A Dec. 2 Report by the House Committee on Oversight and Government Reform reveals more on how law-abiding businesses have been unfairly and illegitimately targeted by the Federal Deposit Insurance Corporation – the primary federal bank regulator – as part of Operation Choke Point.

This report builds on a March report by the same committee that explained how Operation Choke Point – an intergovernmental effort to discourage financial intermediaries from facilitating fraudulent business activity – has been misapplied to harm legitimate industries the Obama administration dislikes.

The Heritage Foundation recently explained how four law-abiding small business owners unfairly suffered because of Operation Choke Point abuses, and recommended specific government reforms to ensure that Operation Choke Point does not discourage legitimate business activity.

This is profoundly un-American – law-abiding individuals are being denied the fundamental right to earn a living solely because their businesses have been deemed “politically incorrect” by certain federal government officials.

The Dec. 2 Report reached these key conclusions:

  • In its guidance to banks, the FDIC equated legitimate and regulated business categories such as coin dealers and firearms and ammunition sales with patently illegal activities such as Ponzi schemes and debt-relief scams.
  • The FDIC provided no justification for categorizing certain disfavored business sectors as “high-risk merchants.”
  • The FDIC sought to influence banks not to deal with “high-risk merchants.”
  • Documents obtained by Congress revealed that senior FDIC policymakers opposed payday lending – a legitimate business that provides needed short-term loans to many low-income consumers. Documents indicated the FDIC’s most senior bank examiners “literally cannot stand” payday lenders and effectively ordered banks to terminate their relationships with payday lenders.
  • A senior FDIC official recommended the FDIC chairman mention pornography when writing Congress about payday lenders and other legal but disfavored industries, to convey a “good picture regarding the unsavory nature of the businesses at issue.”
  • The FDIC actively partnered with the Justice Department to implement Operation Choke Point and may have misled Congress about this partnership.
  • In sum, because of Operation Choke Point, legal and legitimate businesses are being choked off from the financial system, and the attorney general is aware that banks are exiting lines of business deemed “high-risk” by federal regulators.

Bowing to congressional demands, the FDIC and the Justice Department recently agreed to investigate abusive conduct under Operation Choke Point. This is not enough, though. The new Congress needs to hold to account all of the federal agencies that have participated in Operation Choke Point and demand they take specific steps to stop discriminating against legitimate businesses – and ensure that banks get the message as well.