Don’t Bank On It

There are a number of perfectly lawful businesses that sit at the edge of political acceptability. The most obvious is the marijuana biz, in states where it’s lawful. But try to use that cool credit card with the magic chip and you might get a shock. You see, the feds, who hate cash because only criminals use cash (and they can’t track your every purchase), won’t let banks maintain accounts for weed sellers and have a program, a quiet program, to prevent credit card companies from processing payments.

But marijuana is a Schedule I drug, so why should they? Fair enough. What about knives?

A major knives manufacturer from central California says his company was denied access to an internet payment processing service because they sell weapons online, raising questions about whether an anti-fraud program called Operation Choke Point is continuing to block legal businesses in the firearms and weapons industries from accessing basic banking services.

“It was pretty simple and straightforward,” Aaron Hogue, co-owner of Hogue Inc., said of the situation he faced with Wells Fargo bank. “They called my controller, and said, ‘Sorry, but we’re not going to be able to process any credit card transactions for the sale of weapons online.’”

Weapons? Sure, knives can be weapons. They can be tools. They can be the sine qua non of enjoying a decent steak in polite company.

“And they specifically said because you guys sell knives,” he added.

Not switchblades. Not gravity knives. Not one of those knives that got legislators in the 50s all hinky, such that they made them illegal even though it all looks pretty goofy today. Not to mention wreaks havoc with ordinary people who happen to use or carry knives for perfectly benign reasons, like work.

So does Wells Fargo Bank, the descendant of the old West, where men were men and cows were nervous, hate knives? Nah. The couldn’t care less about knives. What they do care about is the government making their business untenable.

“We provide payment services for businesses across a wide-range of industries, including brick-and-mortar retailers that sell weapons, firearms, and ammunition,” Angenette Maniego Lau, a spokeswoman for Wells Fargo, told The Daily Signal via email. “For those retailers that sell weapons, firearms, related accessories, and ammunition online, we do not offer payment services due to the risks associated with processing these transactions.”

The risks involved aren’t nonpayment, having to chase down hordes of knife buyers to collect on their credit card payments. There is nothing to suggest they aren’t as good about payment as anyone else, maybe better. No, there is another, far scarier risk.

Operation Choke Point is a program designed by the Justice Department in 2012 to fight fraud, but since then, has come under fire for targeting entirely legal industries by labeling them “high risk” for fraud. In doing so, government regulators sent the message to banks that these industries—such as firearms and ammunition sellers—were too risky to do business with. Firearms dealers have complained for years about a lack of access to financial services, but many said it got especially bad in 2013, when Operation Choke Point went into full swing.

The initial justification for this program was to fight fraud, and who doesn’t want to fight fraud? Like so many initiatives, they are rationalized as means of stopping some blight that we can all agree on, so we cede power to the government to save us, secure in the knowledge that our problem will be solved and the government would never use that power in ways it wasn’t intended or with which we would disagree.

But the government is kinda tricky about how it flexes its muscle, so as not to alert the general public and piss too many people off.

“If their concern is essentially political and they have made a decision that they don’t want to do business with people who sell knives, how do they differentiate knives as weapons that they feel is undesirable and knives as tools which millions of American use every day at home, at work, and in recreation? I don’t see them telling a retailer like Williams-Sonoma that they’re not going to process their credit cards because they sell knives.”

While the question of what business the government has telling banks to stay away from perfectly lawful knife manufacturers remains unanswered, it’s smart enough not to let you in on the trick by preventing you from buying your chef’s knife at the mall. That would be asking for trouble, as Operation Choke Point would then touch your life. That would be totally unacceptable.

For its part, the government blames banks for overstepping their risks by choosing to avoid doing business with entire industries rather than individual companies.

“Unfortunately, as the [Operation Choke Point] investigations continue, so too have one of the unintended but collateral consequences of such vigilance: mass de-risking,” Bresnick wrote in the American Banker. “Members of the industry have raised their hands in frustration and simply avoided lines of business typically associated with higher risk. This reaction to [the Justice Department’s] enforcement initiative, and similar matters brought by the Federal Trade Commission and the Consumer Financial Protection Bureau, is certainly understandable.”

Bresnick added that only until the government is willing to own up to the consequences of Operation Choke Point, “can we expect that the multitude of good actors who desperately want to avoid the last resort of de-risking will be able to do so with relative comfort.”

From the perspective of the banks, who have no clue why the government might go after a corporation, or group of businesses, in a targeted industry, the first they will learn of an actual threat is when the sword falls on their head. By then, it’s too late, and the bank is deep in a government investigation that will cost millions, if not billions, to bail out, plus the losses of non-collectibility that could result.

It’s not that banks hate knives, but that they love money more and their risk assessment is that they would rather stop doing business with an industry than have to deal with the threat of huge losses when the government drops the dime. That the government is selectively using Operation Choke Hold to kill off industries, or parts of industries, that have fallen out of political favor isn’t the banks’ problem. It’s ours.

15 thoughts on “Don’t Bank On It

  1. Levi

    A minor point, but Wells as a merchant acquirer has no risk of non-collectibility from knife-buying customers. That generalized risk is spread over the whole industry in the form of interchange fees that are passed back in some form or another to the card issuing banks. Wells’ risk of non-payment is only from disputes, refunds or fees to be collected from the merchant in the event of catastrophic failure (govt inspired or otherwise).

    The credit policies behind this sort of prohibition are generally motivated by a lack of desire to be involved in a large govt investigation (as you say) or to avoid the PR of being “the evil Wall Street bankers that greedily facilitated the sale of the knife/gun/etc. that killed [insert victim in infamous event]”. If they’re big enough that they can do without that industry to avoid the potential nuisance, they will leave it to the smaller, more desperate fry to handle (who will also charge punitively large fees for the pleasure, if they understand what’s at stake).

    1. SHG Post author

      No one believed risk of non-collection to be the actual reason. If there was any conceivable lack of clarity on that point whatsoever, you cleared it up.

    1. SHG Post author

      I was going to use sheep (after all, it is the standard joke), but then all the guys from Kentucky would yell at me. Did they even have sheep in the wild west?

      1. Kathryn Kase

        If you’d read your O. Henry, you’d know there were sheep ranchers in the West and that they were the targets of much derision by cattle ranchers.

          1. Wrongway

            Geez Dude !!
            I just spit beer all over the place.. ahh hell it was worth it..

            could someone hand me a tissue ??

  2. Patrick Maupin

    You’re completely mischaracterizing the government’s efforts to support the second amendment by keeping local brick and mortar mom and pop firearm sellers in business.

      1. Patrick Maupin

        Well, this nonsense hasn’t hit here yet — for example, Central Texas Gun Works sells over the internet and still takes mc, visa, and discover. OTOH, they’re hedging their bets — two years ago they installed Austin’s second bitcoin ATM.

  3. Timothy Knox

    If you find the Wikipedia article on Operation Choke Point, you’ll see that the Feds have used it to go after all sorts of businesses that are legal, but undesirable (or that have a powerful lobby against them), such as producers of adult content, online tobacco sellers, or payday loan providers.

  4. Frank

    Despite congressional scrutiny and derision last year, it appears Operation Choke Point is alive and well.

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