Could it finally be true that payday lenders are no longer in the crosshairs of the Federal Deposit Insurance Corporation? It looks like it may be true after all. The banking regulator recently took some industries off of a list that contained businesses deemed to be “high risk”. These targeted industries included payday lenders, firearms dealers and other legitimate types of businesses. The official name given to the initiative to crack down on these industries is, as you probably already know, “Operation Choke Point”.
The agency said that the list they provided to banks has ultimately “led to misunderstandings” with regards to how the FDIC supervises ties that banks have to some third party payment processors. The regulator said that it had no intentions of preventing American banks from providing financial services to the types of industries that were originally laid out on their list.
The FDIC’s official guidelines laid it out like this, “Those that are operating with the appropriate systems and controls will not be criticized for providing payment-processing services to businesses operating in compliance with applicable law.” This announcement may very well prove to be just what so many business owners – from several different industries – have been longing to hear for nearly two years now.
The acting general counsel for the agency, Richard Osterman, indicated that the list was “misinterpreted” by some financial providers, in a statement given to the American Banker newspaper.
Some Republican lawmakers have been critical of the FDIC for unjustly targeting legitimate, thriving businesses that were operating in what the FDIC described as their “high risk” category. The Washington Times printed a report in May that detailed how several banks were cutting off ties to companies in these high risk industries. Bankers apparently wanted to avoid being over-scrutinized by federal regulators.
The FDIC has been assisting the Department of Justice with Operation Choke Point. This operation was put into effect to provide a measure of protection to consumers. Like so many other government initiatives, though, it soon got out of control. The House Committee on Oversight and Government Reform’s Chairperson Darrell Issa said that the program was designed to put serious financial pressure on legitimate businesses.
Mr. Issa went on to explain, “If you empower the government to pick winners and losers within lawful enterprises, then there’s no place to stop.” Industry lobbyists who were pushing to put a stop to Operation Choke Point believe that the FDIC has not taken enough action just yet. Brian Wise, an advisor for the U.S. Consumer Coalition, said, “Altering a website is window dressing and doesn’t end the unjust practices associated with Operation Choke Point.” Wise went on to say, “While we support the FDIC’s decision to remove the list of ‘high-risk merchants’ from the FDIC website, damage has already been done to countless businesses across the country who have already lost their bank accounts. Whether the list is published on the FDIC’s website or not, we expect banks will still be fearful of doing business with these lawful industries.”
With all of this in mind, it is clear that payday lenders, gun dealers and other legit business owners are not completely in the clear just yet. Hopefully, the efforts of Operation Choke Point opponents will pick up steam in the months to come. If so, we may finally see this well intentioned, but poorly executed initiative put to bed once and for all. Until that happens, however, it appears that plenty of business owners may continue to feel the unfair financial pressure that this operation has become notorious for applying.