WASHINGTON — Industry lawyers and consumer advocates clashed over a Justice Department program aimed at rooting out consumer fraud in the payments system on Monday, debating key questions about the program's design and impact.

Financial industry representatives and some lawmakers have repeatedly attacked Operation Choke Point in recent months. They warn that the government's intense focus on banks' relationships with payment processors and merchants has spurred some financial institutions to stop doing business with legally operating payday lenders, gun shops and other industries. On the other side, supporters of the program say the probe is necessary to help reduce fraud and is just one tool in a larger effort.

"If a bank knowingly commits fraud, the bank should be held liable. If the bank is willfully ignorant of fraud, the bank should also be liable. That's all Operation Choke Point is," Michael Bresnick, a partner at Stein Mitchell Muse Cipollino & Beato and the former head of an interagency task force that developed Operation Choke Point, said during a panel on the program at American Banker's regulatory symposium.

Bresnick argued that banks and payment processors are not being singled out.

"The merchants are part of it, the processors are part of it, and the financial institutions are part of it. It's all part of this chain of conduct that the DOJ is investigating," he said.

But critics of the crackdown suggested the investigation — either intentionally or not — is causing banks to end relationships with law-abiding businesses.

"The core goal of combatting mass consumer fraud is a worthy objective, and I think where a bank or payment processor is in bed with a particularly bad processor or bad actor, there's a role for the Department of Justice or any other federal or state law enforcement agency," said Jeffrey Knowles, a partner at Venable. "But where it's done on a mass basis without necessarily discriminating and it has a substantial chilling effect... the impact of that potentially is enormous on the economy."

Dennis Shaul, chief executive of the Community Financial Services Association of America, said "the application of Operation Choke Point is far from the ideal" outlined by Bresnick.

Shaul pointed to the Federal Deposit Insurance Corp.'s 2011 list of "high risk" industries — including payday lenders, escort services and online gambling sites — that the agency has since retracted. The list was meant to prod banks to scrutinize certain merchants receiving payment-related services. But critics say it had become a list of industries banks felt they should avoid, and may have been used by the Justice Department in carrying out Operation Choke Point.

"If you look at [the list], what's at issue here is that these activities are not by and large illegal. They are a matter of the taste and preferences... of the regulators," said Shaul.

But supporters of the program say the Justice Department does not pursue an investigation against any company unless there is actual evidence of fraud.

The Justice Department goes "where the facts lead them. They don't issue subpoenas … unless there is evidence of fraud and unless there is complicity from the bank or third-party processor," said Kenneth Edwards, vice president of federal affairs at the Center for Responsible Lending. He said the government's $1.2 million settlement with Four Oaks Fincorp was the first lawsuit the Justice Department has brought against a financial institution as part of the probe.

"It seems maybe like willy-nilly picking industries just to pick on them — and from what I understand, I don't think that's the case. It's where high instances of fraud happen," he said.

But Knowles, who represented the bank in the case, said that Four Oaks made the deal with prosecutors to avoid a drawn-out process that could have hindered merger talks it was holding at the time.

"A long, protracted investigation or litigation that might follow simply would not allow the bank to go forward. So the bank chose consciously to enter the settlement negotiations in order to get this matter behind it," he said.

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