In Alfred Hitchcock’s movie classic “Dial M for Murder,” the crime at the center of the plot is hatched on a phone call. A half-century later, the universal availability of mobile devices and communications networks means that criminal acts are even more frequently plotted and carried out using electronic means. In investigating such crimes, does law enforcement hold responsible those companies that merely operate communications networks? Of course not. And yet that is exactly what the Department of Justice and other federal agencies are doing as they pursue disfavored – but legal – categories of merchants by targeting our nation’s payments systems.
The enforcement program has a name – “Operation Chokepoint” – and as more details of the program become public, more concerns are raised. The “chokepoint” in this operation is the nation’s payments infrastructure, the means by which merchants process nearly $5 trillion in consumer purchases in the U.S. each year. Federal law enforcers are targeting merchant categories like payday lenders, ammunition and tobacco sales, and telemarketers – but not merely by pursuing those merchants directly. Rather, Operation Chokepoint is flooding payments companies that provide processing service to those industries with subpoenas, civil investigative demands, and other burdensome and costly legal demands.
The theory behind this enforcement program has superficial logic: increase the legal and compliance costs of serving certain disfavored merchant categories, and payments companies will simply stop providing service to such merchants. And it’s working – payments companies across the country are cutting off service to categories of merchants that – although providing a legal service – are creating the potential for significant financial and reputational harm as law enforcement publicizes its activities. Thus far, payday lenders have been the most frequent target. Whatever the merits of payday lending – and there are valid arguments on both sides –it is legal in 36 states. And if payday lenders are today’s target– what category will be next and who makes that decision?
If you’re thinking this is harmful to the flow of commerce, you’re right. Our nation’s payments infrastructure allows more than eight million U.S. merchants to accept credit and debit card payments. Particularly for merchants that sell products and services online, such acceptance capabilities are the only means of accepting payment – their customers can’t slide a $20 bill into their computers when they shop. Like communications and online network owners, payments systems carry traffic that – unbeknownst to the owners – might include transactions that perpetrate consumer fraud or otherwise break the law. But far from being complicit in such fraud, payments companies share a strong interest with law enforcement in ensuring that fraudulent merchants are barred from our payments systems. Indeed, because consumers are 100% protected against fraud, it is the payments companies that take on the risk and liability of fraudulent merchant behavior.
Because of this shared distaste for fraud, payments companies are better partners to law enforcement than targets.
Despite questions about law enforcement motives, the payments industry is moving forward in pursuit of fraud. As the trade association of the payments industry, ETA recognizes the opportunity to educate all participants in the payments ecosystem about how to identify and remove fraudulent merchants from our networks. ETA’s newly published Guidelines, a 100 page document and educational curriculum developed by a task force of forty payments companies, is being deployed for benefit of all ecosystem participants, particularly smaller companies that may not have significant in-house resources. As an industry, we will continue to support state and federal law enforcement in the battle against fraud. All we ask in return is that we not be used in a policy campaign that targets merchants offering legal services – a campaign better suited for discussion in legislative bodies.
Oxman is the CEO of the Electronic Transactions Association, which represents more than 500 payments and technology companies. www.electran.org