Gun retailers say increased scrutiny of banking customers promoted by the FDIC is limiting their banking options, freezing their assets, cutting off lines of credit and prohibiting online sales.
Since 2011, the FDIC has instructed banks to toughen risk management on merchant customers who use payment processors, like PayPal. Among “high risk” merchants like porn and drug paraphernalia stores, the FDIC has also listed gun retailers.
A DOJ program called Operation Choke Point focuses on fraud keeping a close eye on transactions to stop credit card schemes, gambling, escort services, Ponzi schemes and payday loans in their tracks and return unauthorized payments.
The DOJ says it is trying to hold banks “who are knowingly assisting fraudulent merchants who harm consumers” accountable.
Many banks have cut ties with retailers over OCP, looking at merchant practices, instead of credit history and licenses. Of course, a business doesn’t have to have a bad credit history to rip someone off.
“We’re committed to ensuring that our efforts to combat fraud do not discourage or inhibit the lawful conduct of these honest merchants,” the DOJ said in a May 7 blog post.
T.R. Liberti, gun shop owner and operator in Miami, told the Washington Times that BankUnited N.A. rolled off his online business last month.
“This letter in no way reflects any derogatory reasons for such action on your behalf. But rather one of industry. Unfortunately your company’s line of business is not commensurate with the industries we work with,” said an email from his bank.
“This administration has very clearly told the banking industry which customers they feel represent ‘reputational risk’ to do business with,” Peter Weinstock, a lawyer at Hunton & Williams LLP, told The Times. “So financial institutions are reacting to this extraordinary enforcement arsenal by being ultra-conservative in who they do business with: Any companies that engage in any margin of risk as defined by this administration are being dropped.”
During a House hearing in April, FDIC acting General Counsel Richard Osterman stood by the high risk designation.
“We have actually put out a policy statement on this issue to make it very clear from the very top that as long as financial institutions are properly managing their relationships and the risks, they’re neither prohibited nor discouraged from providing these services,” Osterman said.
“Basically, what we’re saying is, these types of programs can be, can involve high-risk activities that could create litigation risk and reputation risk for financial institutions,” he added. “So, they need to do due diligence to ensure that the folks who they’re banking are acting in a safe and sound manner.”