Finding better ways to address payment-processing fraud

On Nov. 14, Operation Choke Point came full circle.  Close to two years after hatching the initiative in a purported effort to reduce fraud, the Department of Justice (DOJ) and the Federal Deposit Insurance Corp. (FDIC) announced that they were launching an investigation to determine whether Operation Choke Point was actually aimed at reducing fraud or if the goal was to drive politically unpopular businesses out of the banking system. We hope that those investigations — along with a new bill co-sponsored by Reps. Blaine Luetkemeyer (R-Mo.) and Patrick Murphy (D-Fla.) — finally marks the end of Operation Choke Point. 

Since its inception, Operation Choke Point was mired in controversy and criticism. The program’s impact reached far beyond preventing fraud and brought serious risks to law-abiding payment processors and merchants. In some cases, Operation Choke Point resulted in legal businesses being denied access to the U.S. banking system. 

{mosads}Whatever the intentions behind Operation Choke Point, the initiative was broadly understood by the banking and payment industry as a command from DOJ and the Federal banking agencies to stop working with a wide range of businesses from coin dealers and short-term lenders, to home-based charities and pharmaceutical sales. Now some of the actors in those industries may be bad (bad apples are found in virtually every bunch), but if regulators believe that businesses are engaged in fraud, they should take direct aim at them using the myriad tools at their disposal rather than cutting off the banking and processing relationships on which all businesses rely.  

There are more collaborative and effective ways to prevent fraud and protect consumers. 

With the benefit of decades of payment system expertise, members of the Electronic Transactions Association (ETA) have developed effective due diligence programs to prevent fraudulent actors from accessing payment systems and to terminate access for network participants that engage in fraud. And just this year, ETA published new industry guidelines that provide a practical, targeted approach to combating fraud and offer a basis for companies to work cooperatively with Federal regulators and law enforcement.

These programs have helped keep payments fraud at remarkably low levels. In 2012, fraud accounted for a mere .06 percent of the more than $4.6 trillion in debit, credit and prepaid card transactions in the United States. These actions demonstrate the commitment of ETA members to keeping fraudulent actors off payment systems.

We recognize that private industry cannot act alone. Regulators and law enforcement organizations will always be critical in our joint effort to combat fraud. However, we must safeguard against the type of government overreach that occurred with Operation Choke Point.

That is why we support the legislation Luetkemeyer introduced last week. The Luetkemeyer-Murphy bill would prohibit federal agencies from ordering a banking institution to terminate an account with an organization unless it has material evidence that the organization is breaking a law or is a risk to national security. With a more targeted approach to identifying and prosecuting illegal organizations, we will be able to better protect consumers and ensure legal commerce. 

My hope is that this bill will pass, and moving forward, the FDIC and DOJ will take a more collaborative approach to working with banks, payment processors and merchants to protect consumers. After all, the government and these organizations are on the same side when it comes to protecting consumers and businesses against fraudulent actors. Let’s act like it.

Oxman is the CEO of the Electronic Transactions Association (ETA), an international trade association representing the payments technology industry.