Obama's 'Operation Choke Point' Seeks to Destroy Sectors of Private Lending Industry
Breitbart News has learned that in 2013 the Obama administration launched an under-the-radar project, 'Operation Choke Point,' which is designed to destroy three sectors of the private lending industry: third party payment processors ("TPPPs"), payday lenders, and online lenders.
The operation is headed by political operatives and career bureaucrats at the Department of Justice, the FDIC, and the new Consumer Financial Protection Bureau ("CFPB"). It appears to be the latest example of the Obama administration's successful efforts to weaponize the apparatus of the federal government against people and industries it opposes ideologically.
According to the Wall Street Journal, the federal initiative now known as 'Operation Choke Point' is an outgrowth of the President's Financial Fraud Task Force, established by President Obama by Executive Order in 2009. It also appears to have been kicked off in secret by the Department of Justice, FDIC, and the CFPB in early 2013 without the requisite statutory authority. Officials at the Department of Justice have withheld information about the program from Congress, though they have eagerly shared details with federal financial institution examiners authorized to supervise and discipline the nation's banks and related financial institutions.
On August 22, thirty-one members of Congress sent a letter to Attorney General Eric Holder and FDIC Chairman Martin Gruenberg , requesting a briefing of Congressional staff members on the project, the details of which were so obscure they did not yet know it had obtained the status of a federal initiative and was called 'Operation Choke Point.'
In the letter, which was organized by Congressman Kevin Yoder (R-KS) and Congressman Blaine Luetkemeyer (R-MO), the members of Congress stated "[i]t has come to our attention that the DOJ and the FDIC are leading a joint effort that according to a DOJ official is intended to 'change the structures within the financial system...choking [online short term lenders] off from the very air they need to survive.' "
"We are especially troubled by reports that the DOJ and FDIC are intimidating some community banks and third party payment processors with threats of heightened regulatory scrutiny unless they cease doing business with online lenders," the letter read. "As a result, many bank and payment processors are terminating relationships with many of their long-term customers who provide underserved consumers with short-term credit options," it continued.
The members of Congress warned Holder and Gruenberg that these actions were undertaken by their respective agencies without statutory authority. "Your actions to 'choke off' short-term lenders by changing the structure of the financial system are outside your congressional mandate," they wrote. "With the enactment of the Dodd-Frank Act, Congress acknowledged the need for short-term credit products and did not try to limit online lender's or storefront operators' ability to offer such products."
Congress, they wrote, actually wanted to limit these type of actions."Dodd-Frank also included a specific provision designed to prohibit the Consumer Financial Protection Bureau from imposing rate limitations on short-term loans. Neither Dodd-Frank, nor any other legislation passed by Congress, has given the DOJ/FDIC or any other federal agency the authority to 'take away the very air' that online lenders 'need to survive.' "
The letter closed by requesting a briefing of Congressional staff members on the project by Department of Justice and FDIC officials.
In response to that letter, a Department of Justice official met with Congressional staff members at the Capitol in late September, but refused to answer any questions about the project. Sources with knowledge of the meeting tell Breitbart News that the official also told Congressional staffers that the Department of Justice was under no obligation to tell Congress anything about the program. The official also refused to state her name, which was discovered only after she left her business card on the table as she left the event. Sources tell Breitbart News that the name on the card was Deputy Assistant Attorney General, Consumer Protection Branch Maame Ewusi-Mensah Frimpong.
On Tuesday, Breitbart News contacted Deputy Assistant Attorney General Frimpong to confirm or deny these reports. She responded promptly by email, stating "Thank you for your inquiry. I am referring it to Wyn Hornbuckle, in our Office of Public Affairs. Please follow up with him directly."
Breitbart News followed up with Mr. Hornbuckle, who acknowledged our inquiry but has not yet provided a response.
Though the Department of Justice official identified by Breitbart News's sources as Deputy Assistant Attorney General Frimpong refused to provided details of the under-the-radar operation to Congressional staffers, that same week, on September 17, her subordinate, Department of Justice Trial Attorney Joel M. Sweet (an Assistant United States Attorney in the Eastern District of Philadelphia on detail to the Consumer Protection Branch of the Department of Justice in Washington), was eager to provide specific details of 'Operation Choke Point' to an important meeting of bank examiners held in Northern Virginia and sponsored by the Federal Financial Institutions Examination Council (FFIEC).
According to the FFIEC's website, the organization plays a critical role in influencing the behavior of banks and financial institutions around the country:
The Council is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB) and to make recommendations to promote uniformity in the supervision of financial institutions.
Bank examiners are in key positions to influence the conducts of banks and financial institutions through the application of threats and pressure.
In a presentation to that group, Sweet unveiled the new name for the project, 'Operation Choke Point,' and outlined the accomplishment over the past several months. Sweet revealed that "important steps forward" included "guidance to banks from FDIC, OCC, and FinCen" as well as "Financial Fraud Enforcement Task Force/Consumer Protection Brach efforts to choke-off fraudsters' access to payment systems."
Sweet confirmed that the other agencies involved included "DOJ, FTC, FDIC-OIG, USPIS, [and] the FBI."
Accomplishments of 'Operation Choke Point' to date, Sweet told his audience, included "more than 50 subpoenas issued to banks and TPPPs [and] several active criminal and civil investigations." As a result of this pressure, Sweet stated "banks are self-disclosing problematic TPPP relationships... and terminating TPPP relatonships."
In an exclusive interview with Breitbart News on Monday, Richard Manning, Director of Communications for Americans for Limited Government, criticized the Obama administration's efforts to destroy the payday loan industry. "Their intent," Manning said, "is to create a government sanctioned means of driving private industry out of the business of providing payday loans. They've never shown a great willingness to be restrained by free market principles over the use of government sanctions."
Peter Barden of the Online Lenders Association agrees that the Obama administration's influence on bank regulators has overstepped its legal authority. "It should also send a troubling message to banks that at any point regulators can force them to stop processing legal transactions simply because they don't like a particular merchant or industry," he said.
Third party payment processors, "TPPPs," have become so troubled by the Obama administration's overreach they decided in September to establish their own trade association to fight back.
Marsha Jones, director of the recently formed Third Party Payment Processors Association told ISO & Agent Weekly last month that "small businesses often transact through the accounts of third-party processors, and interrupting their payments would damage the economy."
Jones claims that, due to 'Operation Choke Point' "many banks won't take on such merchants."
In addition, Jones says that "curbing third-party processors would also harm community banks that are too small to maintain the staffing to take on high-risk clients that third-party processors handle."
But the Obama administration's attack on TPPPs and payday loan providers is not limited to providing pressure on bank examiners. Sources tell Breitbart News that a new Consumer Financial Protection Bureau rule designed to crush the payday loan industry is expected to be announced in January.
The abstract of the proposed rule governing Payday Loans and Deposit Advance Products states "[i]n April 2013, the CFPB issued a white paper summarizing the CFPB's initial findings from its analysis of payday loan and deposit advance products. The white paper, which was based on supervisory data, highlighted a number of consumer protection concerns, including consumers' "sustained use" of these short-term, high-cost products. The CFPB is considering whether rules governing these products are warranted under CFPB authorities, and if so what types of rules would be appropriate. Rulemaking might include disclosures or address acts or practices in connection with these products."
At the FDIC, the official in charge of 'Operation Choke Point' is Mark Pearce, a highly partisan operative with ties to Senator Elizabeth Warren (D-MA), the intellectual force behind the Dodd-Frank legislation whose nomination to head up the new Consumer Financial Protection Bureau was withdrawn because Ms. Warren did not have enough political support in the Senate at the time to obtain confirmation.
Pearce was named director of the FDIC's newly created Division of Depositor and Consumer Protection in 2010. According to the agency's press release, "The FDIC Board of Directors approved the creation of the DCP last August to help carry out its responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act."
As the FDIC press release announcing his appointment ackowledges, "Mr. Pearce spent more than ten years with the Center for Responsible Lending in Durham, North Carolina, one of the nation's leading sources of expertise in consumer protection in financial services."
The Center for Responsible Lending's operations have been very controversial. Financial journalist Lawrence Meyers, for instance, wrote in 2009 that "The Center for Responsible Lending (CRL) has a history of distorting the truth concerning payday loans (PDLs), used by 6 million Americans to meet short-term credit needs. However, the CRL is merely a front for the Self-Help Foundation, a credit union in direct competition with payday lenders, whose founders were principal purveyors of destructive subprime mortgages."
In an August 22 editorial, the Washington Times became the first media outlet to alert the public to this isssue. "The president," the Times wrote," doesn’t like payday lenders, and neither, particularly, do we. But rather than seek changes by legislation or an open rule-making process to propose reform, the White House simply cracked down on payday lending."
The trouble with this, as the Times pointed out, is the precedent it establishes. "[Our] system of checks and balances was put in place to prevent such abuses. Mr. Obama is determined to lend himself as much power as he can. If Congress won’t assert its constitutional authority by blocking such behavior, it will never retrieve the power and authority the Constitution gave it."
The Obama administration, by treating Congress with disdain and failing to provide evidence of the statutory authority for its actions, is signaling that it has no intention of stopping. Up next for the administration is the expansion of the tactics used in 'Operation Choke Point' to a whole host of industries the Obama administration does not like and has identified for targeting, including manufacturers of guns and ammunition.
After this story was published, Justice Department spokesman Wyn Hornbuckle provided a statement to Breitbart News in response to our request to Deputy Assistant Attorney General Frimpong that she confirm or deny the reports of her conduct at a meeting with Congressional staff members in late September:
As a matter of policy, the department does not comment on the existence of ongoing law enforcement investigations with the media or with Congressional staff. Department contacts with members of Congress are handled through the Office of Legislative Affairs. When meetings are scheduled, OLA informs Congressional staffers the name and role of department employees they may be meeting with.