The mysterious online war against a payday lending crackdown

Introduction

An online campaign waged by a mysterious new nonprofit group claims that an Obama administration effort to curb lending abuses will take away people’s guns, close down charities and destroy the free market. To drive the point home, the group portrays President Barack Obama as a marauding Godzilla.

The attack’s sponsors are at this point anonymous.

At issue is a government initiative to sue banks that debit people’s bank accounts illegally on behalf of companies in fraud-prone industries. A major target is online payday lenders that charge steep fees for short term loans and can trap consumers in a cycle of debt. The Justice Department says some banks ignore obvious signs of fraud by these merchants because the banks can collect large fees for the service.

The government effort — called “Operation Choke Point” — could turn industries deemed risky into financial pariahs, choking off their access to the financial system. It has drawn strong objections from industry groups, a formal inquiry by one Republican lawmaker and letters of reassurance from the Justice Department to trade groups and lawmakers.

The group behind the new online campaign, called “Stop the Choke,” takes a less public approach. Its website, Facebook and Twitter accounts accuse the government of threatening a vast range of Web-based companies that the government sees as potential fraud risks, including online lenders and porn sites; ammunition and firearms dealers; and Ponzi schemes and “pyramid type sales.”

Puppies, kittens and the elderly are deployed in shareable Facebook art to illustrate the kinds of unassailable American icons that allegedly could suffer from aggressive regulation of so-called home-based charities, a loosely regulated category of nonprofits that regulators say present heightened fraud risks.

Such anonymous, online political attacks have become common in the Internet age, but rarely are they so careful to cloak the identities of their sponsors.

“It’s disingenuous and it’s intended to be deceptive,” says Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington, which advocates for transparency as a means of political accountability. “You can only assume that industries that make a lot of money preying on consumers are behind it.”

The purpose of the Web campaign is to simulate ersatz public outrage in hopes that a real outcry will bubble up, Sloan says. She says they want people “to jump on a preexisting bandwagon in hopes that there’ll be a real one.”.

There are few clues as to the backers’ identity.

There is no “about” section on the website. The site, Twitter account and Facebook page include no names, addresses or phone numbers. The Web address was registered anonymously on Dec. 16, about three months after the name “Operation Choke Point” first appeared publicly in a presentation by a Justice Department lawyer.

The Facebook page says the group is a nonprofit. It features the sort of anti-regulatory rhetoric often employed by nonprofits financed by right-wing and Tea Party groups.

The page features dozens of photos and references to Tea Party favorite U.S. Sen. Ted Cruz, R-Texas. A Cruz spokesman said the Facebook page “is not affiliated with the senator, and we don’t know who set it up.”

A public request for comment on Twitter this month did not receive a response.

Numerous trade groups representing industries affected by Operation Choke Point and contacted by the Center said they knew nothing about the campaign.

So-called “front groups” are sometimes used by businesses that take positions that they do not want to be associated with, according to Sloan. This allows the campaign to avoid association with unpopular industries and “say things that are much more outrageous than the businesses are willing to say on their own,” she says.

The Justice Department has subpoenaed dozens of banks that work with industries it wants a closer handle on, alleging that the banks ignore red flags like high rates of payment disputes by dissatisfied consumers. The Center was among the first to report on the strategy in August.

Banks do business with these industries through outside companies called third-party payment processors. Banks are required by law to understand their customers’ businesses, even when the relationships are indirect. They can be held liable for clients’ fraudulent transactions.

Bank regulators repeatedly have warned banks about the risk of working with third-party payment processors, whose clients generally are too small or risky to establish their own banking relationships. Guidance by regulators carries a lot of weight with banks because the government can restrict their activities and eventually put them out of business if they fail to comply. That’s one reason banks are easier targets than web-based companies that can disappear and regroup overnight

One expert on industries’ efforts to influence official Washington said the campaign is unlikely to sway policy. Daniel Hill, president of Ervin Hill Strategy, said its unknown authors are “preaching to the choir director.”

“There’s not enough meat to persuade anyone who doesn’t already feel the same way; in my opinion, the funders are wasting their money,” Hill said in an email.

The Republican chairman of the House Oversight Committee, California Rep. Darrell Issa, last month demanded more information on the issue from the Justice Department because of concerns that the true goal is “to eliminate legal financial services to which the Department objects.”

The Justice Department assured lawmakers and trade groups that that the probe will not harm banks whose customers follow the law.

“We want to protect the public from mass-market consumer fraud by holding accountable those banks and payment processors that violate federal law by facilitating fraudulent transactions,” Justice Department lawyer Peter Kadzik wrote in a letter to the American Bankers Association and Electronic Transfer Association.