Can the government shut down legal but politically disfavored businesses? If an ongoing federal regulatory campaign continues, that may be precisely what happens, as I detail in a comprehensive new report published today by the Competitive Enterprise Institute.
In recent months, a federal government regulatory initiative called Operation Choke Point has gained increased public and media attention. Operation Choke Point is ostensibly a joint effort by various regulatory entities—the Department of Justice (DOJ), Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation (FDIC) most prominent among them—to reduce the chances of Americans falling victim to fraud in a variety of “high-risk” industries, predominantly payday lending. It uses existing regulatory powers to provide heightened supervision of banks that do business with the third-party payment processors that provide payment services to these industries.
However, this seemingly laudable aim conceals a worrying reality. There is nothing illegal about most of these industries (at least not yet). But because they have been designated high-risk, banks are cutting off dealings with many processors and companies preemptively. As a result, many companies and individuals that have done nothing wrong have been frozen out of banking services.Without the links to banks, their financial lifeblood is choked off indeed.