Attorneys and investigators in the U.S. Department of Justice's Civil Division are examining the part financial institutions may play in fraud schemes perpetrated by bank customers floating deceptive products, department officials said this week.
The department's Financial Fraud Enforcement Task Force is specifically reviewing if banks are inadvertently helping scammers who are offering questionable payday loans, bogus offers of debt relief, fraudulent health care discount cards and phony government grants, according to Michael Bresnick, head of the task force.
The DOJ previously has focused on pursuing misconduct that helped lead to the financial crisis, but Bresnick's comments suggest the department's investigators have new priorities.
Fraudulent merchants often are paid through third-party payment processors that provide them with access to the U.S. banking system, said Bresnick, in prepared remarks at the Exchequer Club in Washington. He called financial institutions and payment processors "bottlenecks, or choke points, in the fraud committed by so many merchants that victimize consumers and launder their illegal proceeds."
The Bank Secrecy Act requires U.S. banks to report suspicious activity by customers that may indicate illegal acts such as drug trafficking or terrorist financing. But Bresnick's comments suggest the department wants to more closely examine banks' roles in types of misconduct they have not often been held liable for in the past.
The department also is examining the relationship banks have with the payday lending industry, he said. Payday loans, often a few hundred dollars in size, enable cash-strapped borrowers to obtain quick funds to tide them over until their next paychecks.
Bresnick said it "raises some questions" that banks allow payday lending companies to directly withdraw funds from borrowers' bank accounts. Banks' should review whether their processing of those debit transactions, especially when the loans may violate state laws, run contrary to their compliance obligations, Bresnick said.
The payday loan industry has been under scrutiny in recent years for charging interest rates illegal in some states. Congress sought to tackle some of these concerns in 2010 when it created the Consumer Financial Protection Bureau and gave it authority to regulate payday lenders.
Regulators have been examining the practice, but the Justice Department interest suggests heightened scrutiny looms.
On Tuesday, JPMorgan Chase & Co announced plans to change some of its practices to help protect consumers from inappropriate payments sought by payday lenders and other billers.