Regulators Pressured Banks on Porn Businesses: Court Filing

A trade group for payment processors is accusing the Federal Deposit Insurance Corp. of improperly pressuring banks to cut ties with merchants in the pornography business.

In a court filing Thursday, the Third Party Payment Processors Association alleged that FDIC examiners coerced and intimidated banks to end their relationships with companies that processed payments for porn businesses.

The examiners' push happened shortly after the FDIC's release in 2011 of a list of industries that it said warranted heightened attention by banks, according to the court papers. The list of industries included pornography, ammunition sales, payday lending, purveyors of racist materials, dating services, Ponzi schemes and coin dealers.

Complaints that banks have been ending their relationships with people in the porn industry as a result of regulatory pressure have been percolating for months, but Thursday's court filing brings them to the attention of a judge.

"FDIC examiners' targeted enforcement against the pornography industry was the advent of its improper practice of moralistic regulation over the banking industry," the filing argues. "Regulators did not target the pornography industry because there was evidence of fraud relative to that industry."

FDIC spokesman David Barr said in an email that the agency does not comment on active litigation.

The FDIC withdrew the list of so-called high-risk industries in July, saying that it had been misinterpreted to mean that the categories of merchants listed were prohibited or discouraged.

The payment processors' allegations were part of a friend-of-the-court brief filed in support of a payday lending trade group that sued federal banking regulators in June.

The suit, filed by the Community Financial Services Association of America, accuses the FDIC, the Office of the Comptroller of the Currency and the Federal Reserve Board of trying to drive payday lenders out of business by exerting pressure on the banks they depend on to access the payment system.

In response to the suit, lawyers for the FDIC wrote in an August court filing that any decisions by banks to cut ties with payday lenders were the banks' own business decisions.

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