Operation Choke Point Vs. Payday Lenders

Apr 27, 2016

The Federal Deposit Insurance Corporation (FDIC) has noted that payday lenders, gun stores, and more than 24 other industries are “not wanted.”

Operation Choke Point

Operation Choke Point, a Department of Justice (DOJ) program or initiative, started in 2013. The goal of this initiative is to remove fraudulent businesses from the industry by stopping their access to the banking system.

As critics mentioned, the program turned into a system to ensure legitimate businesses like gun dealership and payday lending would be put out of business. Operation Choke Point details became known in 2014.

The House of Representatives withdraw its financial support from the program and aims to go even further. The House is going to pass a bill that won’t allow federal banking agencies informally or formally request, order, or suggest a bank to shut down a customer account. Also, it will prohibit a bank from discouraging a customer to open an account, unless there is material proof for not allowing this. The bill won’t allow considering reputation risk as a material reason.

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Criticism against Operation Choke Point

Operation Choke Point has steadily been criticized, which resulted in that the FDIC retracted its list of 30+ lines of businesses labeled as high risk. These include payday lending and gun selling. In 2015, the FDIC officials pressed the banks to apply a “risk-based approach” to “individual customer relationships” instead of rejecting “entire categories of customers,” as they mentioned.

According to Doreen Eberly, director of the FDIC’s division of risk-management supervision, the FDIC warmly indoors an independent review stating that the FDIC didn’t take part in the development, coordination, or execution of Operation Choke Point. Also, the FDIC didn’t use the “high-risk” list for targeting financial institutions. Finally, the FDIC hasn’t done anything against its supervisory authorities.

Meetinghouse Bank’s chief executive officer Anthony Paciulli mentioned the roots of the FDIC’s pressure. He thinks these are coming from the fact that the check-cashing industry is being used by terrorists and launderers.

Decisions of this kind are suppressing legitimate check-cashing and payday businesses running clean shops and operating due to federal and state regulations.

Mr. D’Alessio, the executive director of the industry trade group called “Financial Services Centers of America,” noted Operation Choke Point made it more acceptable for banks to close a certain type of accounts such as payday lenders.

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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.

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