• IG: Worst Fears Of FDIC Confirmed

    The Inspector General for the FDIC issued a report relating to Operation Choke Point, the program by the Obama Administration to use regulatory power to attack private enterprise that the federal government does not like.

    According to the report, “in a letter dated October 23, 2014, thirty-five Members of Congress (referred to hereinafter as Members) requested that the FDIC Office of Inspector General (OIG) investigate the involvement of the FDIC and its staff in the creation and/or execution of the United States Department of Justice (DOJ or Department) initiative known as Operation Choke Point. In the letter, Members expressed concern that the FDIC was working with DOJ in connection with Operation Choke Point to pressure financial institutions to decline banking services to certain categories of lawfully operating merchants that had been associated with high- risk activities. The letter also indicated that it was the Members’ belief that FDIC officials had abused their authority by advancing a political or moral agenda to force certain lawful businesses out of the financial services space.”

    The IG concluded that the FDIC staff used “moral suasion” to encourage banks to not do business with payday lenders.  This moral pressure and government request lead to banks terminating relationships with payday lenders.  When payday lenders stop receiving loans and are not allowed to have relationships with other banks, they slow the process of giving out loans and cut off money to the people in the most need of a loan.

    The IG admitted that the report was incomplete because they don’t keep decent records of emails regarding these communications.  That indicates that the “moral suasion” might have been very strong and we don’t know the extent that government officials at the FDIC used their power to bully banks into cutting off services to payday loan companies.

    The IG concluded that the publication of an enemy’s list of “high risk” merchants was ok.  Yet, the FDIC withdrew that list because they worried that the list could cause misperceptions about banks regarding FDIC policies.

    The report’s conclusions are little baffling.  It seems to us as though the IG is soft-pedaling fairly serious misconduct by the FDIC staff.  The report finds clear violations of FDIC supervision policy and clear written communications to banks discouraging banks from serving customers who engage in legal businesses, but nonetheless labels this conduct “inconsequential.”  It is naïve to think that an examiner using “moral suasion” to discourage a bank from doing business with a particular customer is not going to cause that bank to terminate the customer relationship.

    Yet again, the American people have a concrete example of government run amok.


    Cloakroom Confidential

    Cloakroom Confidential was a longtime Capitol Hill staffer and insider who has contacts in the House and Senate at the highest levels.

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