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The National Pawnbrokers Association argues that its members have been unfairly swept up in the Justice Department initiative known as Operation Choke Point. But banks say Choke Point's not to blame: they're closing the accounts of cash-intensive businesses in order to ensure compliance with anti-money-laundering rules.
April 21 -
The Department of Justice's Office of Professional Responsibility said it found no support for allegations that federal lawyers wrongly pursued legal online payday lenders and forced banks to cut ties with legitimate businesses.
July 10 -
The Federal Deposit Insurance Corp. issued a letter Wednesday emphasizing that financial institutions should take a measured approach to banking relationships rather than cutting ties with entire lines of businesses.
January 28 -
WASHINGTON The Federal Deposit Insurance Corp. said Monday that it has withdrawn a list of merchant categories, including payday lenders, debt consolidation firms, pornography businesses and others, that it said warranted heightened attention by banks processing their transactions.
July 28 -
After nearly two years, the Justice Department so far has accused just one bank of facilitating consumer fraud. And the aftermath of that case suggests that prosecutors' strategy is not as effective as they hoped it would be.
December 3
WASHINGTON — The Federal Deposit Insurance Corp.'s involvement in the Justice Department's Operation Choke Point was minor, the agency's inspector general said Thursday.
The FDIC was caught up in DOJ's effort to cut off fraudsters from the banking system after the Justice Department cited in subpoenas to banks a list the FDIC released in mid-2011 as part of a larger publication that identified "high risk" merchant activities. The list, which included payday lenders, gun dealers and pornography businesses, highlighted potential risks from processing payments for certain merchants.
Critics, including members of the House Financial Services Committee, called it a "hit list" and argued the FDIC was improperly determining which types of businesses were entitled to access to the banking system. (The FDIC withdrew the list last year, saying its existence had led to "misunderstandings.")
In its report, the FDIC IG concluded "that the FDIC's supervisory approach to financial institutions that conducted business with merchants on the high-risk list was within the corporation's broad authorities granted under the FDI Act and other relevant statutes and regulations."
The IG report concluded that the FDIC's impact on the broader Choke Point effort was "inconsequential."
"With the exception of payday lenders, we found no instances among the financial institutions we reviewed where the FDIC pressured an institution to decline banking services to a merchant on the high risk list," the IG report said.
Still, the report said that "the manner in which the supervisory approach was carried-out was not always consistent with the FDIC's written policy and guidance."
Additionally, while tax refund anticipation loans were not included on the FDIC's list of high-risk businesses, the IG turned up evidence that the agency had been particularly aggressive in discouraging a number of institutions from offering such credit. The report said the actions taken by the FDIC to pressure banks to stop offering the service fell within its authority but that "we believe that the execution of these actions by FDIC management and staff warrant further review and the OIG is conducting additional work in this area."
Overall, the report also found that senior FDIC officials had a poor view of payday lenders.
"The heightened level of concern for payday lending by financial institutions and related ACH processing was reflected in the negative tenor of internal email communications among senior FDIC staff and others that we reviewed," and that there were instances where FDIC personnel used moral suasion to dissuade banks from offering payday loan products or providing payment processing for payday lenders.
However, according to FDIC manuals, examiners are allowed to use moral suasion to address problems or concerns.
The IG made three recommendations to the FDIC, saying it should clarify its guidance as it relates to the termination of banking services; review the supervisory policy; and coordinate with its legal division to ensure its policy and guidance surrounding moral suasion is "adequately addressed."
The report said the FDIC expects to adopt all of the recommendations by Sept. 30, 2016.
