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If banks consider licensed and regularly supervised pawnbrokers with many compliance responsibilities to be too risky to bank, then what Main Street businesses are safe?
April 21 -
WASHINGTON The Federal Deposit Insurance Corp. said Monday that it has withdrawn a list of merchant categories, including payday lenders, debt consolidation firms, pornography businesses and others, that it said warranted heightened attention by banks processing their transactions.
July 28 -
Top Republicans on the House Financial Services Committee are asking federal regulators to cease all activity related to the Justice Department's "Operation Choke Point" and any related investigations.
April 9 -
A spate of recent account closings at churches and charities suggests that Operation Choke Point and other de-risking directives are causing collateral damage to faith-based organizations.
January 27
A number of banks cut ties with pawnbrokers in recent years. Now pawnbrokers are pushing back.
Pawnbrokers have been unfairly caught up in the Department of Justice antifraud initiative known as
"In 2013, Operation Choke Point began pressuring the financial industry to cut off banking services to companies believed to be at high risk for fraud and money laundering," Bishop said in a related statement. "Despite not being a money-service business, and not named on the 2011 Federal Deposit Insurance Corp. list of high-risk businesses, the pawn industry was swept into this effort anyway."
Bishop argues that banks' overzealous reaction to the DOJ investigation is to blame for the wave of account closures. She notes in her op-ed that regulators have issued
A JPMorgan Chase spokeswoman confirmed that the bank had opted to stop doing business with pawnshops and other businesses that rely heavily on cash but denied that Operation Choke Point was a factor in the decision. The bank was motivated by anti-money-laundering and know-your-customer compliance concerns, she said, referring to rules that require banks to scrutinize accountholders for signs of illegal activities.
SunTrust confirmed in an August 2014
Operation Choke Point may well have led some banks to sever relationships with pawnbrokers, according to Rob Rowe, associate chief counsel of the American Bankers Association. But he added that a number of other factors also influence banks' decisions about which businesses to serve.
"Regulators are clearly focusing on AML compliance," Rowe said. "Every bank I've talked to in the last few years says that examiners are really closely scrutinizing [Bank Secrecy Act] efforts."
The fact that pawnbrokers are a cash-intensive business makes them higher risks despite the fact that they were not included on the FDIC's
"Banks will look at industries like pawnbrokers and say, 'We don't have enough expertise or the staff resources to properly identify what's going on and track the transactions that are taking place,'" he said. But he said that banks have largely stopped cutting off industries wholesale, with the possible exception of legal marijuana businesses.
Better training for bank examiners and auditors could help banks become more comfortable serving pawnbrokers and other businesses that are perceived as risky, according to Rowe. Right now, examiners are under a lot of pressure to catch potential problems, which leads to an atmosphere in which regulators and banks may prefer to err on the side of caution. If examiners have clearer yardsticks for measuring when banks have done their due diligence, banks may be willing to reconsider the customers they are willing to serve.
"Examiners need to feel comfortable that when a bank has assessed risk and put controls in place, as long as those controls are in place, that should be enough," Rowe said.