An abandoned program still haunts ATM operators
by Alicia Blanda, CEO, Blanda Marketing
Operation Choke Point is shorthand for a nationwide program — initiated by the Department of Justice under the Obama Administration and implemented by the FDIC and other banking agencies — designed to shut down and deny bank accounts to businesses the DOJ deemed a high risk for criminal activity, specifically money laundering.
The program resulted in an onslaught of account closures and denials for many legitimate businesses nationwide. Nonbank ATM providers were hit especially hard — often facing account termination with little or no notice, coupled with continued rejections for new account applications.
"While Operation Choke Point was well-intentioned, no government agent or agency should be allowed to pick winners and losers based on misconstrued reputational perceptions, rather than hard facts," said David Tente, U.S. executive director for the ATM Industry Association.
In 2015, it appeared as though the end was in sight. Lobbying efforts with Congressional representatives brought the plight of the ATM industry to sympathetic ears, and moves were made to directly address DOJ and FDIC involvement with OCP.
Officially, OCP was halted and financial institution regulators were directed to pull back on the program — halting the pressure on banks and credit unions. The ATM industry thought it would be able to breathe a sigh of relief, except that …
Bank account closures have not stopped
Despite the official abandonment of Operation Choke Point, both ATMIA and the National ATM Council Inc. continue to receive reports of closure letters from businesses throughout the industry.
In fact, account closures for ATM providers have hit a worrisome level in 2017, as several large financial institutions apparently have stepped up efforts to purge IAD accounts from their portfolios. Businesses are given 0–90 days' notice of account closure and, in some cases, funds have been frozen or otherwise made unavailable to the account owner.
"What has really brought this to the crisis state in recent weeks is a coordinated national initiative by a nationally known bank to shut off these accounts across the board," said NAC Executive Director Bruce Renard. "This particular bank had served as somewhat of a haven for our industry when other financial institutions had cancelled ATM company accounts. Having them now join the others with a vengeance has resulted in the top banks all now effectively unavailable to our industry — an industry whose very product is cash."
The source of the continuing pressure on FIs to eliminate IAD accounts is not clear. Possibly, regulators never really stopped pushing the OCP directive.
"I recently attended a seminar and on the schedule of speakers was a presentation by a managing partner of a leading law firm who primarily represents financial institutions," said Jack Milford Ford of JMFord Law Office and co-chair of the ATMIA government relations committee.
"During the presentation, the attorney referred to 'Choke Point' and mentioned that, although the applicable federal agencies have since been told this program has formally been terminated, financial institution clients continue to experience the enforcement through continual federal bank examinations and audits under the umbrella of enforcement of the Bank Secrecy Act."
No matter the cause, account closures continue to threaten independent ATM deployers and, indirectly, the citizens and communities they serve.
So, what is being done?
The associations representing the U.S. ATM industry are bringing the account closure issue to the attention of representatives in Congress.
"All copies of account closure letters are being forwarded to Rep. Blaine Luetkemeyer," Tente said. "In addition, Rep. Luetkemeyer reintroduced legislation on May 25 that would curb Operation Choke Point.
"ATMIA continues to support this measure and believes it will go a long way toward putting an end to IAD account closures. We are very optimistic President Trump will sign it into law."
According to a press releases from Luetkemeyer's office, H.R. 2706 will restore the balance between financial institutions and regulators and protect private industry from the organized bureaucratic intimidation that accompanies Operation Choke Point.
Luetkemeyer's bill would dictate that agencies such as the FDIC and the Office of the Comptroller of the Currency, among others, could not request or order a financial institution to terminate a banking relationship unless the regulator has material reason, according to the press release.
The bill also requires that any account termination requests or orders be made in writing and rely on information other than reputational risk.
And finally, the legislation strikes the word "affecting" from the Financial Institutions Reform, Recovery, and Enforcement Act, changing a reference to fraud "affecting a federally insured financial institution" to fraud "by" or "against" such an institution. This is to ensure that the DOJ's broad interpretation of the law is limited and the original intent of the statute restored.
"NAC has been working individually with those many NAC members, new and old, who are experiencing this problem," said Renard. "These efforts have been largely successful to date, but the situation has worsened significantly."
Prior to the most recent spike in ATM account closures, NAC developed a set of industry guidelines with the goal of providing financial institutions with the ongoing information they require to meet regulatory requirements.
The guidelines, reviewed by top bank regulators and bank organizations in D.C. require pristine, stand-alone accounts for ATM vault cash, along with accompanying reporting.
IADs who receive a denial letter from their financial institution should reach out directly to the industry associations to report the issue and work with their industry representatives to resolve it.
Companies: ATM Industry Association (ATMIA)