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ICTA surveys members about bank letters

The Industry Council for Tangible Assets is compiling results from its recent survey to see if any of its members have received a letter from their financial institution indicating their account had been terminated.

ICTA’s nearly 700 members were sent the survey, said David Crenshaw, chief operating officer.

The survey was in response to a reported national trend affecting certain kinds of businesses, brought about by a federal law enforcement initiative.

“The national news media has reported that pawnbrokers and firearms businesses are allegedly being impacted from the DOJ [Department of Justice] Operation Choke Point initiative,” Crenshaw said. “Thus we wanted to get an idea on how this may or may not be affecting our members. All survey responses are strictly confidential, and for our use only.”

Operation Choke Point

The initiative’s name refers to the choking off of merchants’ access to payment systems and banking services.

In a June 9, 2014, letter to Martin J. Gruenberg, chairman of the Federal Deposit Insurance Corporation, from Rep. Darrell Issa, R-Calif., chairman of the House Committee on Oversight and Government Reform, Issa requested information for the committee’s oversight of the FDIC.

“The committee has obtained substantial evidence suggesting that as a result of coordinated actions by the FDIC and the Department of Justice, banks are terminating relationships with entirely legitimate and licensed businesses,” according to the chairman’s letter.

In the letter, Issa refers to a 2011 article from the FDIC Division of Risk Management Supervision titled “Managing Risks in Payment Processor Relationships,” listing “high risk” businesses including ammunition sales, escort services, coin dealers, fireworks sales, online gambling and payday loans. According to the FDIC article, such businesses are thought to be at higher risk for fraud, money laundering, and terrorist financing.

Issa’s letter also states that in the spring of 2013 the Justice Department “initiated a wide-ranging investigation of banks and payment processors, known as ‘Operation Choke Point.’ The ostensible goal of the program is to combat mass-market consumer fraud by foreclosing fraudsters’ access to the banking and payment system.”

The chairman’s letter also states that following the launch of the Justice Department’s investigation, “a wide variety of fully licensed and legitimate businesses received notices that their bank accounts were being abruptly terminated. ”

On July 15, 2014, the House Committee on Financial Services’ Oversight and Investigations subcommittee conducted a hearing on Operation Choke Point. Shortly after the hearing, the FDIC updated regulatory guidance and retracted the list of “high-risk merchant” categories.

Pressure grows

Most recently, on Oct. 2, 2014, Republican senators on the Senate Banking Committee sent a letter to the Justice Department regarding what they say are negative impacts on law-abiding and legitimate businesses. The letter states the senators’ concerns that the initiative inappropriately targets certain businesses and “is politicizing the payment system and access to credit markets.”

The senators request the Justice department provide information regarding the legality of Operation Choke Point, how the Department is working with the financial regulators to carry out its objectives, and what steps it plans to take to provide market clarity in light of the operation. 

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