Operation Choke Point abandoned, but CFPB tactics remain

The Department of Justice announced last week it was formally closing Operation Choke Point, a controversial regulatory program quietly undertaken in 2011.

The Department of Justice announced last week it was formally closing Operation Choke Point, a controversial regulatory program quietly undertaken in 2011.

In a letter sent to the House Judiciary Committee, the DOJ called the project “misguided.”While the announcement will be welcomed by many in the financial services industry, one entity that enthusiastically used the tactics of Operation Chokepoint, the Consumer Financial Protection Bureau, has shown no change.

Operation Choke Point ostensibly used legal and regulatory pressure to “choke off” the financial oxygen for businesses that were exploiting consumers. The program, though, had a far wider effect. Early subpoenas issued to banks had attached a guidance document from the FDIC that warned banks to consider “reputational risk” in their banking relations. The list of industries that could engender such risk included firearms sales, pornography and payday lending. These businesses were not illegal but had drawn the ire of the Obama administration. Many regulated entities responded by cutting off relationships with all these businesses, even ones with whom they had long and trouble-free histories.

Though the CFPB is not mentioned in any Operation Choke Point memorandum, the bureau was an energetic adopter of the program’s tactics. In 2015, the CFPB filed a massive lawsuit against more than a dozen debt collectors that the agency said failed to stop fraudulent collection tactics. The collectors were engaged in debt settlement agreements, a service the CFPB has found dubious. Significantly, the CFPB also sued several payment processors, including worldwide processor Global Payments, because the agency said they “should have known” about the alleged violations.

The case is one of the CFPB’s largest to date and seeks to punish entities that were not directly involved in the alleged harassment of consumers. Rather, these entities were simply business partners for companies regulated by the CFPB.

“Global Client Solutions made it possible for debt-settlement companies across the country to charge consumers illegal fees,” CFPB Director Richard Cordray said at the time. “Consumers struggling to pay off a debt are among the most at risk and deserve better. We will continue to crack down on illegal debt-settlement firms and the companies that help these operations collect illegal fees.”

Both the FDIC and the Office of Comptroller of Currency have joined the DOJ in repudiating Operation Choke Point. The CFPB, which has the right to both bring regulatory actions and to instruct entities that they tell no one they are under investigation, has yet to do so.

Fredrikson & Byron Law