The release this week of a new House Oversight and Government Reform Committee staff report into Operation Choke Point provides another opportunity to underline just how egregious the behavior of executive agencies has been in this matter. As I outline in my in-depth report from earlier this year, Operation Choke Point has been a freelance operation by rogue members of staff at the Justice Department and the Federal Deposit Insurance Corporation (FDIC) in particular aimed at killing off industries they suspect might have high levels of fraud, on the grounds that they present “reputational risk” to financial institutions they do business with. It represents an end-run around all established legislative and judicial processes required by the constitution. As such it should be terminated immediately.
The new report focuses particularly on the actions of FDIC officials, as revealed in their own words through e-mails obtained by the committee. For instance, the report found that, “Personal animus towards payday lending is apparent throughout the documents produced to the Committee. Emails reveal that FDIC’s senior-most bank examiners “literally cannot stand payday,” and effectively ordered banks to terminate all relationships with the industry.”
The actions of FDIC officials also violated basic ethical standards. As the report found, “In a particularly egregious example, a senior official in the Division of Depositor and Consumer Protection insisted that FDIC Chairman Martin Gruenberg’s letters to Congress and talking points always mention pornography when discussing payday lenders and other industries, in an effort to convey a ‘good picture regarding the unsavory nature of the businesses at issue.’”
One of the Congressional leaders in holding the executive’s feet to the fire over this issue has been Rep. Blaine Luetkemeyer (R.-Missouri). Yesterday, he met with FDIC Chairman Martin Gruenberg, and according to the Congressman the Chairman promised to take action to rein in his rogue staff.
As Rep. Luetkemeyer said in a letter sent today to Chairman Gruenberg,
“There is neither doubt nor denial that numerous members of your senior staff have allowed personal and political views to interfere with the important work of the FDIC. Their actions have not only called into question their ability to appropriately carry out their duties, but also have exposed your entire agency to what many of your staff would refer to as significant ‘reputational risk.’”
As I suggested in my report, it is most appropriate for agency heads like Chairman Gruenberg and Attorney General Eric Holder (or his successor) to discipline staff abusing executive power delegated to them. Chairman Gruenberg’s actions will help us to determine if America is still, as John Adams put it, a nation of laws, not of men.
In the meantime, Rep. Luetkemeyer deserves our congratulations for his actions and leadership, and the new Congress should carefully consider his new bill, the Financial Institutions Consumer Protection Act, which explicitly forbids ordering account terminations on the basis of “reputational risk” alone, and dictates that regulators need material reason, not just suspicion or prejudice, to order an account termination.