After a vicious two-year battle, Operation Choke Point finally met its end in 2015 to the great applause of high risk merchant account holders and individuals employed in high risk industries throughout the United States.
Operation Choke Point began in March 2013 with the aim of investigating US banks and their business operations with payment processors, payday lenders, and other companies classified as high risk merchants. The Department of Justice focused on such third-party payment processors due the high frequency of fraudulent merchants being able to be paid through these transactions.
DOJ claimed that high-risk merchants provided scam artists with direct access to the national banking system and allowed money to be moved from victims of fraud to the scam artists themselves. The goal of Operation Choke Point was to eliminate the scammers’ access to the US financial system and ultimately protect the consumers due to the initiative’s putting a ‘chokehold’ on the money high risk companies would need to operate.
The resulting program caused covered banking and other financial institutions to apply an increased scrutiny to third-party payment processors and high risk merchants. What happened was that the majority of these banks severed all ties all ties with businesses that the regulators of Operation Choke Point viewed as ‘high risk’ in order to protect their institutions from potential high fines and penalties.
So that while the program was ostensibly begun to root out consumer fraud and shut down money laundering, the new regulations caused the shuttering of hundreds of legally-operating businesses.
In a lawsuit put forth by the Community Financial Services Association of America, payday lender and plaintiff Advance America, Cash Advance Centers Inc., claimed that the FDIC exerted “back-room pressure” on banks with whom they were in good standing to drive them out of business. Their claim lists over 80 lenders – including JP Morgan Chase & Co., Bank of America, and Wells Fargo – that abruptly ended their relationships with the plantiffs due to their fear of being charged with racketeering, joint liability, and other accessory offenses outlined in Operation Choke Point. Without a bank to deposit money or a payment processor to handle credit card transactions, the targeted business were unable to operate and forced to either draw on personal savings or close their doors.
And it wasn’t just so-called payday lenders that found themselves negatively impacted by the initiative. So called ‘high risk merchants’ included a great variety of industries that are generally considered politically unpopular like:
- Firearm Merchants
- Credit Repair Services Merchants
- Collection Agency Merchants
- Tobacco Merchants
- Lottery Sale Merchants
- Online Gambling Merchants
- Nutraceutical and Supplement Sale Merchants
- Adult Product Merchants
- Membership & Discount Club Merchants
- Travel Agency Merchants
- Electronic Cigarette Merchants
- Non-profit & Charitable Foundations Merchants
- and much, much more
Even churches and religious affiliated charities saw their accounts being closed under this and other purportedly ‘anti-terrorist’ initiatives. Such denial of full and equal banking services to cash-based religious organizations negates the proper, and legally mandated review and checks to which government polices should be subjected to, not to mention the flagrant abuse of the First Amendment of the Constitution. Rep. Sean P. Duffy, Wisconsin Republican and chairman of the Financial Services subcommittee on oversight and investigations when so far as to call Operation Choke Hold “the greatest government overreach that no one is talking about”, in a 2015 meeting discussing the initiative.
With heightened pressure from Congress and political entities, the FDIC issued a letter on January 29, 2015 encouraging supervised institutions to judge their relationships on a case-by-case basis, instead of the refusal of financial services to entire industry sectors. While some considered this the end of the initiative, the final nail in its coffin didn’t come until the summer of 2015.
On June 4, 2015, lawmakers approved the Commerce, Justice, Science, and Related Agencies Appropriations Act which included a specific provision defunding Operation Choke Point and prohibiting the Justice Department from continuing with any acts related to the program. Less than two months later, the U.S. House of Representatives Financial Services Committee passed the Financial Institution Customer Protection Act of 2015 to prohibit all federal regulators from directly or indirectly coercing banks and other financial institutions from terminating relationships with legitimate and legally operating businesses.
While many might have hoped for swifter action by the government, high risk merchants everywhere can relax knowing that this controversial program has finally met its end and that 2016 offers new promise for businesses within those less politically favorable industries.
For businesses that were forced to shut down due to Operation Choke Hold’s premise of effectively choking high risk merchant account holders of the money necessary to thrive, there may be hope in terms of lawsuits against the FDIC. The aforementioned lawsuit by the Community Financial Services Association of America moved forward at the end of 2015 with a federal judge refusing to dismiss the lawsuit. The group hopes that the new year will bring forth new justice to right the harm by the FDIC.