What’s the easiest way to keep shady lenders and sketchy online merchants from preying upon Americans’ banking information? According to federal prosecutors, the quickest remedy isn’t to go after the predators or the prey — it’s to go after the banks that fail to monitor these potential situations with customers.
In a new initiative, called Operation Choke Point, the Department of Justice (DOJ) is starting to weigh criminal and civil actions against several banks for this type of oversight failure. Government officials say the DOJ has sent out subpoenas to more than 50 payment processors and their corresponding banks in accordance with the initiative.
According to The New York Times, the goal of Operation Choke Point is to determine whether both large and small banks turn a blind eye from businesses illegally siphoning funds from customers’ checking accounts in exchange for a generous fee. Those familiar with the investigation say that banks typically do not deal directly with the dubious businesses themselves, instead providing banking services for a third-party payment processor.
In early January, the DOJ brought the first action of Operation Choke Point against Four Oaks Bank in Four Oaks, N.C. Prosecutors say the bank was “deliberately ignorant” that it was processing dubious payments, including for payday lenders and a Ponzi schemes. The lawsuit claims that Four Oaks Bank allowed companies to illegally siphon more than $2.4 billion from its customers’ accounts.
The law in question is the Bank Secrecy Act, which requires banks to maintain internal checks against money laundering and attempt to stop any suspicious activity in customer accounts. However, because the banks have not dealt with the suspicious companies themselves, but rather third-party payment processors, banks have been mostly free of litigation up until this point.
However, the initiative is not without its detractors. Representative Darrell Issa (R.-Calif.), the head of the Federal Oversight Committee, accused the DOJ of covertly trying to quash the payday lending industry through litigation.
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