The House of Representatives concluded a tense debate Thursday by voting 250-169 to end a controversial Obama administration program called Operation Choke Point.
Critics say the secretive program, run by the Department of Justice, has been used to target politically unpopular industries such as gun sellers.
“We’re elated,” Rep. Blaine Luetkemeyer, R-Mo., one of the bill’s co-sponsors, told The Daily Signal after the vote. “We’ve been working on this for two and a half years—we’ve been lied to, put off, and dissed by the different regulatory agencies, and we’ve prevailed.”
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Operation Choke Point was launched by the Justice Department in 2013 as a way to fight fraud by pressuring banks to “choke off” access to credit and other banking services by merchants and industries the administration considered a high risk for fraud.
Without access to banking services, it is difficult—if not impossible—for a business to survive.
Republicans who have been fighting the program believe that the Obama administration abused its power under Operation Choke Point by targeting entire lines of legal industries. Some members view the tactics as “reminiscent of the IRS targeting of conservatives,” as Rep. French Hill, R-Ark., said Thursday on the House floor.
Businesses targeted under Operation Choke Point include gun sellers, pawn shops, and short-term lenders. The National Rifle Association is among groups that have strongly come out against it.
“Congressman Luetkemeyer’s legislation puts an end to the Obama administration’s unwarranted attacks upon a legal and thriving sector of the American economy,” said Chris Cox, executive director of NRA’s Institute for Legislative Action. “On behalf of the NRA’s 5 million members, I’d like to thank Congressman Luetkemeyer for his steadfast support of the Second Amendment and congratulate him on the passage of H.R. 766.”
Luetkemeyer’s bill, the Financial Institution Customer Protection Act, bans federal agencies that oversee banks from requesting or ordering that banks terminate customer accounts “unless the regulator has material reason.”
“We are debating a bill on the floor of the House that says the government can’t force banks to shut down legal banking accounts,” Rep. Mick Mulvaney, R-S.C., said on the House floor. “The fact that we have to have this debate frightens me.”
The measure requires that any requests to close a customer’s banking account that come from a federal official be made in writing and rely on information other than “reputational risk.”
The term “reputational risk” has become a sticking point in the Operation Choke Point debate, as critics of the program believe that the term has been used to provide federal regulators a way to close bank accounts of legal and legitimate businesses the Obama administration doesn’t like.
“Reputational risk” is a commonly used term in the banking industry to describe businesses—often illegal—that are at high risk for fraud.
In 2011, guidelines created by the Federal Deposit Insurance Corporation (FDIC) labeled firearms and ammunition sellers as “reputational risks,” pinning them alongside pornography and other enterprises like Ponzi schemes and racist materials.
According to investigations conducted by the House Oversight and Government Reform Committee, that list was adopted into the Justice Department’s Operation Choke Point. After its adoption, many gun sellers, pawn shops, and short-term lenders reported their bank accounts being shut down.
In an effort to protect these business owners, which Republicans say are “Main Street” mo-and-pop shops, Luetkemeyer re-introduced his bill to choke off Operation Choke Point.
Luetkemeyer had the full support of Republicans in the House, including Rep. Jeb Hensarling, chairman of the Financial Services Committee. On the House floor, Hensarling called the program an “outrage” to the American people.
“We are losing the rule of law to the discretion of regulators,” he said. “For legally constituted businesses to have to fear that in the dark of night they’re going to be shut down by the awesome power of the Obama administration is an outrage.”
Since its inception, Operation Choke Point has been shrouded in secrecy. Although the Financial Institution Customer Protection Act passed with bipartisan support—with 10 Democrats voting in favor of the bill—many on the left have likened its to a conservative conspiracy theory.
In a change of pace Thursday, some Democrats on the House floor acknowledged instances of innocent business owners losing access to basic financial services and even applauded Luetkemeyer for his efforts. However, those Democrats stopped short of supporting the Financial Institution Customer Protection Act.
“We had a problem in a lot of communities around the country with businesses getting access to the banking system, and I know [Luetkemeyer] worked this very hard last year,” Rep. Denny Heck, D-Wash., said. “Unfortunately, this bill goes farther.”
“I have seen some closures of accounts that I think are not adequately justified, but this bill doesn’t just solve that problem,” Rep. Keith Ellison, D-Minn., said. “It goes far beyond just simply calling for a justification of arbitrarily closed accounts.”
Those Democrats, led by Rep. Maxine Waters, D-Calif., ranking member of the Financial Services Committee, argued the Financial Institution Customer Protection Act would give Wall Street a “get out of jail free card.”
“[Republicans] refuse to tell you what’s really in this bill,” Waters said. “They cannot stand up and defend why in the world they would take away the [Justice Department’s] ability to investigate bad banks.”
Waters pointed to a section that would amend the the Financial Institutions Reform, Recovery, and Enforcement Act, the statute that the Justice Department uses to carry out Operation Choke Point.
Under that law, Justice Department officials pursued civil penalties against banks doing business with fraudulent customers.
“The DOJ has relied heavily on the powers granted under [the reform law] since the financial crisis,” Waters said. “Why would anybody want to take away the Justice Department’s investigative powers?”
Luetkemeyer accused Waters of spreading “misinformation,” insisting her interpretation of the changes included in the bill are “absolutely, positively, 100 percent incorrect.”
“What it does do is stop DOJ from filing charges against banks for fraud whenever the bank’s customer commits a crime or is doing something nefarious with one of their customers. In other words, you can’t be responsible for what your customer is doing,” he said, adding:
“I have a 35-year-old son. If he goes out and robs a quick shop, should I be responsible for him?”
The White House voiced opposition to the bill, issuing a veto threat Tuesday against what the administration calls “unnecessary, overly burdensome” requirements.
“Restricting the federal banking agencies in this way could unnecessarily and dangerously hinder or compromise important law enforcement and national security efforts,” The White House said in a formal statement.
Luetkemeyer told The Daily Signal that he’s pleased to get the attention of the Obama administration.
“It tells me that they’re afraid of what we’re trying to do,” he said.