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FDIC Backpedals on Operation Choke Point

It looks like the Federal Deposit Insurance Group Corp. (FDIC) is eating a little bit of crow right about now. The FDIC recently acknowledged that it had a role in Operation Choke Point’s bullying of legal, legitimate industries and is now taking measures to reverse some of its policies.

According to Representative Blaine Luetkemeyer from Missouri, “We’re very pleased they’ve acknowledged their wrongdoing and they’ve accepted our suggestions to put in place measures to stop this activity.”

Luetkemeyer is a member of the House Financial Services Committee and is leading the battle to end Operation Choke Point. He recently met with FDIC Chairman Martin Gruenbery, along with the Vice Chairman, Thomas Hoenig, to follow up on some concerns that were brought up in November of 2014.

For their part, the Justice Department argues that Operation Choke Point exists to fight against consumer fraud by choking off targeted business’s access to bank services. A report by the House Oversight Committee, however, revealed that the program has been targeting – with direct instructions from the FDIC – legal businesses, like payday lenders, firearms merchants, coin dealers and some home based charities.

In a bid to address some of the concerns about Operation Choke Point, the FDIC has now made it a requirement for bank examiners to put any of their recommendations in writing along with the requirements they abide to when terminating a bank account. Examiners will also need to indicate the law or regulation that they believe banks or bank customers are actually guilty of violating.

This policy is a dramatic shift, and was announced recently in an official financial institution letter that was sent to the supervisory staff at the FDIC. The letter states the following:

“The FDIC is aware that some institutions may be hesitant to provide certain types of banking services due to concerns that they will be unable to comply with the associated requirements of the Bank Secrecy Act (BSA). The FDIC and the other federal banking agencies recognize that as a practical matter, it is not possible for a financial institution to detect and report all potentially illicit transactions that flow through an institution.”

The letter goes on to remind the FDIC that decisions about bank accounts need to be made on an individual basis, and that moral objections to certain industries should not have any bearing on whether or not a bank account is canceled.

Back in December, a 20 page report that was filed by the House Oversight and Government Reform Committee revealed details about FDIC officials working in tandem with the Justice Department to put Operation Choke Point into action.

Some emails were uncovered by investigators that demonstrated how employees were involved in schemes to influence the decision of some banks with regards to lending to certain industries that were labeled as “reputational risks” to make sure that banks got the message about the types of businesses that regulators don’t care for. This surely discouraged banks from doing businesses with entire industries.

Luetkemeyer went on to say, “The FDIC has allowed a culture within their agency to blossom that they believe it’s OK to impose their personal opinions and value system in a regulatory way. “They are not a regulatory police—their job is to enforce the law.” With all of the damage that Operation Choke Point has caused to legitimate business owners, people who have opposed this initiative from the beginning may finally start to have some hope that this most recent move may spell the beginning of the end for this operation, which has certainly overreached its boundaries.

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