Choking on the administrative state

Glenn Reynolds and Todd Zywicki have written most recently about the Department of Justice’s Operation Choke Point. Operation Choke Point is vaguely described as a Department of Justice initiative to starve disfavored businesses of financial services, but there is no official account of the program; it is shrouded in secrecy, to borrow Professor Zywicki’s description.

Glenn refers to the apparent targeting of the (legal) porn industry by Operation Choke Point. One prominent case involves (former?) porn star Teagan Presley and her husband. Reason’s Elizabeth Nolan Brown features Presley’s case in her post on Operation Choke Point.
Brown’s post has several valuable links to sources; she credits the linking of Presley’s case with Operation Choke Point to Mary O’Hara’s VICE News account.

Professor Zywicki commends Tom Blumer’s helpful summary of what is known to date about the operation. He observes that the list of targeted industries is populated by enterprises that are entirely, or at least generally, legal: ammunition sales, escort services, get-quick-rich schemes, online gambling, “racist materials” and payday loans. “Quite obviously,” Professor Zywicki comments, “some of these things are not like the other; moreover, just because there are some bad apples within a legal industry doesn’t justify effectively destroying a legal industry through secret executive fiat.”

Consistent with Blumer’s summary, Glenn describes Operation Choke Point as a Justice Department program, but I suspect it is derivative of the administrative state in which our financial institutions are enmeshed, now more than ever. American Banking Association President Frank Keating’s Wall Street Journal column on the program (behind the Journal’s annoying subscription paywall) takes us a step further into the government’s maw: “Justice launched the effort in early 2013 as a policy initiative of the president’s Financial Fraud Enforcement Task Force, which includes the Federal Deposit Insurance Corp., the Consumer Financial Protection Bureau and other regulatory agencies.”

Keating doesn’t mention the Office of the Comptroller of the Currency, but it is the primary regulator of national banks and is also a member of the task force. The structure of the task force is posted here and a complete list of members is posted here.

The regulatory agencies on the task force hold the power of life and death over the entities within their jurisdiction. With or without the Department of Justice doing the heavy lifting, they can put the banks out of business for a bad attitude, and they are less subject to political pressure than even the Department of Justice. As Professor Zywicki has pointed out elsewhere, the Consumer Financial Protection Board is an unconstitutional monstrosity embedded within the Federal Reserve Bank: “Its powers are vast and vaguely defined: the power to regulate or even ban any product or loan term that it considers to be ‘unfair, deceptive, or abusive,’ to engage in rule-making, or to bring litigation, including seeking penalties of up to $1 million per day for violations.”

Glenn rightly calls for Congress, and the courts, and the press, to bring the Justice Department to heel. Yet what we have with Operation Choke Point is the tip of the administrative state working in league with an administration lacking a sense of limits. I want to add only that bringing the forces at work to heel requires a deepening of our understanding and our efforts.

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