Unsealed Government Documents Prove Federal Cover-Up in Operation Choke Point

October 12, 2018 | Press Releases

Newly-unsealed court documents released today show evidence of the federal government’s illegal Operation Choke Point program in which top government officials and federal agencies pressured banks to cut all ties with lawful businesses. More than 100 records expose depositions and damaging emails of government officials, most notably at the Federal Deposit Insurance Corporation (FDIC), who executed a secretive campaign against lawful businesses it disfavored while ignoring due process and subverting the legal and regulatory process. This illegal campaign included threats from senior government officials that agency staff would be fired and bank officials could be subject to criminal prosecution. The key findings disclosed in the filing indicate that this campaign was instituted at the very highest levels of the FDIC and has been ruthlessly and enthusiastically implemented in the field:

• In late 2010 or early 2011, the FDIC’s senior Washington officials convened a meeting of all Regional Directors (or their designees) at which a senior FDIC official gave the agency’s field officers the following message, direct from the FDIC’s highest leadership in Washington: “if a bank was found to be involved in payday lending, someone was going to be fired.”  This threat had far-reaching consequences, since the regional directors collectively have supervisory authority over every FDIC-insured bank of United States.      
   
• Atlanta Regional Director Thomas Dujenski informed members of his staff that “[a]ny banks even remotely involved in payday [lending] should be promptly brought to my attention,” and he repeatedly pressured banks into terminating payday lender customers. In one instance, he met personally with the chairman of a bank that serviced payday lenders, characterized payday lending as a “dirty business,” and threatened the chairman with potential criminal prosecution if he did not end the relationship. After the bank complied and terminated the account, Dujenski covered the FDIC’s tracks by seeking to ensure that the bank characterized the decision as its own. He also reported back to Washington: “I think we got our message across.” During Director Dujenski’s tenure every single bank in his region known to have had relationships with a payday lender ultimately ended those relationships.
   
• Similarly, Chicago Regional Director Anthony Lowe pressured numerous banks into cutting ties with the payday lending industry. In a letter to one bank, he expressed the view that it was “unacceptable” for the bank to continue serving payday lenders. In another instance, he instructed his staff to use all “available means, including verbal recommendations, to strongly encourage [supervised banks] to refrain from any activities that provide assistance to the business activities of [payday] lenders.” In another letter, Director Lowe explained to a bank’s board of directors that it was the FDIC’s “view that payday loans are costly, and offer limited utility for consumers, as compared to traditional loan products. Furthermore, the . . . relationship carries a high degree of risk to the institution . . . Consequently, we have generally found that activities related to payday lending are unacceptable for an insured depository institution.”
   
• Despite contentions that Operation Choke Point is no longer running, the culture it created persists and some businesses previously targeted are still seeing their banking relationships terminated without cause. Many banks terminated their relationships with payday lenders abruptly with no explanation at all. Others were more forthcoming in personal discussions. Since February 2013, Advance America has received termination notices from at least 21 banks and about 275 banks have refused the company’s business because of its status as a payday lender. One bank said it was ending their relationship because of “pressure from regulators regarding reputational risk.” Another banker said that trying to do business with a payday lender would put the bank in “regulatory hell.”

“These documents reveal a shocking abuse of power and conspiracy to single out an industry and bring it to its knees, something far away from a regulatory agency’s requirement to proceed according to the rule of law and due process,” said Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA). “Despite hearing statements to the contrary from government officials for years, these records prove that there was an intentional and targeted campaign to carry out an illegal policy. If personal preference and subjectivity is the guide for regulation, an awful precedent is set and there is no end to the interests that can be targeted – pro-choice groups, environmental causes, religious groups and many more.”

The never-before-seen documents were released as part of the Plaintiffs’ Motion for Summary Judgment in the lawsuit Advance America et al. v. Federal Deposit Insurance Corp. et al. The documents show that top leadership at the FDIC held strong personal biases and began a ruthless targeted campaign against the small-dollar lending industry. As the evidence recounted above shows, these biases permeated the agency and influenced its supervisory approach.

“More than four years ago, Advance America and its industry partners took the extreme and costly step of suing federal regulators for attempting to cut off our access to the U.S. banking system,” said Patrick O’Shaughnessy, President and CEO of Advance America and Chair of the CFSA Board of Directors. “We expected to find a concerted effort to pressure banks from doing business with our industry, but discovered the nearly unthinkable. While claiming – publicly, under oath – to be combatting illegal activity, high-ranking government bureaucrats deployed a clandestine crusade to eliminate our regulated and legal service. The campaign revealed that personal bias had motivated scorn for our industry, contempt for our millions of customers, blatant disregard for due process, and an unprecedented weaponization of government.”

The plaintiffs in this case are seeking an end to this type of improper regulatory pressure—which is causing bank terminations to continue to this day—as well as an opportunity to restore the banking relationships that were previously terminated as a result of Operation Choke Point.

Operation Choke Point is an illegal government campaign that employs strong-arm tactics to force banks to end their legal business relationships with smaller, licensed companies that were disfavored by bureaucrats from the previous administration. These industries include local small businesses like fireworks and firearms companies, home-based charities, and small-dollar lenders. In June 2014, CFSA and its largest member companies, Advance America and Check Into Cash, filed a lawsuit against the federal government seeking to end Operation Choke Point and the government’s improper regulatory overreach.

The defendants in the lawsuit include the FDIC and the Office of the Comptroller of the Currency (OCC) – the agencies that, in a coordinated fashion, sought to deprive legal, licensed business of access to banking services.

The Motion for Summary Judgment can be found here, and the Plaintiffs’ Statement of Facts can be found here.