WASHINGTON -- Congress is out of session and won't be back until Nov. 12. But that isn't stopping House Oversight Committee Chairman Darrell Issa (R-Calif.) from demanding that consumer watchdogs cough up an ocean of paperwork while he's out of town.
Issa has been waging a minor year-long crusade against a handful of Department of Justice investigations into petty consumer fraud. It hasn't caught on the way his probes into Benghazi and Lois Lerner have, but Issa has riled up his fellow House Republicans and issued a report claiming that DOJ's "Operation Choke Point," which seeks to cut off fraudsters from the banking system, is actually a secret Obama administration plot to destroy payday lenders, and maybe firearms dealers and other industries.
So far, Republicans haven't provided any evidence that any bank has ended any relationship with a legitimate firm due to pressure from Obama bureaucrats. But the investigation has created a lot of headaches for people at Justice and the FDIC who want to root out fraud from the financial system.
And now Issa and Rep. Jim Jordan (R-Ohio) appear to have set their sights higher. On Oct. 16, they sent letters to Federal Reserve Chair Janet Yellen and Comptroller of the Currency Thomas Curry claiming to have a new smoking gun, and demanding piles of documents from both agencies.
"The Committee on Oversight and Government Reform continues its oversight of a multiple federal agency initiative forcing banks to terminate the accounts of legal businesses disfavored by the Administration," Issa and Jordan wrote. "A compliance regime that forces banks to sever all relations with legal and legitimate customers is totally unacceptable."
Anti-money laundering laws have long barred banks from moving illegal cash through the financial system. Banks, as a result, have to keep tabs on their customers and make sure they aren't processing payments or harboring cash for organized crime, drug cartels or petty scammers. DOJ's Operation Choke Point focuses on petty fraudsters. Their first case, from January, documented a host of consumer horror stories from people being ripped off by payday lenders and Ponzi schemes. North Carolina's Four Oaks Bank had been giving carte blanche to transactions, even after recognizing a huge volume of suspicious activity, according to details in the lawsuit.
Issa and Jordan say that a February letter from a regional director of the FDIC in Chicago supports their case.
"One letter from a Regional Director of the Federal Deposit Insurance Corporation effectively ordered a target bank to eliminate all relationships with payday lenders," Issa and Jordan wrote.
Except the FDIC letter doesn't do that. Here's what it actually says.
It is our view that payday loans are costly and offer limited utility for consumers as compared to traditional loan products. Furthermore the [REDACTED] relationship carries a high degree of risk to the institution, including third-party, reputational, compliance, and legal risk, which may expose the bank to individual and class actions by borrowers and local regulatory authorities. Consequently, we have generally found that activities related to payday lending are unacceptable for an insured depository institution.
The FDIC is, in fact, saying that generally it thinks relationships with payday lenders aren't good for banks. That's not an order to stand down. But the regulator is also citing concerns with a specific payday lender, the name of which Issa and Jordan have redacted. And one of the troubles with payday lending is that the industry is riddled with fraudsters about whom regulators could very legitimately want to caution banks.
Payday lending is banned in several states by interest rate caps. One of those states is Ohio, which adopted its reforms in 2008. And while Issa and Jordan redacted the name of the bank the FDIC was targeting, they didn't black out a section noting that the Ohio Department of Financial Institutions joined the FDIC in a meeting with the bank's president to discuss this particular payday lender.
In short: it's entirely possible that the FDIC was simply objecting to a bank doing business with one awful firm that was playing fast and loose with state law. And if this were part of an administration conspiracy to take down all payday lending, then the Obama team would be in cahoots with Ohio Gov. John Kasich's administration. Which would be quite an achievement, since Kasich is a Republican.
But Issa and Jordan aren't going after the FDIC over this letter, they're going after the Federal Reserve and the Office of the Comptroller of the Currency. And asking for a tremendous amount of paperwork from them, including "All documents and communications from January 1, 2012, to the present between employees of the Federal Reserve and employees of the Civil Division of the Department of Justice," and "All instructions, guidance, or manuals for bank examination or supervision ... from January 1, 2012, to the present."
Bank regulators talk to the Justice Department all the time. It's usually how DOJ figures out whether or not to prosecute a bank. Any instructions on bank examinations since 2012 is quite a request, since the Fed and the OCC each oversee thousands of banks.
Issa's history with financial oversight is complicated. He adamantly defended big paychecks to bank CEOs during the subprime mortgage crisis, but also uncovered a sweetheart deal between Countrywide Financial and former Senate Banking Committee Chairman Chris Dodd (D-Conn.). He may eventually turn up something damning. He'll certainly have plenty of documents to review. But while they're amassing that mountain of paperwork for Issa, regulators will have less time to crack down on abuse.