Oversight Panel: Operation Choke Point Hurts Small Businesses

Friday, 30 May 2014 11:51 AM

By Sandy Fitzgerald

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Legitimate small businesses are being hurt by an Obama administration program that "chokes out" businesses it deems "high-risk," a House panel said, according to The Washington Times.

"Operation Choke Point" targets businesses the administration finds objectionable, including gun dealers, payday lenders and pornography sellers, according to a staff report by the House Committee on Oversight and Government Reform. The program is an effort to combat credit card fraud.

"Operation Choke Point is the Justice Department's newest abuse of power," said Oversight Committee Chairman Rep. Darrell Issa, R-Calif. "If the administration believes some businesses should be out of business, they should prosecute them before a judge and jury. By forcibly conscripting banks to do their bidding, the Justice Department has avoided any review and any check on their power."

Former House Speaker Newt GIngrich wrote in an article for Newsmax that initiative was devised by the Justice Department, the Federal Deposit Insurance Corp., the Consumer Financial Protection Bureau and other agencies initially to target payday lenders.

"Officials approached banks and third-party payment processors, advising them that they could be held accountable if regulators concluded that any of their customers (the payday lenders) engaged in illegal behavior," Gingrich writes. "The feds suggested ominously that banks ran a 'reputational risk' if they serviced such clients."

The Oversight Committee said Attorney General Eric Holder was told that the operation was also hurting other small businesses, as banks started to drop them as well.

In one internal note, The Washington Times said, Justice crafted talking points for Holder, stating that the department "also learned from industry sources that many banks are taking note of our activity and that of the regulators and doing what they should have done all along — due diligence to know their customers. Some are also exiting 'high-risk' lines of business."

As a result, several gun retailers have been affected, including Powderhorn Outfitters of Hyannis, Mass., which was dropped by TD Bank after doing business together for 36 years.

Bank spokeswoman Erin Potts told the newspaper her company "evaluates each prospective lending relationship to ensure that we are operating within our risk appetite and only taking risks we can understand and manage."

Justice Department spokeswoman Emily Pierce said banks are only investigated that violate federal law.

"When financial institutions choose to process transactions, even though they know the transactions are fraudulent or are willfully ignorant of that fact, they are breaking federal law, and we will not hesitate to hold them accountable," Pierce said.

Some House members are fighting back. Republican Reps. Blaine Luetkemeyer of Missouri and Mick Mulvaney of South Carolina on Thursday proposed an amendment to the Justice Department's appropriation bill barring funds from the Choke Out effort.

In addition, the National Shooting Sports Foundation, which has met with the House Committee on Financial Services and members of the Oversight and Government Reform Committee, issued a statement on Thursday saying many of its members have been harmed by the initiative.

"We respect the right of financial institutions to make business decisions based on objective criteria," the organization said. "It is unacceptable, however, to discriminate against businesses simply because they are engaged in the lawful commerce of firearms, an activity protected by the Second Amendment."

In 2011, the FDIC told banks to scrutinize their customers using payment processors such as PayPal for credit card sales, and named gun dealers, coin sellers, tobacco dealers, drug paraphernalia shops and more as "high-risk" businesses.

Since that time, the Justice Department has issued more than 50 subpoenas to banks and payment processors.

The oversight report also questions whether Operation Choke Point is legal.

"[It] was intended to help the department defend banks from fraud; instead, the department is using it to forcibly conscript banks to serve as the 'policemen and judges' of the commercial world," the report says.

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