Payment Processing Problems for Credit Repair Businesses – Operation Chokepoint
by Michelle Black, CreditWriter.com
In recent years many credit repair companies, especially newer companies, have been faced with the challenge of trying to do business without the ability to process credit card payments. Trying to operate a successful business without the ability to accept credit card payments poses a very serious problem which harm a company financially or even shut it down entirely. Why then have lawful and legitimate credit repair businesses who provide a much needed service to consumers been faced with such a problem? The answer is “Operation Chokepoint.”
What is Operation Chokepoint?
In 2012, the Obama Administration’s Financial Fraud Enforcement Task Force (FFETF) proposed an initiative known as Operation Chokepoint. Several agencies partnered to enforce the initiative including the Department of Justice (DOJ), the Federal Deposit Insurance Corporation (FDIC), and the Federal Trade Commission (FTC). The FDIC specifically played a role in pressuring financial institutions to deny banking services, including merchant processing services, to companies belonging to certain types of industries which had been judged as “high-risk”. However, the affected companies had not deemed to be unduly high-risk by the financial institutions who were actually doing business with them, but rather by an administration who disapproved of them.
Banks were threatened by the FDIC with a myriad of potential consequences if they continued to do business with any of the undesirable industries which had been included in the crackdown. These regulatory consequences, which included “restitution to consumers” and “compliance rating downgrades,” had many banks scrambling to close accounts with existing customers and to deny services to new applicants1. The result was that legal businesses were denied access to banking services not because they had done anything wrong, but because their industry was on the administration’s perceived “naughty” list.
30 industries, including the credit repair industry, ultimately found themselves on Operation Chokepoint’s “High-Risk” list. The blackballed merchants included firearms dealers, home-based charities, payday lenders, on-line gambling networks, and credit repair companies, just to name a few. (A complete list of industries targeted through Operation Chokepoint can be found here: https://www.fdicig.gov/sites/default/files/publications/15-008AUD.pdf.) Many companies on the list found themselves cut off from banking services overnight, often despite great reputations, including long and problem-free banking histories.
Ending Operation Chokepoint
In August of 2017, the DOJ and the FDIC finally put an end to Operation Chokepoint after pressure from members of Congress and others to roll back the initiative. However, although the DOJ has declared that Operation Chokepoint is no more, there have still been reports of continued banking and merchant processing problems from industries who were initially included on the list of “high-risk” merchants. This includes credit repair companies. There have also been reports of unfairly targeted FTC investigations into companies formerly pursued under Operation Chokepoint.
House Oversight Hearing
Although the credit repair industry continues to feel some residual sting from Operation Chokepoint, further relief for the industries affected by the former initiative could be on the horizon as well. The House Subcommittee on Government Operations and the House Subcommittee on National Security conducted a hearing on July 26, 2018 to look into the potential links between FTC investigative targets and Operation Chokepoint. The hearing aimed in part to discuss whether the FTC may be still unfairly pressuring banks and merchant processors into denying or discontinuing services to businesses who are not doing anything unlawful, but who simply belong to industries which are disfavored in the eyes of the agency.
A summary and full replay of the hearing can be found here: https://oversight.house.gov/hearing/the-federal-trade-commissions-enforcement-of-operation-chokepoint-related-businesses/