The CFPB and ‘Operation Choke Point’

Details continue to emerge about “Operation Choke Point,” a Justice Department program targeting businesses that it feels are at high risk for fraud.

Details continue to emerge about “Operation Choke Point,” a Justice Department program targeting  businesses that it feels are at high risk for fraud. The Consumer Financial Protection Bureau spearheads the program through its regulation of banks and lending institutions that serve these businesses. A letter from the CFPB can “choke off” the ability of these businesses to conduct financial transactions, and thereby close them down.

The Federal Deposit Insurance Corporation in 2014 listed several business enterprises that it considered high risk. Among these were entities that have been part of highly-publicized CFPB action in the past several months, including providers of pre-paid credit cards and payday loans. However, the CFPB has also quietly been active working with the DOJ against online retailers of firearms and ammunition, tobacco products, surveillance equipment and other legal products and services.

An article last month revealed CFPB action against a tobacco-product retailer and a new business selling guns and ammunition. In both cases, the companies received letters from their banking institutions notifying them that their accounts would be closed, and both institutions, a credit union and a large bank, told the business operators that Operation Choke Point was the reason. Under its authority to regulate the financial industry, the CFPB had instructed these banking institutions that they could not process transactions relating to tobacco or firearms, even though the retailers were operating legally.

Last year, the DOJ gave an Operation Choke Point presentation to a conference of bank examiners that boasted of “more than 50 subpoenas” issued to banks and payment processors and “several active criminal and civil investigations.” As a result of pressure applied through the CFPB, the DOJ stated “banks are self-disclosing problematic relationships… and terminating relationships.”

Push back against Operation Choke Point has been growing. Late last year, both the FDIC and the Justice Department launched investigations of Operation Choke Point after reports in the Wall Street Journal and other outlets reported on a scathing House Oversight Committee report. Earlier this year, the FDIC sent a letter to all supervisory staff stating that decisions on accounts need to be made on an individual basis and not based on “industry or moral objection.” This week, the U.S. House passed the “Bureau of Consumer Financial Protection Advisory Boards Act,” which is designed to reign in the CFPB’s authority by requiring input from regulated industries and affected businesses. The bill, which is a direct answer to Operation Choke Point, goes to the Senate this week for consideration.

Fredrikson & Byron Law