FDIC Revises Guidance on Operation Choke Point (July 29, 2014)
The FDIC has clarified its previous guidance related to the DOJ’s Operation Choke Point, which encourages financial institutions to scrutinize payment processor clients that process payments for certain types of businesses. The FDIC’s original guidance to banks, published in 2008, described the potential risks associated with dealing with third-party payment processors (TPPPs). That guidance—along with an informational article published in 2011—included an example list of “risky” merchant types, effectively discouraging banks from associating with TPPPs that provide processing for merchants, such as telemarketers and tobacco sellers, among others.
Operation Choke Point has come under fire from Congress and merchants, which argue the program is being used to target legitimate businesses that DOJ simply deems unsavory, including payday lenders and money services businesses. In June, a House Oversight and Government Reform Committee published a report claiming the program was harmful to legitimate merchants and lacked legal authority. Meanwhile, payday lender trade group, the Community Financial Services Association of America (CFSAA), sued federal regulators over the initiative.
In the wake of the tumult, the FDIC has reissued its guidance without the controversial list of examples. The list “led to misunderstandings regarding the FDIC’s supervisory approach to institutions’ relationships with TPPPs, resulting in the misperception that the listed examples of merchant categories were prohibited or discouraged,” the agency said.
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