A new Competitive Enterprise Institute  (CEI) report digs into a controversial campaign by federal regulatory agencies called Operation Choke Point. In 2013, the U.S. Department of Justice (DOJ) and several other federal agencies, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, launched the ongoing investigation into U.S. banks pertaining to how they conduct business with certain types of organizations, such as payment processors, payday lenders, believed to be at higher risk for fraud.
In defense of the new initiative, Attorney General Eric Holder recently issued a statement vowing to “enforce the law against both the fraudsters who prey on consumers and the financial institutions who choose to allow these crimes to occur.”
In contrast, critics of the new initiative argue that it poses a potential threat to due process. They assert the federal government is pressuring the financial industry to cut off the companies' access to banking services, without first having shown that the targeted companies are violating the law.
“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 . He argues that 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 said.
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 Operation 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 an number of policy recommendations to rein in Operation Choke Point. For example, he asserts that 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.
He also pointed out that in a six-month status report, issued on September 9, 2013, the federal government acknowledged Operation Choke Point might be deterring banks from dealing with legitimate lenders.