The nationwide trade group for community banks is asking the Department of Justice to suspend its push to keep questionable merchants out of the mainstream payments system.

In a letter Tuesday to the DOJ, Independent Community Bankers of America president Camden Fine argues that the investigation known as Operation Choke Point has an overly broad scope and is hurting community banks' ability to compete with their larger peers.

The DOJ probe targets banks and payment processing companies that provide access to the payments system to online payday lenders and other merchants that authorities view with skepticism. More than 50 banks and payment processors have received subpoenas as part of the investigation.

In the letter, which is addressed to Assistant Attorney General Stuart Delery, Fine argues that the Justice Department should go directly after merchants that may be violating the law, rather than the banks that provide payment services.

"ICBA is extremely concerned that Operation Choke Point gives community banks the untenable choices of either severing valuable and legal customer relationships or risking DOJ enforcement actions," the letter states.

It goes on to argue that "community banks should have the ability to provide indirect payment-processing services to companies engaged in higher-risk, legal activities" as long as the banks take certain precautionary steps.

In addition, the ICBA letter suggests that the Justice Department is singling out smaller banks. "The indiscriminate targeting of community banks offering these services also places community banks at a competitive disadvantage with large banks," Fine writes.

The only lawsuit filed so far as part of Operation Choke Point was brought against a small bank in North Carolina, but large banks have also gotten subpoenas, according to sources. PNC Financial (PNC), which has assets of $321 billion, acknowledged receiving a subpoena in a recent securities filing.

The ICBA's letter follows a letter to the DOJ from the American Bankers Association in February. That letter made some similar arguments, but it did not make the case that community banks in particular are being harmed by the crackdown.

The Justice Department argues that its efforts are aimed at stamping out mass-market fraud. Banking industry representatives contend that legally operating merchants are also being harmed, but no specific merchants have stepped forward publicly to argue that they're wrongly being denied access to the payments system.

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