Why it matters

A new report from the Department of Justice's (DOJ) Office of Professional Responsibility (OPR) found that agency attorneys did not engage in professional misconduct by improperly targeting objectionable businesses or industries under Operation Choke Point. The report was the result of a request from Sen. Blaine Luetkemeyer (R-Mo.) and more than 30 other lawmakers after a staff report from the House Oversight and Government Reform Committee, The Department of Justice's "Operation Choke Point": Illegally Choking Off Legitimate Businesses? stated that the DOJ unlawfully targeted Internet payday lenders and then pressured banks not to do business with them. In a counterpoint, the DOJ report found that "[n]either the design nor the initial implementation of Operation Choke Point specifically focused on Internet payday lenders or their lending practices," although some DOJ attorneys viewed payday lending "in a negative light." No evidence was found of efforts by the DOJ to improperly pressure lawful businesses, the report said, that lawyers in the agency provided inaccurate information to Congress, or that Operation Choke Point compelled banks to terminate relationships with lawful businesses. Notably, in the report OPR did not evaluate whether Operation Choke Point was a worthwhile initiative for the DOJ to undertake.

Detailed discussion

The DOJ has touted successes against banks, including relating to third-party payment processors conducting unauthorized withdrawals from consumer accounts, but critics have charged the DOJ with unfairly targeting the payday lending industry and improperly leaning on banks to cut ties with objectionable businesses. Rep. Blaine Luetkemeyer (R-Mo.) even introduced federal legislation, the "End Operation Choke Point Act," to place limits on the DOJ's subpoena power and formally prohibit regulators from restricting or discouraging financial institutions from dealing with lawful businesses.

In May 2014, the House Oversight and Government Reform Committee released a staff report that accused the Justice Department of using Operation Choke Point to eliminate industries it deemed unacceptable. The report (The Department of Justice's "Operation Choke Point": Illegally Choking Off Legitimate Businesses?) triggered Rep. Luetkemeyer and more than 30 other legislators to request a report from the DOJ in response.

Examining the assertions raised in the staff report and levied by critics of Operation Choke Point, the DOJ's Office of Professional Responsibility (OPR) reached a contrary conclusion.

"Neither the design nor the initial implementation of Operation Choke Point specifically focused on Internet payday lenders or their lending practices," the OPR found. None of the individuals involved in the operation committed professional misconduct, abused their authority, or improperly targeted objectionable industries or businesses, the report stated.

The OPR reviewed thousands of pages of internal Department documents, the subpoenas issued by the agency pursuant to the Financial Institutions Reform and Recovery Act (FIRREA), case-related memoranda and documents, and the e-mail records and detailed written responses from the attorneys most involved in the implementation of the operation. Also considered: the FIRREA statute, its legislative history, related case law, academic commentary, the House Committee's staff report, and applicable standards of conduct.

While OPR found that the DOJ attorneys did not engage in professional misconduct, the report acknowledged that "some of the congressional and industry concerns relating to Internet payday lending was understandable." Some memoranda reviewed by the OPR "discussed and at times seemed to disparage payday lending practices" for reasons unrelated to FIRREA, the report stated. And some e-mails corroborated the finding that certain attorneys in the Civil Division's Consumer Protection Branch working on Operation Choke Point "may have viewed Internet payday lending in a negative light."

Despite this evidence, "the relatively few Operation Choke Point subpoenas related to Internet payday lending were well supported by facts showing that the targets of the subpoenas allegedly were involved in mass-market fraud schemes," according to the OPR report.

Examining the agency's use of its subpoena power under FIRREA, the DOJ report found it was supported by current case law. A total of sixty subpoenas were issued by the Justice Department as part of Operation Choke Point with "relatively few related in any way" to Internet payday lending, the report said. "Of that number, it appears that the Civil Division had specific and articulable evidence of consumer fraud for each subpoena it issued. To the extent that Civil Division attorneys involved in Operation Choke Point investigated Internet payday lending, their focus appeared to be on only a small number of lenders they had reason to suspect were engaged in fraudulent practices."

In addition, all three of the cases filed under Operation Choke Point were resolved by negotiated settlements and consent judgments that were approved by federal courts, the OPR report pointed out.

According to the report, the evidence also failed to support the concern that DOJ attorneys issued FIRREA subpoenas in an effort to compel banks to terminate legitimate business relationships.

"Indeed, in all the Civil Division memoranda, subpoenas, and contemporaneous e-mails OPR reviewed, OPR did not find evidence of an effort to improperly pressure lawful businesses," the report said. "Although Civil Division attorneys at one point did enclose with issued FIRREA subpoenas regulatory guidance from federal regulators, including one document that contained a footnote listing businesses that the [Federal Deposit Insurance Corporation] had described as posing an 'elevated risk,' OPR's inquiry revealed that the attorneys had a legitimate reason for including such regulatory guidance."

The OPR was also unable to find evidence to support the idea that DOJ attorneys provided inaccurate information to Congress about "the design, focus, or implementation" of Operation Choke Point. The Justice Department's "focus was on fraud, and not an entire industry," the report concluded.

To read the OPR Inquiry Regarding Operation Choke Point report, click here.