, according to an August 16 letter from DOJ Assistant Attorney General Stephen Boyd to U.S. House Judiciary Committee Chairman Bob Goodlatte (R-VA).
“All of the Department’s bank investigations conducted as part of Operation Choke Point are now over, the initiative is no longer in effect, and it will not be undertaken again,” Boyd wrote.
Preventing Return
Even if DOJ says OCP is over, Luetkemeyer wants to make sure it can’t return, he says.
“We are going to continue to force this issue and press the FDIC, the regulators, and the Department of Justice to continue to do their job,” Luetkemeyer told Budget & Tax News. “Hopefully this nonsense will stop.”
Whistles Blown
Luetkemeyer says business owners alerted him to OCP’s existence.
“We were made aware of this by some of the businesses that were being affected by Operation Choke Point,” Luetkemeyer told Budget & Tax News. “They brought the issue to our attention and said, ‘Hey, we’re being forced out of business, because we can no longer access financial services.’
“We started looking into this, digging into it,” Luetkemeyer said. “The Department of Justice, in cooperation with the FDIC, was targeting banks doing business with a list of industries they felt didn’t have the moral right to exist.”
‘An Excellent Step Forward’
Iain Murray, vice president of strategy for the Competitive Enterprise Institute, says the bill goes to the root cause of such government overreach.
“I think Luetkemeyer’s bill is an excellent step forward,” Murray said. “The trouble with Operation Choke Point is that it is preceded by what we call ‘regulatory dark matter’: off-the-books rulemaking through guidance documents, memos, and things like that.”
Government agencies used such maneuvers to enact unofficial regulatory policies not specified in legislation, Murray says.
“FDIC and the Department of Justice could basically order banks to cut off banking relationships with payday lenders,” Murray said. “Luetkemeyer’s bill would stop that. It says that you need a valid reason to stop banks having banking relationships with payday lenders.”
Other Oxen Vulnerable
Concern over government agencies’ regulatory power should not be a partisan issue, Murray says.
“Every American needs to pay attention, because banking relationships are incredibly important for businesses,” Murray said. “In this case, it was a Democrat administration, so their targets were things like payday lenders, but a Republican administration could use the same tools. They could decide, for instance, that they couldn’t defund Planned Parenthood through the appropriations process, and just make it clear to banks that they don’t want them providing banking services to Planned Parenthood.”
Stopping regulatory overreach should be a universal aspiration, Murray says.
“Whether or not you are in favor of gun sales, on the one hand, or abortion services on the other, you should be really concerned that financial regulators have the power to turn off banking relationships so easily,” Murray said.
