Daniel Colbert has published Operation Choke Point: Using an Old Tool in a New Way in the American Criminal Law Review. The piece discusses a program of the U.S. Department of Justice aimed, among other things, at stopping fraud by on-line payday lenders. Here's the piece:
By Daniel Colbert, ACLR Featured Blogger
Prosecuting financial scams is incredibly difficult. By the time prosecutors identify fraudsters and gather enough evidence to bring a case, the fraudsters pack up shop and disappear, only to pop up again somewhere else. This leaves agencies like the Department of Justice wasting resources playing a perpetual game of whack-a-mole while consumers are constantly exposed to scams. Seeking a solution to this problem, the Justice Department created Operation Choke Point, which sought to identify fraudsters by requiring banks and payment processors to report evidence that their customers are committing fraud.
DOJ’s approach has come under fire from—among others—Darrell Issa, the Republican Chairman of the House Committee on Oversight and Government Reform. Issa alleges that Operation Choke Point is an abuse of DOJ’s power and that its true goal is “to target online lenders and the payment processors who serve them.” For evidence, Issa relies on a slide from a DOJ attorney’s presentation that states “Cutting off the scammers’ access to the payment systems is relatively efficient and fast, and protects consumers proactively as we investigate.”
Issa may be correct that Operation Check Point might make it more difficult for online payday lenders to do business, but only to the extent that online lenders’ activities raise suspicions of fraud. Payday lenders moved online in recent years as some states increased regulation to a level that essentially banned the loans. By operating online, lenders can make illegal loans to borrowers in those states, and it is difficult for state regulators to do anything about it.