“Operation Choke Point” Targets Legal Businesses, Harms American Consumers

New CEI Report Offers Policy Recommendations to Rein in Overzealous Regulators

Washington, D.C., July 31 – A new Competitive Enterprise Institute report digs into a campaign by federal regulatory agencies to shut down businesses that are politically disfavored but perfectly legal, under the pretext of preventing fraud.

“Operation Choke Point targets perfectly legal industries by designating them high-risk, which in turn has a chilling effect on the willingness of banks to do business with them,” said Iain Murray, author of “Operation Choke Point: What It Is and Why It Matters.”

“The administration is not investigating fraudulent activity; it is investigating and targeting certain industries and asking banks to do its work for it. Choke Point is the world’s largest fishing expedition and the administration is using it to create fear and uncertainty.”

Murray was one of the first people to detail Operation Choke Point in a January National Review article. The report includes a comprehensive timeline of the development of Choke Point dating back to 2011, as well as policy recommendations for Congress to rein in overzealous regulators.

“Policy makers should weigh Operation Choke Point’s few successes in stopping fraudsters against its significant adverse effects for American consumers,” said Murray. “The primary victims are often low-income customers of legal businesses who will lose the ability to access services they want, like, and rely upon. The Dodd-Frank Act has already made banking unaffordable for some, and now Choke Point is taking away millions of unbanked Americans’ only other means to finance their American Dream.”

Murray offers Congress policy recommendations to rein in Operation Choke Point. Among them are:

  • Congress should refuse to allow any funds to be used for Operation Choke Point unless the Attorney General requests funds through the appropriations process for the purpose of enhanced fraud deterrence.
  • Congress should remove the burden of criminal investigative duties from banks and amend Dodd-Frank and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 to make clear that “deputizing” third parties in that way is not an appropriate regulatory action.

Operation Choke Point is a joint effort by several agencies, including the Department of Justice (DOJ), Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), ostensibly aimed at curtailing fraud in a certain “high-risk” industries, which regulators identify through high rates of returns, cancellations, or complaints. Payday lending is a particular target, but other industries include: the gun industry, ammunition sales, cable box de-scramblers, coin dealers, credit repair services, home-based charities, lottery sales, and many others.

In a six-month status report, issued on September 9, 2013, the government acknowledged Choke Point might be deterring banks from dealing with legitimate lenders.

View the report: Operation Choke Point: What It Is and Why It Matters