Thursday, May 8, 2014

Is Obama Really Forcing Banks to Close Porn Stars' Accounts? No, Says Chase Insider

If this were a Hardy Boys book, it would be The Hardy Boys and the Mystery of the Porn Stars' Disappearing Bank Accounts.

Last month, porn star Teagan Presley told Vice that JPMorgan Chase & Co. closed her account because the bank considered her "high-risk." Then, on Wednesday, porn director David Lord told the Daily Beast that Chase sent him a letter notifying him that the bank was going to close his account on May 11. The Beast and Vice suggested that a secretive Justice Department program, "Operation Choke Point," was behind the account closures. But a Chase insider familiar with the matter says that the initiative has nothing to do with the termination of these accounts.

"This has nothing to do with Operation Choke Point," the source told Mother Jones. "There's not a targeted effort to exit consumers' accounts because of an affiliation with an industry [and] we have no policy that would prohibit a consumer from having a checking account because of an affiliation with this industry. We routinely exit consumers for a variety of reasons. For privacy reasons we can't get into why."

The porn stars' allegations play into a narrative—pushed by banks and congressional Republicans—that the Obama administration is overstretching its authority by forcing banks to police the free market. Here's the real story:

What is Operation Choke Point? Operation Choke Point is a federal initiative that aims to crack down on fraud by honing in on banks and payment processors—the companies that serve as middlemen between merchants and banks on credit card transactions. Financial institutions are not supposed to do business with companies they believe might be breaking the law. But Justice Department officials suspect that some payment processors ignore signs of fraud—like high percentages of transactions being rejected as unauthorized—in transactions they process, and banks go along for the ride, earning massive profits.

The Justice Department has already filed one lawsuit under the program. In January, the government sued Four Oaks Bank in North Carolina, charging that it "knew or was deliberately ignorant" that it was working with a company that processed payments for merchants who were breaking the law. According to the lawsuit, Four Oaks worked with a Texas-based payment processor that processed about $2.4 billion in transactions on behalf of fraudulent payday lenders, internet gambling entities, and a Ponzi fraud scheme. The processor then allegedly paid Four Oaks more than $850,000 in fees. (In April, Four Oaks reached a $1.2 million settlement with the government, but did not admit wrongdoing.)