Justice Puts Banks in a Choke Hold

Wall Street Journal
April 24, 2014
Frank Keating

When you become a banker, no one issues you a badge, nor are you fitted for a judicial robe. So why is the Justice Department telling bankers to behave like policemen and judges? Justice’s new probe, known as “Operation Choke Point,” is asking banks to identify customers who may be breaking the law or simply doing something government officials don’t like. Banks must then “choke off” those customers’ access to financial services, shutting down their accounts.

Justice launched the effort in early 2013 as a policy initiative of the president’s Financial Fraud Enforcement Task Force, which includes the Federal Deposit Insurance Corp., the Consumer Financial Protection Bureau and other regulatory agencies. Though details are scant—much of the investigation has been conducted in secret—the probe aims to crack down on fraud in the payments system by focusing on banks that service online payday lenders and other services deemed suspicious by the government.

Justice’s premise is simple: Fraudsters can’t operate without access to banking services, and so the agency is going after the infrastructure that questionable merchants use rather than the merchants themselves. Most of these merchants are legally licensed businesses on a government list of “risky profiles.” These include payday outfits and other short-term lenders.

Unfortunately, the strategy is legally dubious. Justice is pressuring banks to shut down accounts without pressing charges against a merchant or even establishing that the merchant broke the law. It’s clear enough that there’s fraud to shut down the account, Justice asserts, but apparently not clear enough for the highest law-enforcement agency in the land to prosecute.

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