The Federal Deposit Insurance Corporation, the primary federal regulator of over 4,500 banks, targeted legal industries. FDIC equated legitimate and regulated activities such as coin dealers and firearms and ammunition sales with inherently pernicious or patently illegal activities such as Ponzi schemes, debt consolidation scams, and drug paraphernalia.
FDIC achieved this via “circular argument” policymaking: there was no articulated justification or rationale for the original list of “high-risk merchants.” Yet a list of “potentially illegal activities” included in FDIC’s formal guidance to banks justified itself by claiming that the categories had been previously “noted by the FDIC.”
FDIC’s explicitly intended its list of “high-risk merchants” to influence banks’ business decisions. FDIC policymakers debated ways to ensure that bank officials saw the list and “get the message.”
Documents produced to the Committee reveal that senior FDIC policymakers oppose payday lending on personal grounds, and attempted to use FDIC’s supervisory authority to prohibit the practice. Personal animus towards payday lending is apparent throughout the documents produced to the Committee. Emails reveal that FDIC’s senior-most bank examiners “literally cannot stand payday,” and effectively ordered banks to terminate all relationships with the industry.
In a particularly egregious example, a senior official in the Division of Depositor and Consumer Protection insisted that FDIC Chairman Martin Gruenberg’s letters to Congress and talking points always mention pornography when discussing payday lenders and other industries, in an effort to convey a “good picture regarding the unsavory nature of the businesses at issue.”
FDIC actively partnered with Department of Justice to implement Operation Choke Point, and may have misled Congress about this partnership.
Because of this pressure by the FDIC private companies which create and sell compliance and risk management training software incorporated things such as:
The pressure was far from subtle. The official referred to in the following is Jim LaPierre, Regional Director of the Kansas City Region:
The official told the banker, “I don’t like this product, and I don’t believe it has any place in our financial system. Your decision to move forward will result in an immediate unplanned audit of your entire bank.”
This is what you get with government employees who believe they are masters rather than public servants.
A good start on the way to restore public trust would be to release the names of the scoundrels so they can be publically scorned. While I am sure there are many more here are some names from the report:
Anderson, James L.
Benardo, Michael B.
Bowman, John B.
Brueger, Kathleen S.
Dujenski, Thomas J.
Eberley, Doreen R
Gruenberg, Martin J.
Jackson, Michael L.
Lowe, Anthony M.
Osterman, Richard J.
Plunkett, Sylvia H.
Miller, Jonathan N.
Sawin, April D.
Spitler, Eric J.
Watkins, James C.
Valdez, Victor J.
Weatherby, Katheryn M.
The public servants who “debated ways to ensure that bank officials saw the list and ‘get the message’” need to be sent a very strong “message”. They should be fired, prosecuted, and held personally responsible for the harm done to the business affected and the general public by their illegal and immoral actions.