Operation Choke Point | Subjective Regulation | Firearms Considered A "Reputation Risk" By Banks

Lack of objectivity in Operation Choke Point.

A  relatively obscure program,"Operation Choke Point", may be causing banks to sever relationships with merchants engaged in "firearms sales" due to what some view as subjective regulatory criteria. Relatively new regulatory guidance encourages financial institutions to scrutinize the activities of merchants "that have been associated with high risk activities"(1). However, according to Congressman Jeb Hensarling, regulators are using subjective criteria instead of long established objective assessments as part of regulatory agency's prudential supervision. According Hensarling, agencies are incorrectly using "reputational risk" as a stand alone basis to suggest that banks cease providing a particular product or service to a particular merchant or industry(2). Hensarling details what is in his view is "vaguely defined" criteria that leaves too much room for subjective interpretation. Some believe that banks would choose to sever relationships with certain industries in order to avoid regulatory problems based on this criteria, and thereby choking out industries from financing, payment processing and other merchant services.

Firearms Dealers Are "High-Risk" For Banks(1)(2).

To date, there appears to be a lack of evidence available to the public indicating firearms dealers are engaged in activities requiring extra vigilance from banks. It might be beneficial to the firearms industry if members are made aware of the specific activity that has placed firearms dealers in the "risky" category. Firearms dealers should clearly be interested in identifying the risky behavior in order to ensure that they don't inadvertently engage in it, create a perception that they are engaged in it, and ensure policies are in place that prevent the "high-risk" activity from occurring. For obvious reasons, persons engaged in federally licensed firearms sales or other related activities want to work with bankers to ensure they are doing nothing to jeopardize their baking relationships. At this time, there appears to be no guidance on the matter that has been disseminated to the firearms industry by any regulatory body. It may serve the firearms industry, banks, regulators, and the consumer to clarify this issue somewhat by issuing guidance to "firearms dealers" on what type of activity is or may be perceived as "risky".

Furthermore, terms such as "firearms sales" encompass a broad spectrum of activity. Banks may overly scrutinizing the wrong businesses because of confusion about the term. For example, a mom-and-pop retail firearms business and a large gun store may be placed in the same category even if the businesses are in fact extremely different; even if some of the business is conducted online.  A large firearms importer and a small manufacturer may also be classified as "firearms sales" when in fact the two businesses couldn't be more different, and likely require significantly different types of banking services. 

Here is a sample of the types of businesses that have been identified as "high-risk" by federal regulatory bodies. The entire list can be viewed at the link above.

Credit Card Schemes
Dating Services
Drug Paraphernalia
Firearms Sales
Ammunition Sales
Fireworks Sales
Get Rich Products
Pay Day Loans
Pornography
Telemarketing
Travel Clubs

(1) FDIC Supervisor Insights Summer 2011
(2) Letters from Jeb Hensarling to Fed Chair, Office of the Comptroller of Currency, Chairman FDIC, and NCUA.

By JR Valdes
Firearms Licensing And Consulting Group, LLC
Firearms Consulting
Firearms Regulatory Compliance

Copyright 2014 All Rights Reserved

ATF Public Safety Violations | Second in the series | NICS check exemption | ATF Compliance Best Practices

Second in the series. TOP 10 ATF commonly cited public safety violations.

Topic: Failure to conduct a background check when required.

There are only 3 exception to the NICS requirement when a FFL transfers firearms to a non-licensee.  The article deals with those three exceptions.  

One) NFA transfers 

Two) When a qualifying "permit" is presented by the transferee.

Three) When it is "impracticable"

Some reasons for this violation are addressed, and some FFL best practices suggestions are given.

Excerpt: "FFLs should assume that all transfers to non-licensees require a NICS background check unless it can be positively shown in writing that NICS is not required. Strict compliance is your safeguard against ATF action as well as civil liability."

JR Valdes

FFL Consulting Group 

2014 All Rights reserved