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WBK Industry News - Federal Regulatory Developments

DOJ Formally Winds Down Operation Choke Point

The U.S. Department of Justice (DOJ) recently issued a statement formally ending Operation Choke Point, an Obama-era initiative that discouraged banks from doing business with certain industries believed to be at higher risk for fraud and money laundering.  Critics argued that the policy unfairly targeted legitimate businesses, including payday lenders and firearms dealers, that clashed with the prior administration’s policy agenda.

In response to an inquiry by several members of the House Judiciary Committee, Assistant Attorney General Stephen E. Boyd said that Operation Choke Point is no longer in effect and would not be implemented by DOJ in the future.  DOJ “is committed to bringing enforcement actions only where warranted by the facts and the applicable law, without regard to political preferences,” Boyd’s letter said.

Acting Chief of the Office of the Comptroller of the Currency (OCC) Keith Noreika echoed this position in a similar letter to lawmakers, stating that OCC “rejects the targeting of any business operating within state and federal law as well as any intimidation of regulated financial institutions into denying banking services to particular businesses.”

Operation Choke Point was first implemented in 2013, when DOJ issued of a set of subpoenas containing guidance from the Federal Deposit Insurance Corporation (FDIC) that identified several “elevated-risk” merchant categories, including short-term lenders, credit repair services, tobacco retailers, and firearms dealers.  The FDIC guidance noted that a bank’s decision to do business with industries exhibiting higher instances of fraud and money laundering could pose “reputational risk” for the bank, and would potentially warrant heightened scrutiny from federal regulators.

The FDIC retracted the Operation Choke Point guidance in 2015, encouraging supervised institutions to instead take a risk-based, case-by-case approach in assessing customer relationships.  Banks nonetheless were slow to resume relationships with merchants previously implicated by the FDIC guidance, fearing heightened scrutiny from federal regulators.

The announcement follows years of attempts by lawmakers and private parties to end the DOJ initiative.

Boyd’s letter can be accessed here.