Operation Choke Point, and the general attitude of the federal banking regulators toward businesses that they've picked (for reasons best known to themselves) as worthy of being branded with a Scarlet Letter, are causing cautious banks to drop customers who might be engaged in perfectly legal activities. Apparently, the latest victims are porn stars (paid subscription required).
A new war is brewing between banks and their customers, and the fight is going public.
PR black eyes of the past would have come from ATM surcharges or foreclosure injustices. Now, news reports are stacking up about angry customers — payday lenders, check cashers, telemarketers, gun dealers and even adult entertainers — who are complaining that their accounts have been, or could be, unfairly terminated.
The pornography sweep in particular only strengthens bankers' suspicions that regulators are forcing them to play the role of morality police. And it raises more practical questions for bankers: How do they balance public perception and compliance? What industry will they feel compelled to shut out next?
Look, porn stars ought to be banned from access to money due primarily to their utter lack of acting chops.
"Hi, I'm Eva. I'm from the maid service. I'm here to clean your house."
"Hey, Eva, would you start with cleaning...THIS?!?"
"Oh, baby! Yeah...yeah...oh...oh..uhh..uhhhh...OHHHHHHHHHHH!!!"
Yet, in this great country we call "The Land of the Free and the Home of the Horny," the "adult entertainment business" is legal. As is payday lending (in many states), check cashing, renting-to-own, deposit advances, tax anticipation refund lending, and being a "Pawn Star." However, all of those businesses have a "common taint": the DOJ and federal bank regulators don't like them. While the ostensible rationale for that dislike may be that they pose higher risks of money laundering or other illegal activities by some of their members than do other business (like insidre trading investment advisers to members of Congress), I've not seen the evidence that Teagen Presley is a crook, albeit you might argue, with some support, that she's a "bad actor."
Reporter Andy Peters points to a problematic FDIC report from 2011 that listed the current crop of the disfavored, and that may be a guide to "who's next."
Pornography is one of several potentially problematic industries listed in an FDIC report in June 2011 that warns banks about managing third-party payment processor relationships. Ties between banks and processors that handle transactions for the problematic industry sectors can expose banks to "greater strategic, credit, compliance, transaction, legal and reputation risk," the FDIC said.
In addition to pornography, the other high-risk industries the FDIC identified included ammunition and firearms sales, credit-repair services, drug paraphernalia, fireworks sales, dating services, racist materials and tobacco sales.
Peters quotes Bill Isaacs, the former FDIC Chairman who's been a fierce critic of Operation Choke Point: "Banks are left to guess who deserves access to the banking system and who doesn’t."
I'd say "deserve" has nothing to do with it. "Whim" appears to be the criteria being applied.