The stories of two businessmen who recently were denied banking services because they sell firearms suggest a secretive government program called Operation Choke Point still affects industries across the nation that the Obama administration considered undesirable.
In one case, a large bank in New England denied a line of credit to a former police officer who started a gun and tactical business in Monroe, Conn., saying it âno longer lends to firearms dealers.â
In the other case, a branch of a North Carolina bank refused to set up a new payment service for a firearms seller in Tryon, N.C., because of the nature of his industry, the business owner said.
The Daily Signal talked to both businessmen, who say they are being punished for their line of work despite efforts in Congress to end discrimination by banks against gun sellers.
Some experts believe that banksâ decision not to do business with gun sellers stems from Operation Choke Point, a Justice Department program that, according to government officials, aimed to âattack Internet, telemarketing, mail, and other mass market fraud against consumers, by choking fraudstersâ access to the banking system.â
Critics of the program say it was used to put the financial squeeze on entire industries the Obama administration doesn’t like, such as firearms sellers and payday lenders.
“It is increasingly clear that the effects from Operation Choke Point are continuing to be felt, even if the administration has told Congress it has backed off from this campaign,â Larry Keane, senior vice president and general counsel for the National Shooting Sports Foundation, one of the nationâs leading lobbying firms for the gun industry, told The Daily Signal.
‘It Came Back Denied’
Rich Sprandel, an 18-year police veteran, had to retire in 2011 from the force in Seymour, Conn., after being hit by a drunk driver while on duty in his patrol car. Sprandel, who is married and has two children, opened an online firearms and tactical business.
âI have a retirement pension, but itâs not 100 percent of my pay, so I need to make a living to support my family,â Sprandel, 48, who owns Blue Line Firearms &Â Tactical in Monroe, Conn., said in an interview with The Daily Signal.
On March 7, he got a voicemail message from a vice president at Peopleâs United Bank in Fairfield, Conn., regarding his request for a new line of credit.
“It came back denied,â the bank official says in the voice message obtained by The Daily Signal. âThey said they no longer lend to firearms dealers, so that’s a new thing for us.â
He goes on to tell Sprandel: âI know I’ve done them before where it was the [gun] manufacturers, and it went through without a problem, but they’re not doing it with the dealers, so sorry about that.â
The caller identified himself by a first name matching that of a bank vice president with whom Sprandel said he dealt. The bank officer did not respond to The Daily Signal’s multiple requests for comment.
Sprandel said this is the second time he has been denied financial services because he sells firearms. This time, the retired police officer decided to call on supporters of gun rights to boycott Peopleâs United Bank.
“Why should Second Amendment supporters support a bank that doesn’t support them?” Sprandel said.
The Daily Signal called and emailed Peopleâs United Bank on multiple occasions to clarify the bank’s position on doing business with Americans in the firearms industry. The bank did not respond.
‘High Risk’ Business
Another firearms dealer, Luke Lichterman, told The Daily Signal that HomeTrust Bank denied banking services to him March 11 because of the âhigh risk natureâ of his business, Hunting and Defense, in Tryon, N.C.
Lichterman, a Columbus resident, said he was trying to open an automatic clearing house payment service with HomeTrust, where he had maintained accounts since 2012.
But, he said, a treasury management sales officer at the Asheville branch of the bank denied his request on March 11 because of his line of work.
âHe explained that heâs terribly sorry, but the banking industry is tightly regulated by the federal government and we cannot approve your [payment service] because of the high risk nature of your business,â Lichterman said. âI said, High risk? What risk? Whatâs the problem?â
Lichterman, 75, said the banker then said, âIâm sure your business is fine, but itâs your industry that we feel is too risky.â
Suspicious of a connection to Operation Choke Point, which the Justice Department launched in 2013, Lichterman asked the banker for another example of an industry that HomeTrust Bank wouldnât do business with.
His immediate response: âPornography.â
âI really had to stop from laughing,â Lichterman recalled. âI said, Iâm not a pornographer. I deal in constitutionally protected goods.â
Stacie Hicks, senior vice president of marketing and public relations at HomeTrust Bank, told The Daily Signal that the bank âdoes not comment on customer accounts, both to honor their privacy and to comply with federal privacy regulations.â
‘Continuing to See Discrimination’Â
Keane, the lawyer for the National Shooting Sports Foundation, said the group is âgratifiedâ by House passage in February of HR 766, the Financial Institutions Consumer Protection Act,  sponsored by Rep. Blaine Leutkemeyer, R- Mo. The bill was introduced as a direct response to Operation Choke Point.
Keane told The Daily Signal that the group âwould urge additional hearings to find out why businesses in our industry are continuing to see discrimination where lenders use wording very similar to that used in Operation Choke Point.â
Operation Choke Point was designed by the Obama administration to fight money laundering by using the Justice Departmentâs investigatory powers to âchoke offâ fraudstersâ access to the nationâs banking system. The Justice Department did so by partnering with federal banking regulators who could pressure banks to close the accounts of those in industries they considered âhigh risk.â
Critics say federal authorities abused their authority under the program by pressuring banks to close not only the accounts of illegal, fraudulent businesses, but also those of entirely legal industries that the Obama administration doesnât like.
To support these claims, critics cite a 2014 congressional report investigating Operation Choke Point. According to the report, federal agencies sent thousands of U.S. banks formal guidance identifying categories of merchants the agencies considered high risk. That list featured âfirearmsâ and âammunitionâ sales, along with âpornography.â Here it is:
According to the congressional report, the Federal Deposit Insurance Corporation (FDIC), which created the list, âexplicitly intended its list of âhigh-risk merchantsâ to influence banksâ business decisions.â
Although federal agencies have taken corrective actions since coming under congressional investigation over their role in Operation Choke Point, The Daily Signal has not been able to determine that anyone was disciplined or fired, and gun sellers such as Lichterman and Sprandel say theyâre still feeling the squeeze.
‘Damage Already Done’
Ending Operation Choke Pointâor any of the programâs unintended side effectsâis more difficult than lawmakers think, close observers say.
âEven if you stop the program, the damage has already been done,â Brian J. Wise, a senior adviser at U.S. Consumer Coalition, which has raised public awareness about Operation Choke Point, said. Wise added:
The banks and the payment processors already know who is on the hit list from the administration. So whether or not a regulator says, “Youâre safe now,” theyâre always going to try to de-risk those industries because they donât want any undue pressure.
Lawmakers attempted to defund the Justice Department program in 2014 and again in 2015, but neither effort proved successful. In February, the House passed the Financial Institutions Consumer Protection Act, which would ban federal agencies that oversee banks from requesting or ordering that banks terminate customer accounts âunless the regulator has material reason,â but that bill has not yet been taken up by the Senate.
While Wise supports the Financial Institution Customer Protection Act, he said that legislation is unlikely to have any material effect.
â[Lawmakers] said that they were going to produce legislation to stop a program that doesn’t existâweâre going to cut funding for it,â Wise told The Daily Signal, adding:
Well, guess what: There was no funding appropriated for Operation Choke Point in the first place, so all this is is a PR stunt. If these industries want to stop this programâif American consumers want to stop this programâlegislation is not the answer. They have to go to the voting booth, and they have to vote out the people that put this program in place in the first place.
Obama Administration Response
The Office of the Comptroller of Currency, the Treasury Department agency responsible for regulating Peopleâs United Bank, denied any involvement in the bankâs decision to deny service to Sprandel.
Agency spokesman Bryan Hubbard said:
The situation you describe appears to be business strategy decisions by individual banks based on risk assessments they perform. As a general matter, the [Office of the Comptroller of Currency] does not direct banks to open, close, or maintain individual accounts or particular customers and has provided no guidance to bankers that would result in the decision to avoid banking an entire industry.
The Federal Reserve, which regulates HomeTrust Bank, did not respond to requests for comment.
In February, the Obama administration made clear its stance against any efforts to restrict banking regulatorsâ ability to âengageâ with those they regulate.
Taking away these capabilities, the White House said in a statement regarding the 2016 bill to end Operation Choke Point, âwould constrain federal banking regulators’ ability to appropriately engage with the financial institutions they regulate for compliance with and enforcement of U.S. legal and regulatory requirements that are designed to protect the United States financial system from money laundering, terrorist financing, and other serious financial crimes.â
‘Damage Going On’
When he was denied by Peopleâs United Bank, Sprandel said, he was applying for a $25,000 line of credit so he could move to a larger retail location.
âI was also going to use the line of credit for more inventory once I secured a new location,â he said.
Living in Southwestern Connecticut, where the 2012 Sandy Hook Elementary School shooting is still fresh in peopleâs minds, Sprandel said he believes that his situation is âprobably a combinationâ of government regulation and private banking decisions.
Four days after applying, Sprandel was able to obtain a line of credit from Wells Fargo without issue. But that doesnât stop the former police officer, who now sells firearms and accessories to local law enforcement agencies, from feeling âsnubbed.â
âTheyâre discriminating against me because of what I sell,â Sprandel said. âI have a legal business. Iâm not selling marijuana illegally. I have a legal, federally regulated business.â
Lichterman, the second firearms dealer, said his bank’s rejection of his request continues to hurt his ability to do business.
âIf I were doing [an automatic clearing house payment service], thereâs a monthly feeâ$25 a month and 10 cents a charge,â he said.
Instead, Lichterman must take payments by credit card, which costs him 4.5 percent of each payment.
For example, he said: âThis morning, Iâm processing two orders at about $1,500 each; [at] 4.5 percent youâre looking at $70, more or less. Doing it through the bank, $25 for the monthly fee and 10 cents a charge, you see the differenceâitâs big.
âThereâs damage going on, but hey, we gotta do it,” Lichterman said. âWeâve got an election coming, and hopefully some of this stuff will change.â