Omarova Refuses to Rule Out a Repeat of Operation Choke Point

Saule Omarova refused on Thursday to pledge that she would not politicize lending in a repeat of the Obama administration’s notorious Operation Choke Point.

Omarova, a Cornell law professor who served in the Bush Treasury Department, was nominated by President Joe Biden to be the Comptroller of the Currency, a position that would put her at the head of an agency tasked with chartering and supervising national banks and make her one of the country’s most powerful financial regulators.  The Senate Banking Committee met Thursday to consider the nomination.

“Will you pledge today not to repeat Operation Choke Point and politicize the banking industry by targeting socially suboptimal companies?” Senator Cyntia Lummis (R-WY) asked at the hearing.

Omarova refused to make the pledge, instead saying that she would make sure the agency acted legally.

“Senator, if confirmed as Comptroller of the Currency, I will make sure that the agency acts only within its legal mandate and performs its mission and does not create, does not step into the shoes of Congress and other policymakers who need to make the substantive decisions. That I can completely get on board with,” Omarova said.

The answer was non-responsive because the Obama administration believed that Operation Choke Point was legal. Indeed, it was led by the Justice Department.

Operation Choke Point was an Obama administration program targeting banks that provided services to companies that provided payday loans and other financial services officials regarded as “questionable.”  The tactic was legally dubious because it allowed regulators to pressure banks to shut down businesses that it had not charged with fraudulent or other illegal activity.  The FDIC was accused of using these tactics to target ammunition sellers, pharmaceutical companies, and other legal businesses disliked by Obama administration officials.

“The Justice Department touts its Operation Choke Point as a good-faith effort to crack down on illegal businesses, weed out fraud and protect consumers. None of these claims is true,” former FDIC chairman William Isaac wrote in a Wall Street Journal opinion piece.

Isaac explained:

It is becoming clear that the real goal of the program announced last year—or at the very least a desired collateral benefit—is to target entire industries deemed undesirable by putting regulatory pressure on the banks that serve them. The House Oversight and Government Reform Committee recently released evidence that “federal regulators are pressuring banks to terminate relationships with legal yet disfavored industries, without regard to the legitimacy or risk profile of individual companies.” Last week, the Federal Deposit Insurance Corp. and Justice Department announced that they will launch investigations into Operation Choke Point.

The government has gone after two dozen businesses including ammunition dealers, check-cashers, payday lenders, telemarketers, firearms and fireworks vendors, raffles, pharmaceutical sellers, surveillance-equipment firms and home-based charities. The Justice Department and several regulators have pressured banks to close accounts with these businesses—on a sweeping, industry-wide basis—without any proof of wrongdoing. By choking off their access to bank services, the government is attempting to shut these industries down or drive them underground…

This Justice Department program also sets a dangerous precedent. The same power the government uses today to deprive ammunition dealers or check-cashing businesses of banking services could tomorrow be used against convenience stores selling sugary sodas, restaurants selling high fat foods, or family-planning clinics. Congress should act immediately to choke off Operation Choke Point.

The program was officially shut down in 2017.  The following year, the FDIC promised to Congress that it would implement stringent rules to prevent future abuses, including requiring that all attempts to pressure banks to drop customers be made in writing and reported to the FDIC’s board of directors.

Omarova’s nomination has come under fire in part because her academic work has included advocating that financing be cut off for businesses deemed “socially suboptimal.” She has also advocated for a policy that would transfer all bank accounts to the Federal Reserve, a move that would eliminate private sector banking in the U.S. This would result in the Fed making lending determinations because private banks would no longer have deposits to back their loans, a development which Omarova treated as a positive reform in her work.

In her hearing on Thursday, Omarova disavowed her own views, including those published as recently as last month, saying they reflected academic work that would not affect her in the role of Comptroller. Several Senators, including Democrat Senator Jon Tester of Montana and Ranking Member Pat Toomey (R-PA), expressed skepticism of the idea that the positions she advocated for in her work as a law professor were irrelevant to whether or not she should be confirmed.

The far left has urged bank regulators to use bank supervisory powers to limit access to credit to fossil fuel companies, gunmakers, private prison operators, and other businesses out of favor with their agenda.