The Daily Caller

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US Attorney General Eric H. Holder testifies during a hearing of the House Judiciary Committee on Capitol Hill May 15, 2013 in Washington, DC. Holder and other members of the Obama administration are being criticized over reports of the Internal Revenue Services US Attorney General Eric H. Holder testifies during a hearing of the House Judiciary Committee on Capitol Hill May 15, 2013 in Washington, DC. Holder and other members of the Obama administration are being criticized over reports of the Internal Revenue Services'(IRS) scrutiny of conservative organization's tax exemption requests and the subpoena of two months worth of Associated Press journalists' phone records. AFP PHOTO/Brendan SMIALOWSKI (Photo credit should read BRENDAN SMIALOWSKI/AFP/Getty Images)  

Issa suspects Eric Holder is illegally targeting online lending

House Oversight Committee Chairman Darrell Issa launched a probe Thursday into Attorney General Eric Holder’s crusade against online payday lenders and payment processors.

The California Republican suggested Holder’s Justice Department is illegally targeting legitimate businesses under the guise of fraud protection.

In a letter sent to Holder’s office and obtained by The Daily Caller News Foundation, Issa alleges that “Operation Choke Point,” a Justice Department endeavor allegedly designed to protect consumers from online loan sharks, is in fact an effort to destroy the industry as a whole. That includes the vast majority of legitimate payday loan outlets operating online, as well as the third-party payment providers that serve them. (RELATED: GOP lawmakers to Eric Holder: Lay off online lenders)

“The extraordinary breadth of the Department’s dragnet prompts concern that the true goal of Operation Choke Point is not to cut off actual fraudsters’ access to the financial system, but rather to eliminate legal financial services to which the Department objects,” Issa writes. A slew of federal and state agencies have targeted the services since President Obama took office, with many claiming that interest rates are too high and consumers can easily be duped into choosing bad loans.

Issa lays out as evidence a Justice Department slide from a presentation on the core motivation for the investigation. “Cutting off the scammers’ access to the payment systems is relatively efficient and fast, and protects consumers prospectively as we investigate,” the last bullets point reads.

“This admission is stunning in it’s candor,” Issa writes. “It appears the Department has indiscriminately targeted an access point to the financial system that countless legitimate merchants rely upon simply because it is ‘faster’ than targeting the actual perpetrators of fraud.”

The Justice Department has used subpoenas to enact the crackdown, issuing more than 50 to banks and online loan providers. The documents demanded are “wildly over-inclusive” and “wholly inappropriate to trigger a federal investigation,” according to the Oversight Committee letter.

Committee sources allege that attorneys at the Department are threatening to ratchet up investigations against banks that fail to sever all ties to legitimate online loan providers. Some have already ceased operations with the effected businesses.

One bank press release appears to confirm Issa’s suspicions, claiming the inquiries it faces “are part of an industry-wide DOJ investigation of [electronic payment] services providers to payday lenders.”

“The only reasonable inference [from the press release],” Issa writes, “is that the Department informed the bank that the primary target of the investigations is the online lending industry.” He expressed concerns that Holder and his Department were abusing their enforcement authority by targeting an entire, legitimate industry instead of lawbreakers.

“Anyone concerned about NSA overreach should be alarmed by Chokepoint,” said John Berlau, a scholar at the free-market Competitive Enterprise Institute. “DOJ is drafting banks to be spies on perfectly legal activities of Americans.”

Government at both the federal and state level seem determined to stamp out high-interest payday loans, despite the many low-income Americans who rely on the service to fill unexpected gaps in-between paychecks. The Federal Deposit Insurance Corporatiom (FDIC)  is partnering with Justice on Operation Choke Point, while Dodd-Frank agencies like the Consumer Financial Protection Bureau (CFPB) have placed online lenders in their crosshairs. Benjamin Lawsky, New York’s chief financial regulator, has even sent cease-and-desist letters to Native American online loan providers based outside his state, setting up a bitter court battle over tribal sovereignty (RELATED: NY finance official on the warpath against Native American payday lenders).

A Justice Department spokesperson told The Wall Street Journal they have “received the letter and are reviewing it.” The agency has until January 22 to turn over all documents relevant to the operation.

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