A long-awaited burst of reason entered the debate over Operation Choke Point last week when the Federal Deposit Insurance Corporation (FDIC) and the U.S. Department of Justice (DOJ) pledged to investigate the initiative. The announcement is partial vindication for companies that, like mine, have spoken out against this unfair and poorly conceived Obama administration vendetta against legal businesses.
On Friday, U.S. Rep. Blaine Luetkemeyer (R-Mo.) revealed that both the FDIC and the Justice Department have promised to investigate Operation Choke Point. The move comes in response to letters from more than 30 members of Congress to FDIC Acting Inspector General Fred Gibson, DOJ Inspector General Michael Horowitz and Robin Ashton, head of DOJ’s Office of Professional Responsibility. According to Luetkemeyer, the probe will determine if any laws or regulations were broken and whether or not a senior FDIC official provided false information to Congress.
Operation Choke Point, which originally was launched to identify fraud or other illegal activities and punish the wrongdoers, instead has been targeting some 30 industries the administration has political or philosophical disagreements with, or which it believes pose “reputational risk” to U.S. financial institutions. Along with industries such as dating services, telemarketing, guns and ammunition, and tobacco, my industry of consumer lending has been unjustly singled out for destruction. Instead of identifying and prosecuting illegal operations or those who have committed fraud, the administration is leaning heavily on banks to cease all business with short-term lenders, whether they’ve done anything wrong or not.
This hostility toward legitimate businesses threatens the very people the administration and its regulators are sworn to protect. My customers typically earn $30,000 to $50,000 per year. They have been abandoned by other financial services entities such as banks and credit unions, which have decided it’s too costly or too risky to serve this population’s need for short-term loans during cash-flow emergencies. In contrast, our customers know that when they face a financial crunch between paychecks, we will lend them a small sum of money to get them through their hard times and allow them to pay it back when they get paid.
The need for our services is borne out by the FDIC’s own numbers. In its recently released 2013 survey of unbanked and underbanked households, the FDIC found that nearly 25 million households were underbanked and that a quarter of all households have used at least one alternative financial service – such as nonbank check cashing or small-dollar loans – in the last year. The report underscores the need for diverse financial services that include both banks and nonbanks alike.
It’s important to note that my industry and I have been strong proponents of federal regulatory enforcement against unlicensed, offshore lenders operating illegally and other lenders who provide risky online services where they are not properly licensed. I personally advocated for better policing of these bad actors – who not only have hurt ordinary Americans but my industry’s reputation. Operation Choke Point, however, puts little emphasis on punishing wrongdoers. Instead, it is designed to eliminate entire, legal industries.
An increasing number of both Democrats and Republicans recognize that the real choke point falls upon the 60 million people who rely on short-term consumer lending. In recent months, legislative committees such as the House Committee on Financial Services and the House Judiciary Committee have held important hearings on this matter. A growing number of those on both sides of the aisle are beginning to think like U.S. Rep. Brad Sherman, a California Democrat who in July told FDIC Acting General Counsel Richard Osterman that “Your examiners are putting pressure on banks to do to certain U.S. businesses what I spend most of my time trying to get done to the government of Iran.”
The FDIC and the Justice Department should be applauded for launching an investigation of Operation Choke Point, though only time will tell the fate of this dishonest initiative. In the meantime, my company and industry will continue serving the millions of Americans who appreciate and rely upon us to help them manage their financial lives when no one else will.