The lead editorial in Tuesday’s Wall Street Journal was about the effort of the Obama administration to close down payday lenders by depriving them of banking services. This is not a new story; it is covered extensively in my book, “Judicial Fortitude: The Last Chance to Rein in the Administrative State.”
The underlying facts are gross examples of lawlessness by the Obama administration, pursuing a policy known as Operation Chokepoint. Bank regulators and the banks they supervised were the “chokepoint” of this policy, which — most shockingly — was initiated and run by the Justice Department. DOJ directed the bank regulators to stop the financing of payday lenders, an entirely legal business that was disfavored by the Obama administration.
The Journal’s editorial contains a lot of the material that was turned over by the banking agencies during the discovery process of the lawsuit eventually filed by some payday lenders. These disclosures were bad enough, showing that bank regulatory officials tried to disguise their role, but the Journal missed the most important points of this whole sordid episode.
First, the Journal’s editorial expose, for some reason, refers only to bank regulators’ involvement in this illegal scheme, but leaves out the Obama DOJ’s key role. The Trump Justice Department announced in August 2017 that it was terminating the program.
Second, the scope and importance of Operation Chokepoint was finally brought into question when a District of Columbia federal judge, Gladys Kessler, rejected the Justice Department’s motion for summary judgment and concluded that there was evidence that the department had acted illegally. The fact that a federal judge has a lifetime appointment and can call out the Department of Justice when it is acting contrary to law is important. If the Obama administration had the power to replace federal judges, or judges act politically to support the administration in power, the outcome could well have been different.
Third, this was an excellent example of why the Framers of the Constitution insisted on separating legislative and executive power. The bank regulators have extraordinary discretionary authority, to make sure that banks operate under safe and sound principles. In this case, they used these discretionary powers illegally to induce banks to deny financing to payday lenders. This was not authorized by Congress. But the involvement of the Department of Justice, one of the most important agencies of the executive branch, shows that the Framers’ desire to separate legislative and executive authority was not misplaced. When Congress gives extraordinary levels of discretionary authority to an executive agency like bank regulators — something it is has done increasingly since the New Deal — there is a potential opportunity for misuse and a danger to liberty.
Not all administrations are, like the Obama administration, willing to abandon due process and legal restrictions to achieve certain policy ends. But we risk this kind of lawlessness in the future unless administrative power is limited by law.