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THE FEDERAL DEPOSIT INSURANCE 

CORPORATION’S ROLE IN 

OPERATION CHOKE POINT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MARCH 24, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–11 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

ROBERT DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

SEAN P. DUFFY, Wisconsin, Chairman 

MICHAEL G. FITZPATRICK, Pennsylvania, 

Vice Chairman 

PETER T. KING, New York 

PATRICK T. MCHENRY, North Carolina 

ROBERT HURT, Virginia 

STEPHEN LEE FINCHER, Tennessee 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

ANN WAGNER, Missouri 

SCOTT TIPTON, Colorado 

BRUCE POLIQUIN, Maine 

FRENCH HILL, Arkansas 

AL GREEN, Texas, Ranking Member 

MICHAEL E. CAPUANO, Massachusetts 

EMANUEL CLEAVER, Missouri 

KEITH ELLISON, Minnesota 

JOHN K. DELANEY, Maryland 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

KYRSTEN SINEMA, Arizona 

JUAN VARGAS, California 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 24, 2015 ................................................................................................. 1 

Appendix: 

March 24, 2015 ................................................................................................. 39 

WITNESSES 

TUESDAY, MARCH 24, 2015 

Gruenberg, Hon. Martin J., Chairman, Federal Deposit Insurance Corporation 

(FDIC) ................................................................................................................... 5 

APPENDIX 

Prepared statements: 

Gruenberg, Hon. Martin J. .............................................................................. 40 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Duffy, Hon. Sean: 

Written statement of the Electronic Funds Transfer Association (EFTA) .. 53 

Written statement of the Electronic Transactions Association (ETA) ......... 55 

Gruenberg, Hon. Martin J.: 

Written responses to questions submitted by Representative Luetkemeyer ............................................................................................................. 68 

Written responses to questions submitted by Representative Mulvaney .... 71 

(1) 

THE FEDERAL DEPOSIT INSURANCE 

CORPORATION’S ROLE IN 

OPERATION CHOKE POINT 

Tuesday, March 24, 2015 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:33 p.m., in room 

HVC–210, Capitol Visitor Center, Hon. Sean P. Duffy [chairman of 

the subcommittee] presiding. 

Members present: Representatives Duffy, Fitzpatrick, Fincher, 

Mulvaney, Tipton, Poliquin, Hill; Green, Cleaver, Ellison, Delaney, 

Beatty, Heck, Sinema, and Vargas. 

Ex officio present: Representative Hensarling. 

Chairman DUFFY. The Oversight and Investigations Subcommittee will come to order. 

The title of today’s subcommittee hearing is, ‘‘The Federal Deposit Insurance Corporation’s Role in Operation Choke Point.’’ 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. 

Also, without objection, members of the full Financial Services 

Committee who are not members of this subcommittee may participate in today’s hearing for the purpose of making an opening statement and questioning the witness, FDIC Chairman Martin 

Gruenberg. 

The Chair now recognizes himself for 3 minutes for an opening 

statement. 

Thank you for being here, Chairman Gruenberg. I want to thank 

you for your willingness and commitment to working with this subcommittee. Both you and your staff have been very responsive to 

our requests, releasing documents to us and making your staff 

available for questioning throughout the past week. 

I was, however, very surprised and troubled to learn that the 

White House doesn’t share the same confidence in our mutual cooperation. As you know, we asked three members of your staff to 

voluntarily meet with both Majority and Minority committee staff 

for interviews and they all complied voluntarily. 

Before one of the interviews, however, I understand there was a 

telephone conversation between the White House and the FDIC 

General Counsel in which concerns were raised over the former 

Acting General Counsel’s voluntary participation in the oversight 

2 

process. To his credit, the FDIC former Acting General Counsel, 

nonetheless, appeared as scheduled and met with committee staff. 

Kudos to him. 

I hope that this afternoon you will not be deterred by the White 

House’s interference, instead continuing to be forthcoming when 

answering our questions about how your agency is working to repair the business relationships that have been destroyed and damaged since the FDIC’s so-called high-risk list was released several 

years ago. 

As many Members know, this is the subcommittee’s second hearing on the topic of Operation Choke Point, and the second hearing 

where representatives from the FDIC have appeared to discuss 

their role in it. 

Since then, most of the staff that we have spoken to at the FDIC, 

including you, Chairman Gruenberg, have contended that you have 

not participated with the DOJ in Operation Choke Point, nor is the 

FDIC taking part in any way in Operation Choke Point. I imagine 

that will also be in your testimony today. 

But Members have heard from too many of our constituents that 

even if the FDIC isn’t calling it Operation Choke Point, examiners 

within the FDIC are making morally-based directives on what is 

legal and law-abiding for businesses as they find banking partners. 

Using the term ‘‘reputational risk,’’ they are warning banks that 

if they do business with gun dealers, short-term lenders, payday 

lenders, ammunition manufacturers, smoke shops, and other legal 

businesses, they will meet the wrath of the FDIC. And if you disagree, Mr. Chairman, we have emails and memos from the FDIC 

to prove it. Their purpose is to choke off the business they don’t 

like from the banking system. 

I asked you to testify today, Chairman Gruenberg, because I 

want to know where you got the target list from several years ago. 

And, like the IRS, I fear that activists at the DOJ and the FDIC 

are abusing their power and authority and are going after legal 

businesses and, in effect, they are weaponizing government to meet 

their ideological beliefs. I hope that today, Chairman Gruenberg, 

you can convince us that is not the case. 

With that, I now yield to the ranking member of the subcommittee, Mr. Green from North Carolina, for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

And, if I may, I will be from Texas today. 

Mr. Chairman, if I may just take a moment of my time to congratulate Jason, who is a part of our team. As you know, our staff 

does excellent work. And Jason, who is a part of our team, is not 

here today. He is on his way to celebrate his marriage. And I am 

honored to say that we will miss him, but we are proud that he 

is now taking on a beautiful bride. 

Mr. Chairman, I want to thank you, and thank the witness for 

appearing as well. Mr. Chairman, for those who are watching today 

and unfamiliar with the term ‘‘Operation Choke Point,’’ it is generally viewed as a Department of Justice initiative aimed at protecting consumers by scrutinizing certain financial institutions and 

their role in providing access points to the banking system for industries and businesses with higher risk of fraud. And that is what 

3 

we will be talking about today, Operation Choke Point, for the 

most part. 

Fraudulent transactions in our banking system are a real issue, 

not to be taken lightly. In 2012, the Federal Reserve estimated that 

there were 31.1 million unauthorized transactions, worth $6.1 billion, through third-party payment processors, which are businesses 

that, for a fee, take payments from consumers and deposit them in 

banks for merchants. 

In addition, a 2012 Economist article suggests that in the United 

States, 42 percent of Americans have experienced some form of 

payment card fraud in the preceding 5 years. Given that the FDIC 

is a prudential regulator of many financial institutions that take on 

consumer deposits, it should come as little surprise that they, too, 

are interested in addressing fraud in our banking system. 

However, we should not confuse the FDIC doing its job as a regulator as evidence that it is doing anything more than fulfilling its 

mission. Some have gone to great lengths to rely on email exchanges and supervisory guidance to connect the FDIC to this DOJ 

effort, Operation Choke Point. Reports have been published and accusations leveled. 

However, the truth remains that the FDIC had been monitoring 

and regulating fraud at the financial institutions it oversees long 

before there was ever a formal Operation Choke Point. 

Some may draw attention to a supervisory letter issued by the 

FDIC in 2011 highlighting a list of high-risk industries as evidence 

of their involvement in Choke Point by means of prohibiting banks 

from doing business with entities on this list. 

In truth, this was an attempt by the FDIC to help financial institutions be aware of the higher rates of fraud sometimes associated 

with certain industries. The list was compiled based on input from 

the third-party payment processors who do business with the industries. 

Nonetheless, when notified of concern by banks that their list 

was potentially being misconstrued and misapplied during examinations, the FDIC took definitive action to clarify that banks could 

continue doing business, continue their business relationships with 

any industry, as long as proper due diligence was executed to protect consumers. And that is really what this is about, protecting 

consumers. 

Furthermore, in the interest of eliminating confusion, the FDIC 

retracted the list. These actions do not equate to a Federal regulator overstepping its bounds to put businesses out of business. In 

fact, it illustrates a government agency willing to listen to the concerns of the entities it regulates and adjust its actions accordingly. 

I would, however, like to take a moment to recognize a more serious issue regarding the off-the-cuff comments made by employees 

at the FDIC as it relates to the banking relations of certain industries. While I do not think excessive credence should be given to 

remarks made off-the-cuff, I do expect FDIC examiners to act responsibly. 

I understand that an internal Inspector General (IG) investigation is under way to determine whether any misconduct has occurred. Based on the actions already taken by the FDIC to be reVerDate Nov 24 2008 15:44 Aug 07, 2015 Jkt 095055 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\95055.TXT TERRI
4 

sponsive to the concerns raised, I fully expect the FDIC to address 

these findings, if any, made by the IG. 

I will close by expressing my gratitude to the chairman for his 

leadership. And I hope that this hearing will clarify the FDIC’s 

longstanding mandate to combat fraud and protect depositors. 

Thank you, Mr. Chairman. 

Chairman DUFFY. Thank you. 

The Chair now recognizes the vice chairman of the subcommittee, the gentleman from Pennsylvania, Mr. Fitzpatrick, for 

1 minute. 

Mr. FITZPATRICK. Thank you, Chairman Duffy. And thank you 

for staying focused on this very important issue. 

We are here today because individuals within the Federal Government decided to create a policy that deliberately targeted specific businesses that, in their mind, had questionable business practices or were hurting consumers. 

While we can all agree that consumer protection is a noble and 

worthy task, the personal preferences of unelected bureaucrats 

should not, and must not, be the policy of the United States. If a 

company or an individual is breaking the law, they should be held 

accountable. 

However, extrajudicial punishment meted out arbitrarily runs 

counter to the American rule of law and, frankly, the United States 

Constitution. These types of actions harm the economic security of 

our Nation and destroy the trust that is critical between private 

enterprise and the Federal Government. 

It is my hope, Mr. Chairman, that we can come together to understand what the FDIC’s involvement was in these practices and 

create a bipartisan solution to ensure that this never happens 

again. 

Chairman DUFFY. The Chair now recognizes the vice chairman 

of our Monetary Policy and Trade Subcommittee, the gentleman 

from South Carolina, Mr. Mulvaney, for an opening statement of 

1 minute. 

Mr. MULVANEY. Thank you, Mr. Chairman. 

Chairman Gruenberg, thank you for being here today. 

I will make this very brief. I have been working on this for about 

2 years along with the gentleman from Missouri, Mr. Luetkemeyer. 

We were stunned to learn about it in the very first instance I heard 

about it, and we have worked diligently to try and stop this program. 

And while we had heard that the program had stopped, I have 

had information come to me as recently as last week that not only 

is Choke Point not stopped, not only is it just continuing, but it is 

expanding. It is broader now than it was when Mr. Luetkemeyer 

and I started. I will talk to you specifically about that during my 

time. 

But I will assure you that there are a lot of folks up here on this 

dais and folks who are not here today for whom this is the biggest 

thing back home. This is it. You are talking about Choke Point putting people in my district out of business: pawnshops; payday lenders; gun dealers. 

I am from South Carolina, where that is a big part of what we 

do, and it is a big deal for us. And so, if you perceive a certain pasVerDate Nov 24 2008 15:44 Aug 07, 2015 Jkt 095055 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\95055.TXT TERRI
5 

sion today in the questions, I hope you understand that this is not 

something intellectually removed from reality. It is not something 

that is theoretical. It is not something that is political. This is real. 

People in my district don’t have jobs today because of Choke Point. 

And I look forward to talking to you more about that. 

Chairman DUFFY. The gentleman yields back. 

We now welcome our witness, the Chairman of the Federal Deposit Insurance Corporation, Chairman Gruenberg. Mr. Gruenberg 

was sworn in as the 20th Chairman of the FDIC on November 15, 

2012, for a 5-year term. 

Since August 2005, Mr. Gruenberg has served as Vice Chairman 

and Member of the FDIC Board of Directors. Additionally, he 

served as Acting Chairman twice, once from November 2005 to 

June 2006, and again from July 2011 to November 2012. 

Mr. Gruenberg holds a law degree from Case Western Reserve 

Law School and an A.B. degree from Princeton University’s Woodrow Wilson School of Public and International Affairs. 

The witness will now be recognized for 5 minutes to give an oral 

presentation of his testimony. And, without objection, the witness’ 

written statement will be made a part of the record. 

Once the witness has finished presenting his testimony, each 

member of the subcommittee will have 5 minutes within which to 

ask their questions. And without objection and by previous agreement with the ranking member, the ranking member and I will 

each have 15 minutes of questioning at the end of the first round, 

as per agreement of the parties. 

I want to remind the witness that while you will not be placed 

under oath today, your testimony is subject to 18 USC Section 

1001, which makes it a crime to knowingly give false statements 

in proceedings such as this one. You are specifically advised that 

knowingly providing a false statement to this subcommittee or 

knowingly concealing material information from this subcommittee 

is a crime. 

On your table there are three lights: green means go; yellow 

means you are running out of time; and red means stop. The microphone is sensitive, Chairman Gruenberg, so please make sure you 

are speaking directly into it. 

And, with that, Mr. Chairman, you are recognized for 5 minutes 

for your opening statement. 

STATEMENT OF THE HONORABLE MARTIN J. GRUENBERG, 

CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION 

(FDIC) 

Mr. GRUENBERG. Thank you, Mr. Chairman. 

Chairman Duffy, Ranking Member Green, and members of the 

subcommittee, I appreciate the opportunity today to testify about 

the FDIC’s role with the Department of Justice’s Operation Choke 

Point. 

One of the biggest changes in banking over the past decade has 

been the rapid growth of electronic commerce. With the growth in 

electronic transactions, there has been a corresponding growth in 

online illegal activity and consumer fraud. Much of this online activity requires access to the banking system often through thirdVerDate Nov 24 2008 15:44 Aug 07, 2015 Jkt 095055 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\95055.TXT TERRI
6 

party payment processors, which has been the focus of supervisory 

attention. 

While the vast majority of electronic transactions are legal, identifying the illegal transactions hidden among the billions of annual 

transactions is a major challenge for banks and regulators. Banks 

that help facilitate or ignore warning signs of illegal activity can 

find themselves held liable for this conduct which, in extreme 

cases, can even threaten the health of the bank. 

As a bank regulator, the FDIC has a responsibility to inform the 

banks under our supervision about developing risks in the financial 

system. It also is our responsibility to ensure that banks have policies and procedures in place to identify and monitor these risks and 

take reasonable measures to manage and address them. 

As we have stated, the FDIC’s policy is that financial institutions 

that properly manage relationships and effectively mitigate risks 

are neither prohibited nor discouraged from providing services to 

customers, regardless of the customer’s business, provided the customers are operating in compliance with applicable State and Federal law. 

The FDIC’s interaction with the Justice Department’s Operation 

Choke Point grew out of the interest in ensuring the banks under 

our supervision are not facilitating illegal activity, especially online. 

I first learned about the FDIC’s interactions with the Justice Department on Operation Choke Point in August of 2013, when I received a letter from Members of Congress expressing concerns that 

the Justice Department and the FDIC were pressuring banks and 

third-party payment processors to terminate business relationships 

with lawful businesses. 

Upon inquiring, FDIC staff informed me that in early 2013, staff 

at the FDIC became aware that the Justice Department was conducting an investigation into the use of banks and third-party payment processors to facilitate illegal and fraudulent activities. It was 

understood by the FDIC that the Justice Department’s efforts were 

aimed at addressing illegal activity being processed through banks. 

The FDIC frequently coordinates with other agencies, both Federal and State, in its supervision of its regulated institutions. Staff 

informed me that FDIC attorneys communicated and cooperated 

with Justice Department staff involved in these investigations 

based on an interest in any illegal activity that may involve FDICsupervised institutions. 

Nonetheless, based on the expressed concerns, it became clear 

that there was a need to clarify and strengthen the FDIC’s supervisory approach and processes. In an attempt to address these concerns, we have taken five significant actions. 

First, the FDIC issued a public statement clarifying our policy 

and supervisory approach. This was intended to ensure that examiners and financial institutions understand that banks with properly managed customer relationships will not be criticized for providing services to customers operating in compliance with applicable Federal and State law. 

Second, the FDIC removed the list of examples from our outstanding guidance that was intended to provide greater clarity to 

the banking industry on how to safely conduct certain customer reVerDate Nov 24 2008 15:44 Aug 07, 2015 Jkt 095055 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\95055.TXT TERRI
7 

lationships. That these examples came to be viewed as a prohibition on serving certain customers was clearly, in hindsight, a failure on our part. 

Third, the FDIC issued a memorandum to all FDIC supervision 

staff establishing new documentation and reporting procedures 

where the FDIC directs the financial institution to discontinue deposit account relationships. 

Any such direction by an examiner must be in writing, must 

identify the legal and regulatory basis for the action, must be approved by the relevant Regional Director before taking effect, and 

must be reported quarterly to the FDIC Board. 

In addition, I met with our six Regional Directors and took part 

in a nationwide all-hands call with FDIC examiners to make clear 

our policy and the importance of following the procedures. 

Fourth, the FDIC published a toll-free number and email address 

for both the FDIC ombudsman and the Inspector General to encourage institutions concerned that FDIC supervisory staff are not 

following FDIC policies on providing banking services to make confidential reports to the ombudsman or IG. 

And finally, the FDIC also issued a public statement on 

derisking, encouraging banks to take a risk-based approach in assessing individual customer relationships rather than declining to 

provide banking services to entire categories of customers without 

regard to the risks presented by an individual customer or the financial institution’s ability to manage the risk. 

Looking forward, as was noted, the FDIC’s Inspector General is 

examining allegations concerning the FDIC’s role in Operation 

Choke Point and allegations that have been made in regard to 

FDIC employees. We are cooperating fully with the IG. When we 

receive the report, we will review the findings carefully and take 

appropriate action to address issues identified with either our procedures or our employees. 

That concludes my statement, Mr. Chairman. I will be glad to respond to any questions. 

[The prepared statement of Chairman Gruenberg can be found 

on page 40 of the appendix.] 

Chairman DUFFY. Thank you, Chairman Gruenberg. 

The Chair now recognizes the vice chairman of the subcommittee, Mr. Fitzpatrick, for 5 minutes. 

Mr. FITZPATRICK. I thank the chairman. 

Mr. Gruenberg, community banks in my district have felt the direct and harmful effects of Operation Choke Point and so have several private employers. The result is more red tape, costly legal 

fees, and less capital for lending. 

And frankly, just like in Mr. Mulvaney’s district, employees in 

my district have lost their jobs as a result of an operation that I 

believe neither the Department of Justice nor the FDIC wanted to 

be public at all. 

We have all seen the emails and communications that, at the 

very least, suggest that bank examiners’ personal opinions of particular industries have colored their views on what is considered 

high risk. 

8 

Recently your office issued guidance, though, stating that banks 

should look at individual businesses rather than entire industries. 

Is that true? 

Mr. GRUENBERG. Yes, Congressman. 

Mr. FITZPATRICK. What procedures have you put in place internally to ensure that examiners are not pressuring regulated banks 

to deny accounts and access to industries of which they personally 

disapprove? 

Mr. GRUENBERG. Congressman, as I just outlined, we have established written procedures to be followed in implementing the policy. Any time an examiner believes that a bank should discontinue 

a relationship with a customer, that recommendation has to be put 

in writing. 

The writing has to explain both the legal and regulatory basis for 

the action. The recommendation then has to be reviewed by the Regional Director before it can take effect. And any actions that actually may be implemented have to be reported on a quarterly basis 

to the— 

Mr. FITZPATRICK. Is there a mechanism for banks that believe 

that they have been impacted to file some sort of a complaint with 

the FDIC? 

Mr. GRUENBERG. Yes. As I also indicated, as part of the announcement that you referenced, in the statement we provided a 

phone number and email address for both our ombudsman and the 

FDIC Inspector General. 

Mr. FITZPATRICK. What are the sanctions for examiners that violate? If a complaint is justified, what are the sanctions? 

Mr. GRUENBERG. It would depend on the action of the examiner, 

and it would be subject to review by the agency and, ultimately, 

if there is a basis for it, a disciplinary action. 

Mr. FITZPATRICK. I know that we are all wondering how exactly 

the FDIC would determine that a particular industry was high risk 

when it produced the original list of industries. 

Mr. GRUENBERG. The list that I think is referenced appeared in 

a journal that the FDIC publishes called the Supervisory Insights 

journal. 

There was an article that I believe appeared in June of 2011 that 

contained this list. The article was by two of our career employees. 

And the article was about giving information to banks about managing their relationships with third-party payment processors. 

And as part of the article, there was a list that provided identifying categories of merchants that may pose an elevated risk, that 

banks have to do appropriate due diligence in regard to if they are 

going to provide services to those customers. 

Mr. FITZPATRICK. What type of criteria certified a business, in 

the eyes of FDIC, to be high risk? What were you using? 

Mr. GRUENBERG. The list was drawn, as I understand it—and, 

for what it is worth, that article appeared before I became Chairman—from similar industry lists that had been compiled identifying merchants that may pose an elevated risk to do business 

with, as well as experience that the FDIC had through its examination activities. 

Mr. FITZPATRICK. And what liability do banks face if they do 

business with clients that the FDIC determines to be high risk? 

9 

Mr. GRUENBERG. As long as the bank has appropriate controls to 

manage the risk, and as long as the customer itself is doing its 

business in compliance with the law, there should be no issue. 

And frankly, that is why we issued the guidance, to try to make 

that as clear as we can, and that is why we have adopted procedures to try to ensure that the guidance is being followed. 

Mr. FITZPATRICK. Are examiners permitted to tell bank officials 

that their banks and/or individual employees of those banks may 

face criminal charges for doing business with particular clients? 

Mr. GRUENBERG. Only to the extent that a client should be—if 

a customer should himself be engaged in illegal conduct, then that 

obviously poses a risk and a potential liability for the institution. 

But I think the point of the guidance we have issued to our examiners is that if they think a bank should not continue a customer relationship, it has to be provided in writing to the institution. 

And, in addition, the guidance says two things specifically. One, 

informal direction should not be provided, it has to be in writing, 

and the guidance specifically says the reputational risk, by itself, 

is not a basis for such an action. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman, for the hearing, and 

Ranking Member Green. 

Mr. Chairman, let me ask you a couple of questions. Do you receive any direction from the White House? 

Mr. GRUENBERG. No, Congressman. 

Mr. CLEAVER. Has the FDIC given any kind of direction to the 

Department of Justice to investigate financial institutions particularly selected by the FDIC or by you? 

Mr. GRUENBERG. As a general matter, no. Depending on the context, if we develop information, we may refer something to the Justice Department. 

Mr. CLEAVER. Was the high-risk list a plan to stop banks from 

doing business with those entities that were listed? 

Mr. GRUENBERG. I don’t believe so, Congressman. As I indicated, 

the list that was referred to was from a Supervisory Insights journal article that first appeared back in June of 2011. I think the 

idea behind the article and the list was to provide information to 

banks on managing these client relationships. 

I will say, as I indicated in my statement, that I do think the 

list was subsequently misunderstood. There were misimpressions of 

it, and conclusions were drawn that categories identified on the list 

were not eligible for banks to do business with, and that is really 

not the case. 

And frankly, the fact that the list was viewed that way, from our 

standpoint, was a failure on our part. It was the reason we ultimately withdrew the list, because we believed it was being misunderstood and being misapplied, in effect. 

Mr. CLEAVER. I appreciate that statement. And I had read your 

comments on that previous to this hearing. 

What I am trying to get clarity on is: Was there some political 

motive, people moving through the shadows, meeting down in baseVerDate Nov 24 2008 15:44 Aug 07, 2015 Jkt 095055 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\95055.TXT TERRI
10 

ments with no lights, plotting against businesses that they didn’t 

like and then you and the AG press a button and say, go and get 

these bad guys and put them on a list of nasty companies? 

Mr. GRUENBERG. Not to my knowledge, Congressman. 

Mr. CLEAVER. No cigar-smoke-filled rooms with your staff and 

others in the basement of the White House— 

Mr. GRUENBERG. Not to my knowledge. 

Mr. CLEAVER. —parked across the street? 

Frankly, I am glad that you know the high-risk list. I am hoping 

that we can deal with this without there being some subliminal 

reason for this being done other than reasons that I think are fairly clear to us. 

One of the roles of this committee is, of course, to try to find out 

what is going on. And it is our responsibility. So, tough questions 

are supposed to be asked. 

My questions were not particularly tough questions, but they 

were aimed at trying to hopefully bring some clarity to this whole 

issue and its genesis. 

So I just wanted to find out whether or not you have been secretly meeting with the President either on the basketball court, or 

on the south lawn of the White House. 

Mr. GRUENBERG. No, sir. 

Mr. CLEAVER. How often do you meet with the President? 

Mr. GRUENBERG. I have had three opportunities during the 

course of my service as the President each year has met with the 

financial regulators as a group. And I have had the privilege of 

participating in those meetings. 

Mr. CLEAVER. Did he slip you something to the side on a sheet 

of paper? 

Mr. GRUENBERG. No, Congressman. 

Mr. CLEAVER. Okay. I have no other questions. Thank you. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Tennessee, Mr. 

Fincher, for 5 minutes. 

Mr. FINCHER. Thank you, Mr. Chairman. 

I appreciate the questions from the gentleman on the other side 

of the aisle, but this is a very serious situation for States like Tennessee, where we have a lot of folks who participate and who deliver this product for the consumer. 

This is not about one specific business, but this is about the consumer having a product that they can use to help them get by in 

their day-to-day life. 

According to the report by the House Committee on Oversight 

and Government Reform, a senior FDIC official effectively ordered 

a bank to terminate all relationships with payday lenders. 

On February 15, 2013, the Director of the Chicago region wrote 

to a bank’s board of directors and informed them that the FDIC 

had found that activities related to payday lending are unacceptable for an insured depository institution. 

So my question is: Explain the legal basis or authority for such 

a sweeping order in the absence of explicit findings or violations of 

the law. 

Mr. GRUENBERG. Thank you, Congressman. 

The letter that you refer to was— 

11 

Mr. FINCHER. And I have the letter, also. 

Mr. GRUENBERG. I understand. 

The quote that you referenced was not consistent with our policy 

and, frankly, was a mistake and was one of the things that prompted us to be concerned about the misunderstanding of what our policy was and led us in September of 2013 to issue a financial institution letter to clarify that policy. 

And the clarification stated that as long as the bank has appropriate controls, and as long as the customer is complying with the 

law, a bank is neither prohibited nor discouraged from doing business with that customer. So the letter you reference was not consistent with our policy. 

Mr. FINCHER. And following up, there seem to still be quite a few 

banks that are intimidated by all of the goings-on from day one of 

Operation Choke Point—which you can say it or not. It was political from day one. Even the term is political—are still intimidated 

to allow businesses to do business with them in regards to maybe 

a mistake that this letter—or was a mistake.You referenced that. 

So what are you doing proactively to get the word out, saying, 

‘‘It is okay. This is legal. This is okay, to provide banking for these 

businesses that have done nothing wrong?’’ That is the problem 

here. Just because you may not like it doesn’t mean it is illegal. 

Mr. GRUENBERG. Look, I agree with you. And, Congressman, for 

what it is worth, we have made multiple efforts now to clarify that 

to both bankers and to our examiners. 

So we issued the financial institution letter in September of 2013 

clarifying the policy. We issued a financial institution letter in July 

of 2014 withdrawing the list and explicitly saying that it is just a 

question of having appropriate controls by the bank and the customer complying with the law. 

Then we issued a statement in January, a public statement, indicating to banks that risks should be determined on an individual 

customer basis, not on the basis of a category of businesses to 

which the customer may belong. 

We have issued public guidance to our examiners, laying out the 

specific procedures for our examiners to follow. And we have established and made public both phone numbers and email addresses 

for our ombudsman and our Inspector General so that if a banker 

believes that an FDIC examiner is not complying with the procedures— 

Mr. FINCHER. Could you provide us with that information? 

Mr. GRUENBERG. Yes, sir. 

Mr. FINCHER. And just wrapping up—I have 45 seconds left— 

back to the letter, if it is against your policy to do things like this, 

then why was this ever done? 

Mr. GRUENBERG. I think it was a mistake, frankly, on the part— 

Mr. FINCHER. Whose mistake? 

Mr. GRUENBERG. —of the author of that letter. 

Mr. FINCHER. So are they still with the FDIC? 

Mr. GRUENBERG. They are still with the FDIC. 

Mr. FINCHER. What was the penalty for making this mistake to 

go after legal businesses? 

12 

Mr. GRUENBERG. As you know, the House Oversight Committee 

undertook a report. It was one of the items identified in that report. After receiving the report— 

Mr. FINCHER. What were the consequences for the actions? 

Mr. GRUENBERG. We have requested our Inspector General to review the conduct of the individual there, as well as a number of 

others, as well as any others that the Inspector General may identify. And that review is currently under way. 

Mr. FINCHER. I yield back. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Washington, Mr. 

Heck, for 5 minutes. 

Mr. HECK. Thank you, Mr. Chairman. 

I am always hesitant to follow my friend from Tennessee, but I 

will endeavor. 

Chairman Gruenberg, several months ago your General Counsel, 

whose name I think was Osterman— 

Mr. GRUENBERG. Yes, Congressman. 

Mr. HECK. —sat here and said that legitimately constituted 

marijuana businesses in those States that have legalized it either 

through legislative action or vote of the people who followed 

FinCEN guidance wouldn’t have anything to worry about from the 

FDIC. 

Have you formalized that position in writing in any way? Because I have to tell you, I interact with banks and credit unions 

all the time and they are still walking on eggshells. 

Mr. GRUENBERG. Yes, Congressman. We have put in writing in 

a letter that our direction to banks is to follow the FinCEN guidance. 

Mr. HECK. We would deeply appreciate being able to receive a 

copy of that. 

With respect to marijuana producers and dispensaries, as you 

know, the Department of Justice’s Cole memorandum requires conformance with eight Federal priorities to qualify as legitimate. It 

is important to note the first two: one, keep it out of the hands of 

kids; and two, keep cash out of the hands of the gangs and cartels. 

Both the State entity that regulates them and any bank or credit 

union that serves them are required to be checking for conformance 

with the same eight Federal priorities. 

Now in my State, where the voters did approve it, we have a 

State Liquor Control Board which regulates marijuana businesses. 

They are working with financial institutions to allow banks and 

credit unions to check the Liquor Control Board’s database for red 

flags before they process any transaction for a marijuana business. 

And, frankly, it seems to me this is just a much more effective 

and efficient way—and we are always looking for efficiencies 

here—for compliance checks. But, frankly, I worry that it is being 

undermined because the FDIC insists that banks do their own 

checks, notwithstanding the fact that we have a regulatory entity 

that is set up. 

It seems to me that you could check how robust and muscular 

the Liquor Control Board’s effort is and sign off for that to be the 

one-stop shopping by banks so that everybody wins. What is wrong 

with that idea? 

13 

Mr. GRUENBERG. If I may, Congressman, let us take a look at 

that. And we will be glad to engage with you and your staff in regard to it. 

Mr. HECK. I look forward to your response. And I appreciate your 

willingness to follow up. 

I have kind of a philosophical question about Suspicious Activity 

Reports (SARs). Obviously, it is up to the bank or the credit union 

to decide whether or not to close a bank account, and I think it 

should be. So don’t interpret my question to mean anything other 

than that. 

But I wonder, frankly, whether or not the mere fact of generating 

multiple SARs necessarily leads to the best decision to close the account. And why do I say that? Well, that is how we can track them. 

If we are ever going to want to do anything, that is our access 

point. That is the transparency. 

And if the reaction is if you hit X number of SARS, you are gone, 

the reality is they either: one, figure out a smarter way to get 

around indicating reasons to be put on the SARS list; or two, go 

all cash, thus not benefiting anybody, frankly, and being counterproductive from what we are trying to get at. What is your reaction? 

Mr. GRUENBERG. That is probably a tricky call on the part of the 

institution because, as you know, they are under a legal obligation, 

if they identify suspicious activity, to report it. So, frankly I would 

have to give that one a little bit of thought. 

Mr. HECK. It is not the reporting. It is the closure that I wonder 

about. Because it seems to me you just took the teeth out of our 

ability to enforce. 

Lastly, quickly, I want to go all the way back to Wachovia in 

2008 and have you just comment briefly on the fraudulent activity 

you found and stopped. 

And, if you recall, how much money was returned to consumers 

on the basis of your enforcement action? 

Mr. GRUENBERG. As you know, Wachovia was a nationally chartered bank under the supervision of the OCC, so I believe it was 

actually an OCC enforcement action. But we can certainly get that 

information for you, Congressman. 

Mr. HECK. My recollection is it was a very large number with 

lots of zeros. 

Mr. GRUENBERG. It was substantial. 

Mr. HECK. Thank you for your service to community and Nation, 

sir. 

Mr. GRUENBERG. Thank you. 

Mr. HECK. I yield back the balance of my time. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Colorado, Mr. Tipton, for 5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. 

I appreciate you, Chairman Gruenberg, for being here today. 

I guess I would like to drill down a little bit in terms of, once 

you have issued this new guidance and it has gone out to the 

banks, what are you doing to be able to repair that relationship actually with the customers? 

14 

Mr. GRUENBERG. As you know, Congressman, our relationship is 

with the institution. 

Mr. TIPTON. But it was your actions that separated some businesses who had relationships with banks. 

Mr. GRUENBERG. And, frankly, that is the issue we are trying to 

address. I don’t know that we can—to the extent there was an impact in the past because of misunderstandings in regard to what 

our policy was, that is something we regret, and frankly, acknowledge the failure, if there was any consequence of that kind as a result of the list that was issued. 

I think our objective now going forward is to ensure that our policy is well-understood and consistently implemented so that any 

business that is complying with applicable State and Federal law 

should have access to a banking relationship and that the bank 

should be clear that there is no prohibition or discouragement in 

regard to that. 

And two points. If an examiner should ever raise a question or 

recommendation, again, as I made clear, we have now established 

policies where anything that is directed has to be in writing, the 

legal and regulatory basis has to be provided, and it can’t be simply 

on some reputational concern, and it cannot be informal. 

So we hope there is a sense of accountability here so that the institution—so that it only occurs in appropriate circumstances. And 

I think— 

Mr. TIPTON. I appreciate that. 

Part of your mission, obviously, is the safety and soundness of 

our banks. Businesses have pretty much the same concern for their 

own safety and soundness. And, arbitrarily, it sounds like, ‘‘It was 

just a big mix-up and, gosh, we made a mistake and we feel bad 

and now we are going to try and correct it.’’ 

But there is institutional damage effectively that you put into 

place. How are you going to address a bank, if you have a list that 

you have now wiped away—that is like going before a jury after 

testimony has been given and saying, ‘‘Disregard that.’’ You have 

already heard it. 

Are you going to see a potential problem in terms of those relationships going forward for fear with, maybe, the threat of jail and 

other penalties going on, the banks are simply not going to handle 

these businesses as customers? 

Mr. GRUENBERG. Look, I hope that is not the case. We are making every effort—I should say, just to be clear, in terms of communicating to our examiners what the policy and expectation is, I met 

personally with all six of our Regional Directors and, as I indicated, 

I took part in a nationwide all-hands call for our examiners around 

the country to make clear both what our policy is and what the 

procedures are we expect them to follow. We have a very deep commitment to following through on this. 

I understand the concerns you raise. If a business is engaging 

in— 

Mr. TIPTON. Do you feel the policies are being implemented now? 

Mr. GRUENBERG. We announced the clarification of our policy a 

year ago. The procedures that I outlined were just announced in 

January. And I am hopeful and committed that they are going to 

be effectively implemented. 

15 

Mr. TIPTON. I guess, Chairman, the reason I raise this is that the 

FDIC issued a financial institutional letter in September of 2013, 

which clarified for employees the institution’s policy and supervisory approach. That was followed up 10 months later, in July of 

2014, with a second letter restating the policy. 

According to the OGR Committee’s report during those 8 months, 

FDIC examiners were discouraging banks from having relationships with short-term lenders. 

What is that telling us in terms of effectiveness of policy? Are 

you going to have to keep revisiting this on a quarterly basis in 

terms of lining it out to your folks? 

Mr. GRUENBERG. I hope not, Congressman. As you know, we received that report from the Oversight Committee, I believe, in December of last year. 

And pursuant to that report, there is now an Inspector General 

review going on both identifying the FDIC’s conduct of its policy 

and whether or not it was consistent with the law and regulation 

and there were also specific individuals identified whose conduct is 

now under review by the Inspector General. 

So I am hopeful, with these combined efforts, we will be able to 

address this issue effectively. But I agree that it is going to be an 

ongoing effort. 

Mr. TIPTON. Off of my colleague from Tennessee’s question, is 

this going to be a slap on the hand or are these employees going 

to be looking at termination? 

Mr. GRUENBERG. The Inspector General is reviewing the conduct 

of these individuals. When that report is submitted, it is ultimately 

going to be reviewed by our Board. 

And it is a review that will not be done unilaterally by me, but 

I will do it in conjunction with our two inside Directors, Vice Chairman Tom Hoenig and Director Jeremiah Norton. 

So the three of us will have the opportunity to review and make 

a judgment on the facts found by the Inspector General and then, 

presumably, take action that is appropriate. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Vargas, for 5 minutes. 

Mr. VARGAS. Thank you very much, Mr. Chairman, for the opportunity to speak. 

And Chairman Gruenberg, thank you for being here today. 

Listening to my colleagues here, we all have very different situations. I represent the border area of California and Mexico. My district literally runs from the ocean all the way to Arizona, so every 

inch of the California-Mexico border is actually in my district. I 

also have some areas in San Diego and all of Imperial County. 

One of the things that we have done for years is try to get banking services in underserved areas, in poor areas, and certainly one 

of those areas is along the border. The community of San Ysidro 

and the community of Calexico in the past had a really difficult 

time trying to get bank branches to open there. But then they were 

successful through community efforts, as well, I think, as banks 

saw an opportunity. 

One of the things that you do see along the border, of course, are 

a lot of cash businesses. And the banks, I think, have flourished 

16 

and done well. And, in fact, I don’t think we have had—we have 

had some problems, but nothing out of the ordinary. But you do see 

a lot of cash transactions. 

Recently we have had a lot of banks close their branches there, 

in fact, a significant amount. I know I had to go and speak to a 

couple of the banks to beg them to keep some of the branches open. 

What they are saying is one of the big reasons is because of this 

Operation Choke Point, that it has been very difficult for them because of that. 

Could you comment on that, if you have any knowledge of that, 

if you could speak to that at all? 

Mr. GRUENBERG. Congressman, I have not heard that particular 

concern raised for institutions in the area that you described. We 

would be glad and, frankly, would welcome the opportunity to meet 

with you and your staff to discuss that. 

Mr. VARGAS. I would appreciate that very much. 

Because, again, these are merchants that have been long-time 

merchants. These are banks that range from literally small community banks all the way up to very, very large banks with huge 

deposits. 

So it is not your little tiny banks who have had problems in the 

past. It is, frankly, almost all banks that are leaving the border. 

And this is the issue that they are pointing at. 

So, again, I would like to know what is it that you can do when 

we meet because that, to me, is a great concern. Again, we have 

tried for years to bring banks into these areas, the bank people, 

and we have had an opportunity to do that. And it seems like they 

are all going away now. 

Mr. GRUENBERG. Thank you. 

Mr. VARGAS. Mr. Chairman, those really were my questions. And, 

again, everyone has very different and unique aspects. We don’t 

have marijuana problems. We don’t have other issues. But this is 

a really big problem for us. So I really appreciate you bringing it 

forward. 

Mr. GRUENBERG. Thank you. 

Chairman DUFFY. The gentleman yields back. Thank you, Mr. 

Vargas. 

The Chair now recognizes the gentleman from South Carolina, 

Mr. Mulvaney, for 5 minutes. 

Mr. MULVANEY. Thank you, Mr. Chairman. 

Chairman Gruenberg, I have a letter in front of me dated February 15, 2013. It is signed by Anthony Lowe, one of your Regional 

Directors at the time. And I am going to read just one or two sentences from it. It was directed to a board of directors at a bank: 

‘‘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.’’ 

Was this the official position of the FDIC in February 2013 when 

this letter was written? 

17 

Mr. GRUENBERG. Congressman, as I previously indicated, that 

letter was not consistent with our policy and it was really one of 

the things that prompted us to issue the guidance clarifying it in 

September of 2013. 

Mr. MULVANEY. If I were to ask you the same question—if I took 

out the words ‘‘payday loans’’ and inserted ‘‘pawnshops,’’ ‘‘tobacco 

shops,’’ ‘‘gun dealers,’’ ‘‘ammunition manufacturers,’’ would that 

also be the case? It was not the policy of the FDIC in 2013 and it 

is not the policy today? 

Mr. GRUENBERG. That is correct. 

Mr. MULVANEY. And I see that—I don’t have the document for 

later in 2013.I do have the one from July of 2014 that you have 

referenced here a couple of times today. 

In December of 2014, I got a phone call from a pawnshop in my 

district that had been denied a loan to expand their business. They 

needed a million dollars to expand their pawnshop. 

The woman—it was a single woman who ran it and was hoping 

to pass it on to her grown children—needed to borrow a million dollars and went to the bank that she had a 25-year relationship with 

and offered to post $500,000 in collateral and borrow effectively 50 

percent of the cost. 

She was told by that institution, which was overseen by the 

FDIC, that they could not lend to her because of the nature of her 

business. She then went to two other banks in the same community—it is a very small town where I live—and got the same answer. 

My specific question to you is this: What remedy is available either to that lady or to that bank for that outcome? 

Mr. GRUENBERG. I can’t speak to the facts of the circumstance. 

But if I may try to respond, if indeed that is what occurred, that 

would not be consistent with our policy. If indeed the banker— 

Mr. MULVANEY. Let me ask it this way. Let’s say that I talk to 

the banker and I ask, who is your examiner, and they know and 

they will tell me. What should that bank do in order to straighten 

out this difficulty? 

Mr. GRUENBERG. I think a couple of things, if the bank is willing. 

One, to report it to the supervisor, the regional office, to make us 

aware of it. There is also a dedicated email address to our ombudsman to report it on a confidential basis, or there is also a number 

and email address to report it to our Inspector General. 

Mr. MULVANEY. Now, after you issued the July 2014 advisory letter, the institution letter, you were still having difficulties with 

Choke Point, weren’t you? People were still calling to complain 

about Choke Point being used to deny them access to credit. 

Mr. GRUENBERG. I think it is fair to say we were still hearing 

concerns. 

Mr. MULVANEY. Sure. And that was at least one motivation for 

the January 2015 additional guidance, correct? 

Mr. GRUENBERG. Yes. 

Mr. MULVANEY. And you came in—I think the language here 

says that you encourage—this is from the summary, not the actual 

text, it is the summary that you provided—insured depository institutions to service the communities. It goes on to say that you encourage them to take a risk-based approach in assessing individual 

18 

customer relationships rather than declining to provide banking 

services to entire categories of customers without regard to the 

risks. That is in January of 2015. 

Last week, it happened again in my district, to a business with 

a decade’s long relationship with their bank, at many different levels, by the way. The company is a diversified company. One of their 

businesses happens to be payday lending, and their bankers came 

to them unsolicited. They weren’t asking for a new line, weren’t 

asking for any new credit, no new loans, but the bank came to 

them and said, look, we really like the relationship with you and 

we want to continue it. We just can’t do it anymore for your payday 

operation. You need to close your checking and savings accounts for 

that. 

Mr. GRUENBERG. Congressman, if the bank is willing, we would 

certainly—and I understand the concern about reprisal, so it is 

what makes these situations difficult. 

Mr. MULVANEY. That is why I am not using the names. 

Mr. GRUENBERG. I understand. But if the bank is willing, we 

would welcome the opportunity to engage with the institution and 

understand the facts of the situation. 

Mr. MULVANEY. Lastly, and this is the question I referred to, I 

think, in my opening statement, I have another example that I 

won’t go into in great detail where a similar thing happened in my 

district with a bank that is not overseen by the FDIC. It is overseen by the Office of the Comptroller of the Currency. So, my question to you is this: Are you aware of any of the other regulatory 

agencies engaging in similar Operation Choke Point-like activity? 

Mr. GRUENBERG. Not to my knowledge. 

Mr. MULVANEY. Did you share the directives that you gave in 

your July 2014 letter and January 2015 letter with the folks at the 

OCC, with the Fed, or with anybody else? 

Mr. GRUENBERG. Those are public documents, Congressman, so 

they would be available to all the agencies. 

Mr. MULVANEY. Thank you, sir. Thank you, Mr. Chairman. 

Chairman DUFFY. The Chair now recognizes the gentleman from 

Maine, Mr. Poliquin, for 5 minutes. 

Mr. POLIQUIN. Thank you for being here, Mr. Chairman. This report from last year concludes that your agency and the people who 

work for you had a list of firms, of businesses that were questionable, disreputable. And you folks instructed your examiners with a 

directive listing this group of businesses that were questionable, 

disreputable in the opinion of your examiners or the folks that you 

work with in the front office, and instructed banks to put pressure 

on—or the examiners to put pressure on those banks so they would 

not extend loans and debit transaction processing and so forth and 

so on to try to presumably drive these businesses out of business. 

Now, what do you say to a three-generation family business outside of Bangor, Maine, that I represent, that sells firearms and ammunitions legally, and also sells tobacco, maybe they sell some fireworks—I’m not done yet. Sorry. 

Mr. GRUENBERG. I don’t— 

Mr. POLIQUIN. Thank you. What gives you the right, or anybody 

who works for you the right, or your agency the right, to tell businesses who are operating legally in this country, where the owners 

19 

have sacrificed their savings, their hard work, grown their businesses, hired their family members and others—what gives you the 

right to try to shut them down, sir? 

Mr. GRUENBERG. We don’t have that right or authority, Congressman. 

Mr. POLIQUIN. You don’t, but you did it, didn’t you? 

Mr. GRUENBERG. That is something we have now asked our inspector— 

Mr. POLIQUIN. But you did it, didn’t you, sir? 

Mr. GRUENBERG. I am trying to— 

Mr. POLIQUIN. Please. I have 3 minutes left. 

Mr. GRUENBERG. I understand the findings from the House Oversight Committee report, and as a result of that report, our Inspector General is conducting a review. 

Mr. POLIQUIN. If I am not mistaken, sir, based on the timeline 

that I have, there was a period of time where you asked for this 

list to be expanded; is that correct? 

Mr. GRUENBERG. Not to my knowledge. 

Mr. POLIQUIN. That is not correct. I want to make sure I hear 

this correctly. 

Mr. GRUENBERG. I am not sure what you are looking— 

Mr. POLIQUIN. You did not ask for this list of questionable businesses ever to be expanded; is that correct? 

Mr. GRUENBERG. I think I—if I may note, if I may say what I 

think you may be referencing. 

Mr. POLIQUIN. It is a very simple question. 

Mr. GRUENBERG. No, if I may answer. I will try to. 

Mr. POLIQUIN. Please. 

Mr. GRUENBERG. The list that you are referencing appeared in a 

Supervisory Insights Journal article. 

Mr. POLIQUIN. That is correct, which is a directive to examiners 

dealing with banks, correct? 

Mr. GRUENBERG. That is an article that is not actually guidance 

but it is informational to the industry— 

Mr. POLIQUIN. Certainly, they get the message. Did you in fact— 

Mr. GRUENBERG. No. 

Mr. POLIQUIN. You did not ask to expand this list to include firearms dealers? 

Mr. GRUENBERG. No, sir. There was guidance issued in January 

of 2012, following on that Supervisory Insights Journal article, and 

there was a—in that guidance, there was a—identified some examples. 

Mr. POLIQUIN. As I understand your answer, you did not in any 

way, at any time, ask to expand this list of industries? 

Mr. GRUENBERG. To expand— 

Mr. POLIQUIN. That is what I heard. 

Mr. GRUENBERG. Not to my knowledge. 

Mr. POLIQUIN. Okay. Fine. Thanks. Let’s move on. There is a 

pattern here, Mr. Director, of government agencies, like the Internal Revenue Service, intimidating law-abiding citizens because 

they don’t have the same political views as maybe the regulating 

agency, and the Administration wanting to give amnesty to 5 or 6 

million people which is not set in law, and now all of a sudden you 

folks come along. 

20 

I think you folks, frankly, are a threat to our economy and our 

way of life and the employment that we have in this country. What 

do you say to the employees who have lost their jobs because of the 

overreach of your agency asking examiners to intimidate banks to 

shut down credit to businesses that are trying to survive? What do 

you say to those families who have lost those jobs? 

Mr. GRUENBERG. To extent it has occurred or an issue, it needs 

to be addressed, and we have asked the inspector— 

Mr. POLIQUIN. But we just heard that the folks who were involved in this mess are still working at your agency; is that correct? 

Mr. GRUENBERG. Yes. 

Mr. POLIQUIN. That is correct. Okay. So when did you find out 

about this? 

Mr. GRUENBERG. The report that you reference was released in 

December. 

Mr. POLIQUIN. When did you find out about it, sir? 

Mr. GRUENBERG. About the allegations that you are raising, I believe when we received the report, and pursuant to that, we requested the Inspector General to review the conduct. 

Mr. POLIQUIN. Okay. So how long have these people who were involved in this mess, how long have they still been working at your 

organization? 

Mr. GRUENBERG. These are career employees. 

Mr. POLIQUIN. I don’t care who they are. How long has it been, 

since the report came out, that they are still working there? 

Mr. GRUENBERG. The report came out in December and this is 

March. 

Mr. POLIQUIN. Okay. Thank you. 

Chairman DUFFY. The gentleman’s time has expired. The Chair 

now recognizes the gentleman from Minnesota, Mr. Ellison, for 5 

minutes. 

Mr. ELLISON. Thank you, Mr. Chairman, and Ranking Member 

Green. Mr. Gruenberg, I represent a district in Minneapolis, Minnesota, the 5th District of Minnesota. It is home to America’s largest Somali American population. We are very proud of our community, and they make tremendous contributions to our society every 

day. But one of the problems that they are facing is that the money 

that they earn that they try to remit back home through Somali 

money service businesses is being reduced tremendously. Is this 

phenomena where we see the MSBs having their options cut part 

of Operation Choke Point? 

Mr. GRUENBERG. I don’t believe so, Congressman. 

Mr. ELLISON. Now, when you say you don’t believe so, are you 

saying that it could be but you just don’t know about it, or just— 

I am not trying to be difficult. 

Mr. GRUENBERG. Sure, sure. 

Mr. ELLISON. It is just like I am like, I would far and away prefer yes or no, and do you understand what I mean, because when 

you say you don’t believe so— 

Mr. GRUENBERG. No, no. 

Mr. ELLISON. Okay. So no, it is not. I want to say thanks for the 

FDIC’s statement about serving money service businesses. What 

kind of feedback did you get from your regulated financial instituVerDate Nov 24 2008 15:44 Aug 07, 2015 Jkt 095055 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\95055.TXT TERRI
21 

tions about the statements that you all put out, and did they think 

that the statements added clarity or increased understanding? 

Mr. GRUENBERG. I would say the general response has been positive because it both clarified the policy, and we hope our procedures will ensure that it is followed. 

Mr. ELLISON. Okay. And were the banks more willing to provide 

checking accounts and/or wire transfers to money service businesses serving vulnerable nations because of your statement, as far 

as you are aware? 

Mr. GRUENBERG. I can’t speak to that, Congressman. 

Mr. ELLISON. Okay. And there seems to be a disconnect between 

what Treasury and FinCEN say and what examiners tell banks 

specifically about know-your-customer requirements. Banks believe 

that they must know their customer’s customer even though 

FinCEN and Treasury say that is not necessary. Do you want to— 

do you have any reflections on that? 

Mr. GRUENBERG. Yes. I agree with what you—in regard to the 

FinCEN position that the obligation is to know your customer and 

not to know, as you say, the customer of your customer. 

Mr. ELLISON. Right. So, I have talked to a lot of bankers about 

this problem, and what they tell me is that they feel the need to 

be infallible even though infallibility is not a required standard. Do 

you think there is a disconnect or do you think that the rules are 

very clear? Do you think there is some more clarity that we could 

be doing? 

Mr. GRUENBERG. We actually issued guidance trying to clarify 

that point that this is not a no-fault or no-mistake system. We understand that mistakes may be made. The issue is, do they have 

an appropriate set of controls and policies? It is not a mistake-free 

environment. We understand that. And we tried to make that clear 

in our guidance. 

Mr. ELLISON. Is the FDIC part of any interagency working group 

to restore remittances pipeline? 

Mr. GRUENBERG. I believe there is an interagency effort, and we 

have participated in that. 

Mr. ELLISON. Can you give me some assessment about how well 

that interagency group is working? 

Mr. GRUENBERG. I think it is receiving serious attention. As you 

know, it is a challenging issue, so I don’t know that we have a solution yet, but I think it is going to require a high-level effort among 

the agencies in conjunction with Treasury and the State Department as well, I expect. And I know you have been leading that effort. 

Mr. ELLISON. Yes. Has the FDIC engaged with the working 

group on remittances to East Africa convened by the Federal Financial Institutions Examination Council (FFIEC)? 

Mr. GRUENBERG. Yes. I would have to check on that, if I might, 

Congressman. 

Mr. ELLISON. Yes. 

Mr. GRUENBERG. I don’t know. 

Mr. ELLISON. You could respond to that in writing. Do you know 

anything about the FFIEC? 

Mr. GRUENBERG. Yes. We are a member of the FFIEC. 

22 

Mr. ELLISON. Okay. Do you think that they can make a contribution toward restoring humanitarian remittances? Do you think they 

are an important player to have involved? 

Mr. GRUENBERG. Yes, I do. They represent, as you know, the regulators of the insured depository institutions. 

Mr. ELLISON. Okay. All right. I think that is pretty much the end 

of my time. So, I want to say thank you, and any other additional 

questions, we will submit in writing. 

Mr. GRUENBERG. Thank you, Congressman. 

Mr. ELLISON. I yield back. Thank you, Mr. Chairman. 

Chairman DUFFY. The gentleman yields back. The Chair now 

recognizes the gentleman not from North Carolina but from Texas, 

Mr. Green. 

Mr. GREEN. Thank you. 

Chairman DUFFY. For 10 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. I think it is appropriate 

to give some indication as to why it is important for us to be concerned about activities of the third-party processors as they relate 

to the banking industry. For clarity purposes, these third-party 

processors, as they are called, are businesses. And these businesses, for a fee, will accept payments from consumers, and they 

accept these payments and they give these payments, they deposit 

them in banks for merchants, and it is a good business. There is 

nothing illegal, per se, about third-party processors. There is nothing illegal, per se, about the businesses that have been mentioned 

today. 

But I do think that we have had some things occur that have 

caused us to take a look at this process. And quite frankly, I think 

the American people would want us to look into these things based 

upon some of the past occurrences. 

So, let’s take a look at a few of them. On March 12, 2015—and 

I am not going to mention the name of the bank, but if someone 

wants me to, I will—a bank paid $1.2 million in fines for knowingly 

facilitating consumer fraud. Consumer fraud, meaning people, people from our congressional districts were defrauded. It happened. 

It cannot be ignored. 

In April 2014, a bank—name not mentioned but available if need be—paid $1.2 million in fines for fraudulent charges made by a 

third-party processor. Another fine paid, $1.2 million. On March 10, 2015, a bank paid $4.9 million in fines. The processor was allowed, in this case, to make hundreds of thousands of 

withdrawals over a 20-month period on behalf of a telemarketing 

company that charged unauthorized payday loan referral fees. 

Now, this would give the payday loan industry a black eye, a bad 

reputation to allow something like this to occur and not take action. There is no effort on the part of the FDIC to eliminate payday 

lending, but I do think that when we see these egregious circumstances, we have to do something. The banks should not just 

simply be a party to this by seeing it occur and not do something 

affirmative to stop it. They are there, they know that these things 

are going on, and they should take affirmative action, and they 

should have a compliance process in place. And when they do not, 

I think that should be called to the attention of banks, and that 

is really what the FDIC appears to be doing. 

23 

And here is one. In November 2012, a $15.5 million settlement— 

2 million fraudulent charges by a third-party processor. Two million. These are people who are being hurt. I do appreciate what my 

colleagues have said about the businesses, and businesses who are 

operating legitimately should in no way be challenged about what 

their lawful business operations are, but there is a reason why we 

are looking into things in this area. 

And I want to thank you, Chairman Gruenberg, for the way you 

have aggressively made an effort to correct mistakes that were 

made. I have some of your testimony, and you did not go into any 

great detail, but I would like for you to respond. It appears to me 

that you participated in a national call with all FDIC supervision 

staff. Tell us about that call and what you were attempting to accomplish with that call, please. 

Mr. GRUENBERG. Thank you, Congressman. As I indicated previously, we wanted to be sure that our examiners are implementing 

the policy that we have announced and clarified, which is that 

banks are neither prohibited nor discouraged from serving the customer as long as the customer is in compliance with State and Federal law and the bank has the appropriate procedures and controls. 

And we established a set of processes for examiners to follow in implementing the policy. I don’t want to repeat it all again, but it has 

to be in writing, it has to cite the regulation and law, it has to be 

approved by the Regional Director, and ultimately, any actions 

have to be reviewed by our Board. 

I took part in that nationwide all-hands call with all of our examiners nationwide to emphasize the importance both of the policy 

and of the importance of implementing the procedures to ensure 

that the policy is faithfully implemented. And I am very committed 

to this. I understand the concerns that have been raised. It is a 

balance that you have to strike here in that we want banks that 

have appropriate controls, and customers who are abiding by the 

law to have access to banking services. At the same time, we want 

banks to have an appropriate set of controls to identify any improper activity that may be going on. So, it is a balance to strike. 

It is what we are trying to do. 

Mr. GREEN. You also met with the six Regional Directors. This 

is something you did yourself to make clear what the policy was 

in the event someone was unclear. Would you kindly give us some 

intelligence on this? 

Mr. GRUENBERG. Consistent with the call to all of our examiners, 

I met with our six Regional Directors who oversee our examiners 

around the country. Again, to emphasize the importance of and 

make clear the policy and the procedures that we are implementing 

to ensure that the policy is followed. 

I wanted to send that message from me directly both to our Regional Directors as well as to our examiners. 

Mr. GREEN. You have mentioned it, but I think some things bear 

repeating. Toll-free numbers that you have made available, at least 

two. Would you reiterate, please? 

Mr. GRUENBERG. As I indicated, follow-through in implementation is really what is important here. That is the reason for the 

calls and the meetings and establishing the written policies. And 

we wanted to give bankers a recourse, that is, if they think an exVerDate Nov 24 2008 15:44 Aug 07, 2015 Jkt 095055 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\95055.TXT TERRI
24 

aminer is not acting appropriately, not following the policy, not implementing the procedures, we wanted to give them a confidential 

way to report that. 

So we provided, in our public statement, a phone number and 

email address for our ombudsman, as well as a phone number and 

an email address for our Inspector General so that any banker who 

believes an examiner is not doing what they should be doing can 

report it on a confidential basis. 

And frankly, I would hope the banker would make the effort to 

report it to our regional office so that we can act on it directly, but 

I understand the concern and desire of some bankers for confidentiality, so we wanted to give them an avenue to report the information on a confidential basis. 

Mr. GREEN. And the notice process to banks has now been not 

only formalized but it has been codified, and you have made it clear 

that this is to be done in writing. There will be no informal conversations that will be recognized. We all have some people who 

don’t adhere to the letter and spirit of policy, but you have made 

it clear to people that your expectations are that policy will be followed to the letter and in the sincerest spirit with which the policy 

was promulgated. Is that a fair statement? 

Mr. GRUENBERG. Yes, I think so, Congressman. 

Mr. GREEN. Would you want to add anything more to this list of 

things that you have done to make sure that mistakes are properly 

addressed? 

Mr. GRUENBERG. Just to be clear, the procedures that you just 

described we put in writing, they are public, and our examiners are 

expected to follow it, and the procedures make clear it has to be 

in writing. It cannot be in informal communication, and that 

reputational risk, by itself, is not the basis for an action. So, we 

have tried to be responsive to the concerns that have been raised. 

Mr. GREEN. Thank you, Mr. Chairman. I will reserve my final 5 

minutes. 

Chairman DUFFY. The gentleman yields back. The Chair now 

recognizes himself for 15 minutes. 

So, Chairman Gruenberg, I want to be clear on your testimony. 

The FDIC, by way of its list that came out in Supervisory Insights, 

this was not a target list by the FDIC; that is correct, right? 

Mr. GRUENBERG. I don’t believe that was the intention. 

Chairman DUFFY. Yes or no? You are the Acting Chairman. This 

is not a target list. 

Mr. GRUENBERG. For what it is worth, that article came out before I became Acting Chairman. 

Chairman DUFFY. So, this is not a target list then, for your testimony? 

Mr. GRUENBERG. I’m sorry? 

Chairman DUFFY. This is not a target list? 

Mr. GRUENBERG. I don’t believe it was, no, Mr. Chairman. 

Chairman DUFFY. Okay. And your testimony is that at no point 

during your chairmanship has this list been used to target these 

groups that are enumerated on the list, right? 

Mr. GRUENBERG. It would not have been consistent with our policy. 

25 

Chairman DUFFY. Not consistent with your policy. What has 

been the practice of the FDIC? 

Mr. GRUENBERG. I believe the general practice has been consistent with that policy. There may have been instances, and that 

is, frankly— 

Chairman DUFFY. How prevalent are those instances where the 

practice of the FDIC hasn’t been followed? 

Mr. GRUENBERG. We don’t know that, frankly. That is what the 

inspector is— 

Chairman DUFFY. You are the chairman, right? 

Mr. GRUENBERG. Yes, and that is what the— 

Chairman DUFFY. Have you been looking into this yourself? 

Mr. GRUENBERG. We have asked the inspector— 

Chairman DUFFY. That is not my question. Did you look into it 

yourself? 

Mr. GRUENBERG. When the— 

Chairman DUFFY. Have you looked into the abuses of people who 

haven’t followed your policy at the FDIC? 

Mr. GRUENBERG. When the House— 

Chairman DUFFY. Have you— 

Mr. GRUENBERG. I am trying, if I may. 

Chairman DUFFY. Yes or no? 

Mr. GRUENBERG. The answer, I would say— 

Chairman DUFFY. Yes. The answer is no, right, you have not 

looked into it? 

Mr. GRUENBERG. I have looked into it, and the determination— 

Chairman DUFFY. What have you found? 

Mr. GRUENBERG. I am trying to answer. 

Chairman DUFFY. I am trying to get an answer. 

Mr. GRUENBERG. The determination we made in conjunction with 

our inside Directors is this would—we needed to get the facts, and 

that is really the basis for the Inspector General review. 

Chairman DUFFY. How long have you been looking at the facts? 

Mr. GRUENBERG. Well, the report of the House Oversight Committee— 

Chairman DUFFY. No, no, no, no, no. You gave information to the 

Oversight Committee. 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. You had that information. You have known for 

2 years that this was going on. What have you done in the last 2 

years to address Operation Choke Point or the targeting of these 

businesses? 

Mr. GRUENBERG. We issued guidance in September of 2013. We 

withdrew the list in July of 2014. We have issued additional guidance, and we have also asked the Inspector General to— 

Chairman DUFFY. You have given new guidance, right. So let’s— 

you were asked from some of my colleagues about a letter that 

came out from Anthony Lowe, and in there—this was February 15, 

2013, and I am not going to read the full egregious paragraph, but 

just the end it says, ‘‘Consequently, we have generally found that 

activities related to payday lending are unacceptable for an insured 

depository institution.’’ Now, is Mr. Lowe still employed at the 

FDIC? 

Mr. GRUENBERG. Yes, he is. 

26 

Chairman DUFFY. Yes, he is. And is he still in the same position, 

as Regional Director? 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. And is it part of your policy now that if you 

have an issue with one of your banks, you should go to the Regional Director Mr. Lowe? Yes? 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. Yes. Do you think a bank is going to feel comfortable having an examiner that is going after them for payday 

lending to go to Mr. Lowe who is targeting payday lending? 

Mr. GRUENBERG. And the— 

Chairman DUFFY. That is your big answer to targeting payday 

lenders? 

Mr. GRUENBERG. I think, as you know, the Inspector General is 

currently reviewing— 

Chairman DUFFY. I don’t care about— 

Mr. GRUENBERG. If I may just answer. 

Chairman DUFFY. Is the Inspector General the Chairman of the 

FDIC or is it Martin Gruenberg? The buck stops with you, Mr. 

Gruenberg. 

Mr. GRUENBERG. Yes, and it was important to us to get the facts 

in the case before taking any action. 

Chairman DUFFY. So, you have these facts, this letter, and you 

have done nothing, right? 

Mr. GRUENBERG. We have taken the actions I described, Mr. 

Chairman. 

Chairman DUFFY. So, what you have done is, in the last 2 years 

you have waited for the Oversight Committee to do a report, then 

you asked for an IG investigation. So this is classic slow walking. 

He is still in this position. And we will get to, I think, what the 

truth is behind what is happening here. 

I want to go through just a few more documents to make sure 

we are on the same page and how prevalent this work at the FDIC 

is. Thomas Dujenski—I am saying his last name wrong. He no 

longer works at the FDIC, right? 

Mr. GRUENBERG. Yes, sir. 

Chairman DUFFY. Was he fired or did he leave on his own accord? 

Mr. GRUENBERG. He retired, I believe. 

Chairman DUFFY. He retired, he wasn’t fired. Here is an email 

from February 7th: ‘‘I am pleased we are getting the banks out of 

the payday bad practice,’’ et cetera. ‘‘Another bank is griping, but 

we are doing good things for them. For example, the redacted bank, 

is going the hate DOJ being involved. We are doing the right thing 

for sure. One or two banks may complain next week when the Florida bankers come to D.C. as a group.’’ 

So we have old Thomas, we see how he feels about payday lending, but he retired, wasn’t penalized at all. Thomas again says that 

he literally can’t stand payday lending. That was in an email on 

November 26th. Let’s see, we now have Seth Rosebrock: ‘‘Jonathan, 

heard where you are coming from, but nonetheless, wants to retain 

a reference to pornography in our letters and slash talking points. 

He thinks it is important for Congress to get a good picture regarding the unsavory nature of the business at issue. He represented 

27 

that one is judged by the friends one keeps, and he seems to feel 

strongly that including payday lenders in the same circle as pornographers and online lenders and gaming businesses will ultimately help get the message at issue.’’ Have you seen this email? 

Mr. GRUENBERG. Yes, I have. 

Chairman DUFFY. Would that disturb you? 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. Was Seth reprimanded? 

Mr. GRUENBERG. Well, the— 

Chairman DUFFY. Is Seth still employed at the FDIC? 

Mr. GRUENBERG. No, no. Just so I understand, I think that email 

was referencing a comment by— 

Chairman DUFFY. Jonathan. 

Mr. GRUENBERG. —the individual you mentioned. 

Chairman DUFFY. Is Jonathan still employed at the FDIC? 

Mr. GRUENBERG. Yes, and his conduct is under review as well. 

Chairman DUFFY. Have you done anything to—has he been reprimanded by you, the Chairman? 

Mr. GRUENBERG. Not— 

Chairman DUFFY. No? 

Mr. GRUENBERG. —until we get the facts in the case, Mr. Chairman. 

Chairman DUFFY. These are pretty—and he is still in the same 

position. He hasn’t been demoted, right? 

Mr. GRUENBERG. No. I think the view of myself and the other inside Directors was we wanted to get the facts in the case before 

making a judgment in regard to an employee. 

Chairman DUFFY. Dana Lesemann, she says that although payday lending is a particularly ugly practice—and it goes on, but I 

am sure Dana is still employed and not been reprimanded. Here 

is one. Do you know an individual by the name of Mark Pearce? 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. High ranking at the FDIC? 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. Okay. This was from Marguerite, and I always 

have a hard time with Marguerite’s last name. You know Marguerite, correct, though? 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. Yes. Marguerite says, ‘‘Second, at the request 

of Mark Pearce, we are looking into the avenues by which the 

FDIC can potentially prevent our banks from facilitating payday 

lending.’’ 

Mark Pearce, we are looking into avenues by which the FDIC 

can potentially prevent our banks from facilitating payday lending. 

Chairman Gruenberg, Mark Pearce is at almost the top of the pyramid. Is he still employed at the FDIC? 

Mr. GRUENBERG. Yes, he is, Mr. Chairman. 

Chairman DUFFY. Has he been reprimanded by you? 

Mr. GRUENBERG. We are awaiting the results of the— 

Chairman DUFFY. Waiting for— 

Mr. GRUENBERG. —IG’s review of his conduct. 

Chairman DUFFY. This was sent in 2013. This was 2 years ago. 

I am not going to go through all of the emails, but I would argue 

that if I were you, the Chairman, and I actually agreed with the 

28 

targeting of payday lending, I would say, you know what, I am 

going to slow walk it. I am not going to do anything, and what I 

am going to do is I am going to hang my hat on the fact that an 

OGR report came out with all my documents, and then I am going 

to look for an IG investigation, and I can slow walk this thing, and 

all the while payday lenders across the country that are legal businesses, right, they are legal? Yes or no, payday lending is legal? 

Mr. GRUENBERG. Yes. I was— 

Chairman DUFFY. They follow the law. 

Mr. GRUENBERG. There are some States, as you know, that don’t 

permit it, but— 

Chairman DUFFY. They follow the law, they are legal. 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. Are gun dealers, if they follow the law, legal? 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. Are ammunition manufacturers, if they follow 

the law, legal? 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. So you haven’t—the people that I have mentioned, you haven’t fired any of them, right? 

Mr. GRUENBERG. That is correct. 

Chairman DUFFY. I want you to look behind you. On the second 

row I have a number of people from all across the country, gun 

dealers, ammunition manufacturers, payday lenders, who have 

been targeted by your people at the FDIC, and guess what, they 

are going out of business. Do you want to look at them? 

Mr. GRUENBERG. Yes, I did. 

Chairman DUFFY. Did you see them on the way in? 

Mr. GRUENBERG. I saw them when I came in, Mr. Chairman. 

Chairman DUFFY. And what response do you have to them, when 

these small business owners, who invested their life savings, who 

have worked their hearts out, and all of a sudden they can’t find 

a bank to bank them because you say, not by way of the FDIC official policy, but all my top level people, they have targeted their sectors, they can’t find banks, and they are going out of business, 

what do you say to them? 

Mr. GRUENBERG. As far as our conduct, we have made every effort to make our policies clear, that if the businesses are conducted 

in compliance with the law, they should— 

Chairman DUFFY. Well— 

Mr. GRUENBERG. If I could just— 

Chairman DUFFY. Go ahead. 

Mr. GRUENBERG. They should have access to banking services. To 

the extent individuals may have acted inappropriately, that is currently under review by our Inspector General, and if there was 

misconduct, that will be then subject to a review by myself and the 

inside Directors at the FDIC. 

Chairman DUFFY. So, what you say is, yes, I knew 3 years ago, 

and I am just going to act now with an IG investigation after the 

OGR report. And these people are still going to collect fat salaries 

in their cushy positions, but the small business owners behind you, 

they are all going to be out of work, no job for them, and you call 

that fair. 

29 

I don’t, Mr. Gruenberg. I think you are the Chairman, and I 

think, if I recall in your introduction, did you go to Princeton? 

Mr. GRUENBERG. I did, sir. 

Chairman DUFFY. You are a very intelligent guy. And I am sure 

that if you wanted to hold accountable those who were bad actors 

in the FDIC, you would. I don’t think you want to hold them accountable. 

Let’s just talk a little bit further about what the FDIC has been 

doing with regard to its policies. From Thomas Dujenski, August 

1, 2013, this is a consent order. So, we talk about payday lending. 

By chance, did you ever look through some of these consent orders 

that were sent to our committee? 

Mr. GRUENBERG. I would have to know which ones you are referring to. 

Chairman DUFFY. We redacted the bank, but it is a consent 

order, and in regard to the consent order, official document, not an 

email, the prohibited businesses—and do you know what the definition of ‘‘prohibited’’ is? 

Mr. GRUENBERG. I don’t know the document you are referring to. 

Chairman DUFFY. No, the definition of ‘‘to prohibit.’’ 

Mr. GRUENBERG. Yes. 

Chairman DUFFY. What is the definition? Do you know? 

Mr. GRUENBERG. I don’t know the context. I just don’t know the 

context in which it is being used there, if I may. 

Chairman DUFFY. Okay. Well, prohibited businesses, ammunition sales, and firearm sales. This is in a consent order with a 

bank. So, this is the official policy of the FDIC? 

Mr. GRUENBERG. Again, I would have to see the document. 

Chairman DUFFY. I will send it down if you want, but it is—you 

sent it to me. 

Mr. GRUENBERG. Sure. 

Chairman DUFFY. So, what do you say about a consent order for 

a bank that says you can’t do business, it is prohibited with ammunition manufacturers and gun dealers? 

Mr. GRUENBERG. You know what, I would need to see the document, and I would be glad to review it and get back to you, if that 

would be helpful. 

Chairman DUFFY. I will send it down in a moment. I have another one. I have a commercial lending policy dated March 14, 

2012, undesirable loans. Undesirable loans. Guess what is on that 

list? Undesirable loans include firearm dealers, and you wonder 

and scratch your head, why are firearm dealers around America 

going out of business? Because the FDIC is targeting banks and 

saying you can’t do business with them. 

Let’s try one more. Anthony Lowe, who is still employed at the 

FDIC, right? This is a memorandum of understanding on April 2, 

2014. When did you order your directive to stop targeting folks and 

make sure everyone at the FDIC was clear that this was not a target list? When was that sent out? 

Mr. GRUENBERG. We issued guidance in September of 2013 making clear what the policy was, and then we withdrew the list in 

guidance issued in, I believe, in July 2014. 

30 

Chairman DUFFY. So in September of 2013, you were clear that 

you are not supposed to target these whole lines—these whole businesses, right? 

Mr. GRUENBERG. I think that was never our policy, and we wanted to be clear that— 

Chairman DUFFY. Sure. 

Mr. GRUENBERG. —that was the case. 

Chairman DUFFY. And Mr. Lowe did a memorandum of understanding, and on that list, he has prohibited acts and services, and 

on there is payday lenders. How could that be? That is after you 

gave the guidance. 

Mr. GRUENBERG. I would have to look at the documents you are 

referring to, Mr. Chairman. 

Chairman DUFFY. You don’t trust me. You gave them to me. 

They are your documents. 

Mr. GRUENBERG. I want to know which one you are— 

Chairman DUFFY. We have 2 minutes. Do you want me to send 

them down to you so you can look at them? 

Mr. GRUENBERG. What I would suggest, if you are okay with it, 

is if we could have an opportunity to review them and then we will 

get back to you. 

Chairman DUFFY. I don’t think there is an explanation for it. I 

would say you would be hard pressed, even with a Princeton education, that you have consent orders and memos of understanding 

that say you can’t do business with ammunition manufacturers, 

gun dealers, and payday lenders. These are the official documents 

of the FDIC going out to banks. 

And I have an email chain showing that you are targeting payday lenders and ammunition manufacturers. You are abusing your 

power. You are going after little guys all over America because, I 

would say, Mr. Gruenberg, you are a good liberal. You say, I don’t 

like these industries and I am going to use, just like Lois Lerner, 

the power that I have at the FDIC to target these industries, and 

I am going to put them out of business. And I am not going to have 

a public debate because people like the Second Amendment and 

they like their guns. I am going to do it behind closed doors under 

the cover of darkness and put these folks out of business as a bureaucrat and as an activist instead of saying, you know what, I am 

going to come clean and have a public debate. 

The bottom line is you are putting people out of business. And 

all the people, in the end, in the FDIC who are implementing this 

program, they still work there. They haven’t been fired. They 

haven’t been reprimanded. And you are the Chairman. And frankly, I will tell you what, if you are not going to hold them accountable, I think the buck stops with you. I don’t think you should 

chair the FDIC. 

If you can’t go after and root out the problems in the FDIC, if 

you can’t hold accountable those who are targeting legal businesses, you have no place as the Chairman. That you have known 

for 2 years that this is going on. That you wait until we make public the documents that you gave us, and then you do an OGR report, or an IG investigation and you say, you know what, after I 

get those results, I am going to take action. All the while, Americans are getting targeted, and frankly, I think irresponsible, and 

31 

if you are not going to handle it, I don’t think you should keep your 

position. Do you want to respond? 

Mr. GRUENBERG. Yes. Well, Mr. Chairman, we have tried consistently, going back to when we received the letter from the Members 

of Congress, to respond to the concerns that have been raised. We 

have tried to clarify our policies. We have tried to address the 

issues raised by the list. 

We cooperated with the investigation of the House Oversight 

Committee. When we received the results of that investigation and 

the report, we then tried to take action pursuant to it, both to the 

policies of the FDIC as well as to the individuals raised. 

And in regards to the individuals—and I will say that all of the 

actions that we have taken over this period of time are done in consultation with our Vice Chairman. We have tried to do it on a basis 

that involves our Board, and we intend to work together to review 

the findings of the Inspector General. 

So, we have tried, from my standpoint—I understand the points 

you make—to take a balanced approach to address this— 

Chairman DUFFY. These people have no place in the government. 

Mr. GRUENBERG. —in a responsible way. 

Chairman DUFFY. I am going to yield in a second. These folks 

have no place in government. And if you allow them to stay, you 

have no place in government. With that, my time has expired. 

With that, I see that the gentleman from Missouri, Mr. Luetkemeyer, has arrived. We will recognize him for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. I thought I had 

12 minutes there for a minute. Okay. Down to 5 minutes. 

Mr. Chairman, it is good to see you again. 

Mr. GRUENBERG. Thank you. 

Mr. LUETKEMEYER. I just have a couple of follow-up questions 

with regards to some of the discussions we have had. You indicated 

in your meetings with us, and I think, just for the record, in your 

testimony today you indicate that on August 13th you received a 

letter from Congress and you took some action. In July of last year, 

you did something, you took some action. In January of this year, 

you took some action. But it takes us to get you to do anything, 

and it is very concerning, because Choke Point is something that 

I think the chairman has done a good job of explaining is, to the 

detriment of all of our citizens, all of our businesses in this country, which is a—it is basically your own moral judgments and political ideology that is being perpetrated as a result of—through the 

rulemaking that you—and the enforcement actions that you take. 

One of the things that we discussed at our last meeting, and 

something that is in your testimony today, is the new procedures 

that you said you agreed to. One of them was that anytime a—you 

were to request that a bank would terminate a relationship with 

one’s clients, you would do it in writing and indicate so with showing the legal reason for that, excluding reputational risk, and then 

have a VP, regional VP sign off on that. How many have you done 

so far since our meeting in January when you implemented these 

changes? Do you know? 

Mr. GRUENBERG. I don’t know that there—at the first so—and we 

have also provided that for any actions taken there be a quarterly 

report to our Board. 

32 

Mr. LUETKEMEYER. I understand that. I thought maybe you 

might have a monthly report to share with us. 

Mr. GRUENBERG. No, we will have that first report in April. We 

will be glad to share that with you, Congressman. 

Mr. LUETKEMEYER. Okay. Another question with regards to the 

FDIC Board, can you tell us who the Board Members are? 

Mr. GRUENBERG. Yes. We have 5 Board Members. If you would 

like me to name them? 

Mr. LUETKEMEYER. Sure. 

Mr. GRUENBERG. Vice Chairman Thomas Hoenig, and Director 

Jeremiah Norton, who are our two so-called inside Directors fulltime at the FDIC, and then as a matter of law, the Comptroller of 

the Currency, who is now Thomas Curry, and the Director of the 

Consumer Financial Protection Bureau, Richard Cordray, who are 

also so-called outside Directors and Members of our Board. 

Mr. LUETKEMEYER. Have you shared these Choke Point activities 

with your Board? 

Mr. GRUENBERG. Certainly with the two inside Directors, yes, because these are matters that generally go to the internal management of the agency and are generally the focus of the attention of 

the internal Directors. 

Mr. LUETKEMEYER. But you have not shared this activity with 

the Comptroller of the Currency or the Director of the CFPB, Director Cordray? 

Mr. GRUENBERG. I believe they are also aware of it, Congressman. 

Mr. LUETKEMEYER. No, there is a big difference here. That is the 

reason for my question. Did you inform them of what your activity 

is here? This is Operation Choke Point. This is an operation within 

your agency that is condoned by you and all the activities that go 

on at the agency, and this should be something that should be at 

a Board level. You should be indicating it to your Board Members 

that this is happening. Did you do that? 

Mr. GRUENBERG. I would have to check on—I believe they are 

aware. Certainly all the documents we have issued relating to guidance are public documents that are available, and we certainly 

made an effort to ensure Board accountability for these actions, so 

let me—let me get—if I may get back to you on that. 

Mr. LUETKEMEYER. Okay. I am concerned because I think they 

all need to be aware of it, and we had testimony of one these gentlemen. They didn’t hear of it, didn’t know of it, weren’t aware of 

it. 

Mr. GRUENBERG. I certainly agree with that, Congressman. 

Mr. LUETKEMEYER. It would seem to me that is where we certainly need to go with some of this stuff. 

I guess just a follow-up on the chairman’s last comments with regards to—and we have had this discussion, Mr. Chairman—the culture that you have allowed to happen in the FDIC. How do you 

propose to solve the problem at this point? 

Mr. GRUENBERG. Through the efforts that we have made and I 

have described at the hearing and we have talked about in our conversations as well. We have made every effort to make our policy 

clear. We have—clearly, there was a misunderstanding in regard to 

the list, which we acknowledge was a mistake on our part and we 

33 

have withdrawn the list. As you indicated, we have established a 

set of procedures, written procedures for examiners to follow and 

to provide in writing any explanation of any actions in regard to 

a bank, and we have issued a statement in regard to derisking, 

that any actions by a bank should be based on the individual customer, not in regard to any category of business. And I have engaged in extensive outreach with our—both Regional Directors and 

our examiners around the country to try to make the policy and 

procedures clear. 

Mr. LUETKEMEYER. But so far nobody has been fired, nobody has 

been demoted. The OGR report that shows there are people making 

statements like, we need to audit you, or threaten banks that, we 

will audit you if you don’t comply with what is going on here, or 

these—certain industries don’t have a moral right to exist, those 

people are still employed? 

Mr. GRUENBERG. They are, but their conduct is also currently 

subject to review by the Inspector General. 

Mr. LUETKEMEYER. Okay. If the chairman will indulge me with 

one more question. In your changes that you made, operational 

changes you have made, you also indicated that there would be a 

Web site and a hotline number for the IG. 

Mr. GRUENBERG. Yes. 

Mr. LUETKEMEYER. To be able to report activities. Have any activities been reported to this point? 

Mr. GRUENBERG. We established numbers and email addresses 

for both the IG and our ombudsman. Any reports to the IG are to 

the IG and are not available to us. 

Our ombudsman has shared the—some of the results which— 

that the ombudsman has received, and I believe since the number 

and address—email address were made public, we have had 12 

emails and 3 calls. 

Chairman DUFFY. The gentleman’s time has expired. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Chairman DUFFY. The Chair now recognizes the gentleman from 

Texas, Mr. Green, for 5 minutes. 

Mr. GREEN. Mr. Chairman, if I may, I would like to have just a 

quick word with you. 

[Discussion off the record.] 

Chairman DUFFY. I appreciate the ranking member’s reasonableness. Thank you. The Chair now recognizes Mr. Hill for 5 minutes. 

Mr. HILL. Thank you, Mr. Chairman, and thank you, Ranking 

Member Green, for holding this hearing. 

Mr. Chairman, I am glad to have you before us. I spent a better 

part of my career in institutions that had you as a primary regulator, so I appreciate all the hard work and efforts on behalf of the 

FDIC, which really prompted more shock when I read this package, 

knowing for 3 decades the work of the FDIC and its staff. 

I have a customer in Little Rock who sent me a note, and I just 

wanted you to be on the record on this question that he had. What 

would you say to a legally licensed and State and Federally regulated business, like a pawnbroker, who does not use money service 

businesses, handles all their transactions face to face, doesn’t use 

third-party payment processors, and doesn’t use the ACH system 

and yet still have fallen victim and had their banking relationships 

34 

cut off because of Operation Choke Point, how would you—what 

am I supposed to say to that business in my hometown of Little 

Rock? 

Mr. GRUENBERG. I would encourage them to—if they were to approach an FDIC-supervised bank, we would make every effort to— 

assuming they are complying with the law as you indicate, that 

they have access to banking services. 

Mr. HILL. Thank you, Mr. Chairman. On looking at the FIL-43- 

2013 and knowing the banking business and our responsibility to 

put people on a CTR list or file a suspicious activity report (SAR) 

if necessary, my question is, in looking at your documentation, did 

that go through FFIEC Act, did that particular financial institution 

newsletter go through the FFIEC clearance process for interagency 

review or was it unique to the FDIC? 

Mr. GRUENBERG. The 2013 guidance was FDIC guidance. There 

has been a guidance relating to third-party processors that has 

been issued by the FFIEC as well. 

Mr. HILL. But that predated the FDIC’s, FIL? Was that older, 

that general guidance? 

Mr. GRUENBERG. There was guidance prior to that, and I believe 

there has been guidance and an update to that as well afterward 

also. 

Mr. HILL. And in those other agencies, did they name these same 

listed businesses in the same methodology that the FDIC did in 

your 2013 release? 

Mr. GRUENBERG. The previous guidance issued by the FFIEC did 

also cite examples 

Mr. HILL. But was it as inclusive and comprehensive a list as 

yours? 

Mr. GRUENBERG. Just to be clear, in the financial institution letter issued in September of 2013, you could look at FFIEC guidance 

from September—from 2010 that was roughly comparable. The Supervisory Insights Journal article list was lengthier than a guidance that had been otherwise issued. 

Mr. HILL. And this issue of reputational risk, which is something 

that examiners talk to their banks about as a part of the normal 

CAMELS process, maybe as a part of the management rating in 

the CAMELS review, really, aren’t banks responsible for their reputation, and therefore, they ought to do business with any legally 

organized business in their market that needs depository services, 

setting aside even the credit issue for a moment? 

Mr. GRUENBERG. And we have made clear in the guidance we 

have issued, and that guidance is public, that reputation alone is 

not the basis for a bank discontinuing a relationship with a customer. 

Mr. HILL. But yet that is what so many of these stories that have 

percolated back through Congress, and I am just—I find it as a 

former community banker and now a Member of Congress and a 

former Treasury official who oversaw the regulatory process during 

the Bush 41 Administration, I find it stunning that that can go 

through a financial institution’s exam council review and survive 

that list of businesses. 

I just don’t see how it happened, and I agree, Mr. Chairman, that 

someone who is responsible for that really needs to stand up and 

35 

take that responsibility. I appreciate you being here and responding to the committee’s inquiries. 

Can you think of an example in the FDIC, switching topics, 

where the FDIC engages in price regulation or the Comptroller of 

the Currency, any Federal bank regulation where they actively engage in price regulation of consumer financial transactions between 

banks and their customers? 

Mr. GRUENBERG. Offhand, I don’t believe we have authority to do 

that, Congressman. 

Mr. HILL. So if two people have exact same credit backgrounds, 

exact same ages, races, borrowing backgrounds, and they live in 

two different cities in a State, and one has many, many job opportunities and one doesn’t, do you think they deserve the same price 

for credit? 

Mr. GRUENBERG. One would think so, assuming they have the 

same credit profile. 

Mr. HILL. My time has expired. 

Chairman DUFFY. The gentleman’s time has expired. The Chair 

now recognizes for the last 5 minutes, the gentleman from Texas, 

Mr. Green, and I appreciate his cooperation and help in navigating 

Members as they come in. 

Mr. GREEN. Thank you, Mr. Chairman. Chairman Gruenberg, 

you now understand that no mistake will go unnoticed and no good 

deed will go unpunished. Let’s talk about this for just a moment, 

in these last 5 minutes. 

You have requested an IG investigation. Is that abnormal? Is 

that something that you would do when you find that there is 

something that is questionable, to get an independent third party 

to come in and give a report? 

Mr. GRUENBERG. No, that is not routine, Congressman. 

Mr. GREEN. And you did this for a reason. Why did you do it? 

Mr. GRUENBERG. We thought the allegations made were very serious, and both myself and the other internal Members of our 

Board felt it was important to get the facts, before making a judgment, in regard to conduct by an employee of potentially this consequence, that we wanted an independent review and the facts 

gathered by our Inspector General before reaching a judgment. 

Mr. GREEN. You are not especially trained in this area of investigation, I assume. You are a fine public servant, but you don’t perform investigations yourself. You would use the expertise of those 

who do this, and quite frankly, that the Federal Government has 

charged with the responsibility of accomplishing these ends. Is that 

a fair statement? 

Mr. GRUENBERG. Yes, Congressman, and I would note that the 

initial request for the IG investigation was made by Members of 

Congress, and then when we received the report of the House Oversight Committee, we—I supplemented that request by asking the 

IG to look specifically at individuals identified in the report. 

Mr. GREEN. And when you receive this report, is it your intention 

to take corrective action? 

Mr. GRUENBERG. Based on the facts that are presented. 

Mr. GREEN. I understand. And you have done many things in the 

interim to make sure that people understand what the policy was 

and is. The policy has not changed. You have had some people who 

36 

may not have followed it to the letter, but the policy hasn’t 

changed; is that a fair statement? 

Mr. GRUENBERG. Yes, the policy has been consistent. 

Mr. GREEN. And you had some— 

Mr. GRUENBERG. And I will say, I believe the policy has been 

consistent, and that is one of the things the Inspector General will 

be reviewing as well 

Mr. GREEN. You had some people who have not adhered to the 

policy, the spirit and letter of the policy, but do you consider this 

a culture across the entire FDIC, or is this something that you are 

addressing as it relates to individuals? 

Mr. GRUENBERG. I don’t believe it is what you have described. I 

think one of the things the Inspector General review will try to determine is the conduct of the agency over time and was the application of the policy generally consistent. 

Mr. GREEN. In your years at the FDIC, have you always encouraged and required that the policies be followed? 

Mr. GRUENBERG. Yes, Congressman. 

Mr. GREEN. And is this consistent with what you are doing now? 

Mr. GRUENBERG. I believe so. 

Mr. GREEN. And, do you believe that the FDIC should be charged 

with having produced Operation Choke Point? Is this something 

that the DOJ initiated, that was brought to the FDIC? I just want 

to make it clear that this is not something you initiated, the Operation Choke Point. You are concerned about fraud, and you are 

concerned about third-party processes, but this whole operation is 

not something that you produced? 

Mr. GRUENBERG. No. It was a Justice Department program. 

Mr. GREEN. And the Justice Department, in my opinion, has good 

reason to look into fraud as is the case with the FDIC, but mistakes have been made. You have done what you can to correct 

them immediately. You are allowing a certain amount of due process before taking your final actions. This is not unusual in our circles to be thorough, investigate totally, completely, and then make 

decisions. Is there any final thing that you would like to say in 

terms of what you are hoping to accomplish? 

Mr. GRUENBERG. No. I agree with the points you have made, 

Congressman. We have tried to take a deliberate and balanced approach to this to address the issues in an effective way, and we are 

very committed to following through. 

I think the basic premise that businesses that are complying 

with the law should have access to banking services is a sound 

premise and an important one. We are committed to ensuring that 

we conduct our supervisory activities to achieve that outcome. 

Mr. GREEN. Thank you, Chairman Gruenberg, and thank you 

also, Chairman Duffy. I yield back. 

Chairman DUFFY. Thank you. The ranking member yields back. 

I would like to thank our witness again for testifying today in front 

of our subcommittee. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. Also, without objection, 

37 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

And without objection, this hearing is now adjourned. 

[Whereupon, at 4:25 p.m., the hearing was adjourned.] 

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A P P E N D I X 

March 24, 2015 

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