FDIC Recants “High-Risk” Merchant List Featuring Coin Dealers

Sep 27, 2019

Operation Choke Point proved to be a potentially menacing attack on legally operating “high risk” businesses. These businesses were targeted by powerful bank regulatory agencies whose sole purpose was to permanently sever relationships between merchants and their banks and potentially shut down their businesses.

Choke Point was a multi-agency operation in which several government entities launched a campaign of threats to get banks to cut off financial services (including maintaining deposit accounts and offering credit) to industries that they deemed harmful to the bank’s reputation.

Newly-released documents contained evidence that this initiative had its genesis during the presidency of George W. Bush.

Before 2008, the term, “Reputation Risk”, referred to a bank’s practices that could result in negative publicity and thereby harming the bank’s financial strength. This also included the bank having a relationship with a third party or customer that was actively engaging in illegal activity.

An FDIC “Guidance Document” in June of 2008 began to expand on the reputation risk term adding, “any negative publicity involving the third party, whether or not the publicity is related to the institution’s use of the third party, could result in reputation risk.”

During the Obama administration, the reputation risk term experienced yet another expansion of terminology, along with other federal agencies, bureaus, and departments joining the initiative.

An FDIC guidance document released in 2011 outlined a list of business categories they considered engaging in “high-risk activity”. This included, “dating services”, “escort services”, “drug paraphernalia”, “Ponzi schemes”, “racist materials”, “coin dealers”, “firearm sales”, and “payday loans”.

A staff report issued by the House Government Reform and Oversight Committee questioned many of these categories. “FDIC provided no explanation or warrant for the designation of particular merchants as ‘high-risk,’” the report stated. “Furthermore, there is no explanation for the implicit equation of legitimate activities such as coin dealers and firearm sales with such patently illegal or offensive activities as Ponzi schemes, racist materials, and drug paraphernalia.”

Legal businesses have been most brutally hit by this initiative. The Washington Times reported that in 2014, many guns hops had their bank accounts frozen or terminated. Payday lenders were also hit.

Unless Congress takes action, it would appear that agencies of the federal government do not have the authority to shut down businesses such as payday lenders, gun shop owners, or dating services by cutting off their access to banks. However, these agencies don’t seem to be bothered by any limits to their authority.

Fortunately, the story ends well.

In August 2017, after a tireless investigation by the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, chaired by Rep. Blain Luetkemeyer (R-MO), the Trump Department Of Justice declared that Operation Choke Point “is no longer in effect and will not be undertaken again.”

Furthermore to ensure that this initiative is not taken up again by any future corrupt regulators, a bill called H.R. 2706, the Financial Institution Customer Protection Act was passed, stating, that a financial regulatory agency “may not formally or informally request or order” a bank to terminate a relationship with a customer unless “the agency has a valid reason for such request or order, and such reason is not based solely on reputation risk.”

Hopefully this would set a precedent and permanently discourage any future regulators from acting outside the legal boundaries, allowing legal businesses to conduct their operations freely and without such violent intervention.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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