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FDIC drops ‘high-risk’ list

By Allison Ross · Bankrate.com
Wednesday, July 30, 2014
Posted: 3 pm ET

<div class="width320 framed_img imgRight mobileFullWidth"><img alt="© JASON REED/Reuters/Corbis" src="http://www.bankrate.com/financing/wp-content/uploads/2014/07/banking-blog-federal-deposit-insurance-corp-logo-at-headquarters-in-washington.jpg" class="mobileFullWidth"> <p class="source">© JASON REED/Reuters/Corbis</p> </div>The Federal Deposit Insurance Corp. has revised a warning to banks about dealing with potentially fraudulent businesses, eliminating a list of sample merchants it said may warrant special scrutiny.

The FDIC said that the list of risky merchants, which included certain telemarketers, pornography businesses, coin dealers, payday lenders and online gambling companies, was not meant as a ban against banks doing businesses with those types of entities.

But it said the list has "led to misunderstandings" and that there's been "misperception that the listed examples of merchant categories were prohibited or discouraged."

Some banks may have severed ties with certain companies because of that list. JPMorgan Chase & Co. came under protest from the porn businesses earlier this year after it closed a porn actress' account.

The FDIC's revised guidance still says banks need to address risk regarding its relationship with third-party vendors. But it has removed the list to avoid confusion.

Banks dealing with third-party payment processors "should assess their risk tolerance for this type of activity and develop an appropriate risk management framework, which includes policies and procedures that address due diligence, underwriting and ongoing monitoring," the FDIC says.

Operation Choke Point

The U.S. Department of Justice, with at least some help from the FDIC, has been conducting an "Operation Choke Point" that aims to see if banks are enabling fraudulent businesses, and to strangle fraudulent companies by cutting off their access to financial systems.

The operation has focused on types of companies that it says it gets a lot of complaints about, such as payday lenders and Internet gambling companies -- similar types of companies to the ones the FDIC had previously listed as "high risk."

The operation has come under fire by some, who argue the federal government may be targeting legitimate businesses that are considered undesirable.

Next: check out Bankrate's coverage of the struggle that newly-legal marijuana dealerships are having in getting into the payments system.

Follow me on twitter: @allisonsross.

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