FDIC Changes Policies Because of Operation Choke Point

Having acknowledged its part in Operation Choke Point, the Federal Deposit Insurance Corporation is taking some serious steps to change its polices with regards to targeting legitimate industries that the Obama administration disfavors. Missouri Representative, Blaine Luetkemeyer had this to say with regards to the change, “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 serves as a member of the House Financial Services Committee and helped to lead the battle to end Operation Choke Point. He met with Martin Gruenbery, the Chairman of the FDIIC and the Vice Chairman, Thomas Hoenig. Expectations are that action will be taken in response to the concerns that Luetkemeyer brought up last November.

For its part, the Justice Department says that Operation Choke Point targets only unlawful, mass scale consumer fraud by essentially ‘choking’ the companies’ access to traditional banking services. A report by the House Oversight Committee, however, found that this initiative, with the guidance of the FDIC, targets legal businesses, including payday lenders, coin dealers, tobacco sellers and some home-based charitable organizations.

In an effort to address concerns that have been raised about Operation Choke Point, the FDIC now requires bank examiners to provide written documentation related to any recommendations or requirements that bank accounts be terminated. In addition, examiners will also need to provide details about the law or regulation that they believe the customer or the bank is guilty of violating.

This shift in policy was announced by way of an official Financial Institution Letter that was distributed to the entire FDIC supervisory staff. The letter includes the following statement:

“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 repeats that any decision about accounts needs to be made strictly on an individual case’s basis and that there should not be any decisions made with regards to moral objections or based on the opinions of an entire industry.

There have been numerous reports of legal businesses being denied bank services because their industry was considered to be a ‘reputational risk’ by the banks. Back in December, a 20 page report from the House Oversight and Government Reform Committee spelled out details of FDIC officials working in conjunction with the Justice Department to carry out the goals of Operation Choke Point.

Investigators discovered emails that showed employees working on schemes to influence the decisions that bankers made about which industries to do business with. These emails labeled some industries as ‘reputational risks’ to ensure that the banks would get the intended message bout the types of businesses that regulators do not like, while putting pressure on the banks to cut off services or to close accounts, which would send a discouraging message to entire industries.

Operation Choke Point ran unchecked for long enough. It appears that there are finally some serious actions being taken. The changes in the FDIC should help to ease the pressure that both banks and legitimate business owners have been dealing with as a direct result of this operation.

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