Monday, January 27, 2014

DOJ Investigates Banks Providing Access to Unscrupulous Lenders

The Department of Justice is targeting banks that provide access to customers' accounts to payday lenders and other online merchants.  The DOJ investigation, termed "Operation Choke Point" is targeting banks that have failed to adequately perform their roles as gatekeepers to the banking system.
 
The Bank Secrecy Act requires banks to maintain internal controls against suspicious activities by bank customers and companies doing business with them.  Some banks have apparently failing in this monitoring, allowing online payday lenders to make loans to account holders with interest rates sometimes reaching 1000%.  Additionally, other online merchants have received access to customers' accounts.  The result is the wholesale looting of the customer accounts and a cycle of debt for those holding the invaded accounts.
 
Banks have allowed this access because they receive hefty fees for the transactions.  However, doing so appears to violate the dictates of the Bank Secrecy Act.  The government has brought its first lawsuit earlier this month against Four Oaks Bank of Four Oaks, North Carolina.  The civil complaint alleged deliberate ignorance on the part of the bank in processing payments for unscrupulous merchants that included payday lenders and a Ponzi scheme perpetrator.  As a result, victims allegedly had more than $2.4 million withdrawn from their accounts.  The bank is reported to have tentatively settled with the Justice Department for $1.2 million.
 
Some congressional lawmakers are objecting to the Justice Department's efforts, claiming an attempt by DOJ to quash the payday loan industry.  It remains to be seen whether these complaints affect program.
 
For more on the story, please see The New York Times, "Justice Department Inquiry Takes Aim at Banks' Business With Payday Lenders," http://dealbook.nytimes.com/2014/01/26/justice-dept-inquiry-takes-aim-at-banks-business-with-payday-lenders/?ref=business.

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