Payment processors and payday lenders are notoriously higher risks for money laundering, consumer fraud, and terrorism financing; consequently, since 2013, the Department of Justice (DOJ) has conducted ongoing investigations of those industries and the U. S. banks doing business with them. The program, known as “Operation Choke Point,” is intent on choking off defrauders from the U. S. banking system.
Though U. S banks have been required to monitor transactions since 1970, the DOJ saw an increased need for the program due to the proliferation of fraudsters and some banks’ own illegal activities: HSBC was charged in 2013 for failing to monitor $670+ Billion in wire transfers and $9+ Billion in purchases of U. S. currency from its Mexican subsidiary, essentially allowing money laundering by Mexican and Latin American drug cartels; and Wachovia Bank (later known as Wells Fargo) was caught after laundering more than $374 Billion for Mexican drug cartels from 2004 – 2007.
Since the commencement of Operation Choke Point, Four Oaks Bank of North Carolina was caught processing payments for a Ponzi scheme, online gaming and foreign payday lenders. A single day after the DOJ accused Four Oaks of the illegal activity, the bank agreed to pay $1.2 million to settle the case.
Operation Choke Point has a far more dramatic effect on payday lenders, organizations giving small, short-term, unsecured loans for interest plus transaction fees. Payday lenders are outright outlawed in 15 states and are regulated by others. However, the DOJ’s greater scrutiny has caused some banks to curtail or end their associations with payday lenders. As a result, one payday lender sued the DOJ, the FDIC, the Federal Reserve and the Comptroller of Currency’s Office, claiming that those agencies are conducting a “coordinated, coercive campaign of backroom pressure tactics” successfully causing banks to curtail or end business with all payday lenders.
Some members of the House of Representatives are in the payday lending industry’s corner. In June 2014, one Representative introduced a bill called the “End Operation Choke Point Act of 2014” (HR 4986). Claiming that Operation Choke Point is an ideological crusade by a rogue administration intent on hijacking the free market and destroying a hit-list of industries, the bill’s sponsors and supporters seek to prohibit federal regulators from restricting or discouraging a bank from doing business with any company that is licensed to do business and has a “reasoned legal opinion” from a lawyer who claims that the business does not break the law.
Critics of the Bill claim that it is an attempt to whitewash fraud and dismantle decades of legislation and regulatory power combatting money laundering and other forms of fraud. It takes relatively little effort for a business to obtain a license, hire an attorney to issue a favorable opinion about its business, and then defraud the bejesus out of consumers.
The Bill will remain in Limbo until Congress returns after the November 2014 elections.
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