Banking and Finance Law Daily Wrap Up, BANKING OPERATIONS—ICBA expresses concern about Operation Choke Point , (Apr 9, 2014)

By Stephanie K. Mann, J.D.

The Independent Community Bankers of America has written a comment letter to the Assistant Attorney General for the Civil Division expressing its concern for Operation Choke Point, a Department of Justice initiative that targets third-party payment processors and their financial institutions, including community banks that process payments for businesses engaged in high-risk, but legal, activities.

The ICBA believes that Operation Choke Point has an overly broad scope that morphs banks’ traditional fraud and risk-mitigation roles into consumer-protection and law-enforcement roles. The letter emphasizes that the ICBA strongly believes that the present regulatory environment, which includes the prudential banking agencies, the Federal Trade Commission as well as the Consumer Financial Protection Bureau, is sufficient to ensure that banks implement sound risk management and mitigation, responsive fraud prevention and detection, and adequate consumer protections.

Untenable choice. According to the letter, ICBA is concerned that Operation Choke Point gives community banks the untenable choices of either severing valuable and legal customer relationships or risking DoJ enforcement actions. ICBA firmly believes that community banks should have the ability to provide indirect payment-processing services to companies engaged in higher-risk, legal activities provided that they demonstrate risk-mitigation actions consistent with risk-based banking, such as initial and ongoing risk assessments, due diligence, and monitoring for changes in customer-transaction patterns.

While preventing fraud is a top concern for community banks, the ICBA believes that it needs to be balanced with ensuring that businesses and consumers that operate in accordance with applicable laws can still access payment systems. Many payments industry groups are already working to strengthen practices and technologies aimed at protecting consumers from unscrupulous business practices, said the letter. As such, the ICBA supports industry efforts to strengthen internal controls or processes for institutions that provide payment-processing services for customers engaged in higher-risk activities. Law enforcement, regulators, and industry groups must work from a common framework with common goals and work together to reduce fraud and its impact on consumers, argues the ICBA.

The ICBA therefore requests that the DoJ suspend Operation Choke Point immediately and focus its resources directly on businesses that may be violating the law, rather than targeting banks providing payment services.

Companies: Independent Community Bankers of America

IndustryNews: BankingOperations CFPB