Controversial Program

Is Choke Point Heavy Handed Against Banks and Legal Companies?

Operation Choke PointA major component of Operation Choke Point is that it ostensibly is cracking down on banks that provide access to companies and industries acting illegally. One major initiative is "Payday" lenders who may be charging predatory interest rates, but firearms sellers and people in the entertainment industry have also been targeted. In some major cases, credit card processors were prosecuted for enabling large-scale fraud by scammers. Many banks received subpoenas related to their business and customers.

Political and Moral Targeting Alleged

The nature of businesses that have had their payment processing relationships cancelled has led to allegations of targeting based on business type, and for political and/or moral purposes. A number of firearms and ammunition stores were informed by their banks that they would have their accounts cancelled, despite long relationships with no troubles. There is a belief in the shooting enthusiast world that the action is a kind of harassment or backdoor-gun-control measure instituted through the Justice Department, CFPB, and FDIC. In other well publicized cases, people in "adult" industries have seen their individual banks closed because of their professions or their relationship (?) with others who share their accounts. The sudden closure of a bank account, and the blacklisting of businesses so they have a hard time getting new banking services, has been creating controversy.

List of Business Categories Affected by Operation Choke Point

The list below shows the general business types that have been shown by the FDIC to be considered high risk:

ammunition sales - Controversial because added attention leads to the belief that government is trying to shut down legal sales. Recent high ammo prices have led to use of stolen cards by people who re-sell ammo for cash.

cable box de-scramblers - In most cases it is illegal to sell descrambling equipment for the purposes of getting cable TV for free. Often, it doesn't work anyway and people try to charge back the transaction, even though they had effectively conspired to steal cable.

coin dealers - On the banking side, purchasing valuable coins with credit cards may involve stolen cards or friendly fraud. People who distrust banks or want to invest in precious metals may see this as part of a larger consipracy.

credit card schemes - Offers for special credit cards to the underbanked, which involve high fees, create scrutiny. Prepaid debit cards with nickel-and-dime fees for everything may fall into this category.

credit repair services - Many credit repair services ask for payment up front, and do nothing. Alternatively, they challenge bad credit report items, but with little effect.

dating services - A variety of fraudulent schemes are associated with dating, including clubs that have fake members.

debt consolidation scams - Like credit repair scams, the kicker is that people end up paying the consolidation company, and are told to ignore collection notices from card issuers, and consolidator keeps all the money.

drug paraphernalia - Paraphenalia is illegal in many states. Ask Tommy Chong for more details.

escort services - Most commonly associated with prostitution and a source of "friendly fraud" claims where the foolish husband claims not to know how the charge got there.

firearms sales - The controversy here is that (1) people do have a 2nd amendment right to buy guns (2) they have as much of a right to buy them with credit cards as anything else and (3) targeting gun stores may have the uninted effect of creating more straw purchasers who use cash, or drive sales onto the street where no background checks are made. You would think that government agencies would make credit and debit card purchases of firearms easier, since it creates a paper trail.

fireworks sales - Fireworks may be legal to sell but not use in some communities, or may be bought with stolen cards and re-sold to teenagers for cash.

get rich products - Someone is going to get rich, but not you. When you figure this out, you will try to charge back the card.

government grants - People will sell you a list of easily available information you could have gotten yourself. And the government is not going to give you money.

home-based charities - Often charity begins at home, but with these organizations 95% of the donation stays there too. Why not send those starving kids a picture of your new Mercedes?

life-time guarantees - Have you gotten robo-called for a car warranty? If you bought such a product, you find that you don't get the services you wanted.

life-time memberships - You get a lifetime membership with a company that goes out of business tomorrow.

lottery sales - Many lotteries are fraudulent and sales on credit cards are risky because compulsive gamblers may go bankrupt.

mailing lists/personal info - Often lists are of low quality, and the "background check" sold was based on Google searches, or illegal database access.

money transfer networks - In my neck of the woods, we call this "laundering."

on-line gambling - Illegal in most states, and there has been a crackdown on funding accounts offshore or using straw purchases to pay for gambling.

payday loans - The image of predatory lending and high cost check cashing is associated with payday loan stores. However, that may be the only way people can prevent homelessness in between checks.

pharmaceutical sales - Offshore pharmacies and unlicensed pill sellers may be peddling counterfeit goods, may just be stealing the card number, or could be selling meds without prescriptions.

ponzi schemes - Chargebacks can pile up when people who are at the bottom of the pyramid don't get rich by giving someone else money.

pornography - Multiple chargebacks because people either don't want to admit they made the charge or because they did not get what they thought they'd see.

pyramid-type sales - Pyramid schemes in themselves are illegal, and many MLM sellers are in a gray area when they sell more memberships than products.

racist materials - Seriously, I do not know enough about the sale of racist materials (is there a big market?) to say that customers would do a chargeback for low quality.

surveillance equipment - Can be used illegally for wiretapping and invasion of privacy.

telemarketing - Chargebacks when people say they did not get what was promised.

tobacco sales - Many tobacco sellers may be set up to avoid taxes, and Indian Reservation stores often get targeted by state attorneys general.

travel clubs - People sell phony travel packages, and buyers end up at the airport with no tickets, or end up stranded in foreign countries with nothing to do. Free and discount travel clubs actually cost more when they add fees.

In some of these cases, the potential for fraud is more obvious. In others, there is more of a political taint to the listing as "high risk" and this creates controversy as well as an affirmation for those with an anti-government mindset. Many banks are just doing a wholesale dump of such customers, which is creating negative publicity.