A coalition of 27 consumer and community groups today sent the attached letter urging the Senate to support the Department of Justice’s Operation Choke Point and other efforts to stop banks and payment processors from facilitating illegal activity. This week, the Senate will be voting on the 2015 appropriations bill for the Department of Justice and may consider an amendment like the one that passed in the House banning all funding for Operation Choke Point. “We need every tool to fight data breaches, identity theft, scams, frauds, money laundering, and other illegal conduct,” the letter said.
June 18, 2014
United States Senate
Washington, DC 20510
Re: Support Operation Choke Point and other efforts to fight payment fraud; oppose amendments to Justice Department appropriations to curtail payment fraud work
Americans for Financial Reform and the undersigned community, consumer, civil rights and labor groups urge you to support efforts to ensure that banks and payment processors comply with longstanding due diligence requirements so that they can avoid facilitating illegal activity by knowing their customers, monitoring return rates, and being alert for suspicious activity.
Please oppose any effort to block funding for the Department of Justice’s Operation Choke Point or to weaken other regulator efforts to fight payment fraud. We need every tool to fight data breaches, identity theft, scams, frauds, money laundering, and other illegal conduct. Fraudsters Need Banks and Payment Processors to Access the Payment System Many scams, frauds and illegal activity could not occur without access to the payment system.
Banks and payment processors that originate payments play a critical role in enabling wrongdoers to debit victims’ bank accounts and to move money around. Examples of unlawful activity that would not be possible without an originating bank include the following:
- A telemarketing scam defrauded seniors of $20 million by lying to them to get their bank account information.
- A lead generator tricked people who applied for payday loans and used their bank account information to charge them $35 million for unwanted programs.
- Bogus debt relief services scammed consumers out of $8 million and made their debt problems worse.
- Wachovia Bank enabled $160 million in fraud by scammers who targeted vulnerable seniors.
- After an enforcement action against Wachovia, scammers moved their business to Zions Bancorporation (NASDAQ:ZION), which allowed it to continue despite spotting suspicious activity. For example, a telemarketer calling a senior about a purported update to his health insurance card tricked him into revealing his bank account information.
The FBI estimates that mass-marketing fraud schemes causes tens of billions of dollars of losses each year from millions of individuals and businesses, and one recent study found that fraud drains $2.9 billion a year from the savings of senior citizens. In addition, the data obtained in breaches like the recent Target, Michael’s and P.F. Chang breaches would be useless without a bank to use that data to debit bank or credit cards accounts.
Originating banks are not always aware that they are being used to facilitate illegal activity. But if and when they choose to continue to profit from lines of business in the face of blatant signs of illegality, they become an appropriate target for enforcement action. Indeed, if regulators do not take action against banks or payment processors facilitating illegal payments, they are left playing an impossible game of ‘whack a mole’ which makes it much too easy for fraudsters to get away with continuing to break the law, and processing institutions to continue to benefit from law-breaking.
Payment Fraud Hurts Everyone
Wrongdoers who access the payment system inflict harm on everyone. In addition to the direct victims of fraud, the general public spends millions of dollars on identity protection products and loses faith in the security of the payment system. Retailers and online merchants lose business if consumers are afraid to shop on their website or at their store. Consumers’ banks bear the customer friction and the expense of dealing with unauthorized charges. The fraudsters’ banks and payment processors may suffer regulatory or enforcement actions, lost customers, private lawsuits, and adverse publicity. American security is also put at risk when banks and processors that lack know-your-customer controls are used for money laundering for drug cartels, terrorist groups, and other criminals.
DOJ’s Operation Choke Point
The Department of Justice’s (DOJ) Operation Choke Point is aimed at banks that “choose to process transactions even though they know the transactions are fraudulent, or willfully ignore clear evidence of fraud.”6 The focus is on fraud and illegality, not activity that DOJ deems immoral. The first, and to date only, action that DOJ has brought as a result of Operation Choke Point is U.S. v. Four Oaks Fincorp, Inc. (OTCMKTS:FOFN), Four Oaks Bank & Trust Co. Four Oaks enabled payments for illegal and fraudulent payday loans; an illegal Ponzi scheme that resulted in an SEC enforcement action; a money laundering operation for illegal internet gambling payments; and a recidivist prepaid card marketing scam that made unauthorized debits for a bogus credit line.