Cautious relief as Operation Choke Point ends

An Aug. 16, 2017, letter from U.S. Asstistant Attorney General Stephen E. Boyd to House Judiciary Chair Bob Goodlatte marked the end of Operation Choke Point (OCP), an anti-crime initiative that numerous professionals in the payments industry denounced as regulatory overreach. OCP put extreme pressure on banks and payment processors to deny services to select high-risk, cash-dependent businesses on the assumption that those businesses were prone to illegal activities and posed a reputational risk to banks. Additional copies of the letter were sent to the U.S. Department of Justice, Federal Reserve and Office of the Comptroller of the Currency.

"Ordinarily speaking, law enforcement moves from the specific to the general," Boyd wrote. "A bad actor is identified and then gradually the net widens to capture co-conspirators or a larger criminal enterprise. OCP started by presuming a whole industry guilty until individual merchants prove their innocence."

OCP was launched in 2013 under the Obama Administration as a joint effort among U.S. regulatory entities, the most prominent being the DOJ, OCC and Federal Deposit Insurance Corp. In the name of reducing fraud and other unscrupulous, illegal business practices in several high-risk industries, the initiative used regulatory powers to heighten supervision of banks that do business with third-party payment processors serving those industries. The goal was to choke off their flow of money, their lifeblood. The fact that businesses were targeted by merchant category and were not presumed innocent until proven guilty was highly controversial.

Actions taken under OCP gave rise to bank account closings and search-and-seizure tactics that have been widely acknowledged to have harmed innocent civilians and business owners. Businesses in OCP-targeted industries, including payday lenders, gun dealers and other high-risk but legitimate businesses, had assets frozen or seized and bank accounts closed while they struggled to prove their innocence.

Among those targeted by OCP was Brian Lynn, a former U.S. Marine and owner of a 26-location payday lender in Jacksonville, Fla. His accounts at Bank of America and SunTrust Bank were terminated in 2014. "In our business, cash is our inventory, and it's very important for our stores to have proximity to the local branch of the bank," Lynn said. He eventually found regional banks in Jacksonville and Savannah, Ga., that agreed to do business with him. Other small and midsize business owners on OCP's targeted industry list were not as fortunate.

ATM owners visit Washington

Independent ATM owners were also hard hit by OCP, noted Bruce Renard, Executive Director of the National ATM Council. OCP was top of the list when NAC directors and members met with the Senate Banking Committee and House Financial Services Committee members on July 18 and 19, 2017, to address ATM industry issues. A month later, Renard praised the Department of Justice for ending the program. "NAC was very heartened this week to see the Administration, and more specifically the DOJ that gave rise to OCP program in the first place, state plainly that OCP was a 'misguided initiative,' and bank investigations conducted as part of Operation Choke Point are now over and the Department will no longer withhold financial services to lawful industries," Renard said.

NAC Chairman and Access One Solutions Chief Executive Officer George Sarantopoulos added, "We're obviously happy to hear that the administration is doing away with this program, but we have to wait and see how this shakes out with the bureaucracy and, most importantly, how it filters down to the banking world."

Government, private sector support

While Renard and Sarantopoulos declined to take full credit for OCP's demise, they acknowledged recent meetings in Washington may have been a contributing factor. "In this, we should recognize and thank the dozens of ATM companies and vendors who traveled on their own dime to D.C. last month to lobby for an end to OCP and the bank account blacklisting of our sector," Renard stated.

Renard said NAC will work with regulators, field examiners and financial institutions in the days and weeks ahead, helping ATM ISOs and independent ATM deployers reopen scores of recently closed bank accounts and gain reasonable access to the U.S. banking system. NAC leaders said they remain hopeful that the DOJ's sentiments will prevail among banks and financial industry stakeholders. "Implementation will undoubtedly require NAC's continued efforts," Renard added. "What the bank regulators and the banks themselves now do will tell the true tale of the tape."

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