New ETA Economic Studies Target Operation Choke Point

July 16, 2014 – The Electronic Transactions Association (ETA), the global trade association representing the payments technology world, today released two economic studies which find that Operation Choke Point is imposing considerable costs on reputable businesses while having little impact on fraud. The studies, commissioned by ETA and released by NERA Economic Consulting and First Annapolis Consulting, each examine the benefits and costs of Operation Choke Point and find the program is unlikely to achieve the intended result of denying access to the financial system to wrongdoers, and would impose significant costs on the overall economy. Operation Choke Point is a recent federal law enforcement campaign which targets payments companies in an effort to “choke off” financing sources for industries deemed “high-risk.”

“By holding payments companies responsible for merchant fraud, federal law enforcement officials are targeting legitimate businesses and harming for both merchants and consumers”, said Jason Oxman, CEO of ETA. “These studies demonstrate that industry self-regulation, such as ETA’s recently published Guidelines, will do more to detect and eliminate fraud than this well intentioned, but misguided federal intervention.”

The NERA study, authored by Dr. Jeffrey Eisenach, concludes that the Department of Justice focus on payments companies is misplaced and ineffectual when compared to industry self-regulation efforts.  “ETA’s voluntary Guidelines will facilitate self-regulation and provide guidelines for processors to take appropriate necessary precautions. Reliance on voluntary guidelines would avoid the unintended consequences of Operation Choke Point and similar enforcement policies, while providing the flexibility necessary to adapt to a rapidly changing marketplace.”

Focused on the impact of the Federal Trade Commission’s own Choke Point activities, the First Annapolis study concludes that “the implications of the FTC’s recent actions are far reaching and go well beyond the intended scope of risk that an acquirer should reasonably be expected to bear in facilitating a card-based payment.”

Both studies advocate for voluntary industry self-regulation as the most effective tool to detect and eliminate merchant fraud.  The findings contend that reliance on voluntary industry guidelines, such as ETA’s Guidelines on Merchant and ISO Underwriting and Risk Monitoring, avoid the unintended consequences of Operation Choke Point and similar enforcement policies, while providing the flexibility necessary to adapt to a rapidly changing marketplace.

To access a copy of NERA’s “Economic Effects of Imposing Third-Party”, click here. To access First Annapolis Consulting’s  “The FTC’s Potential Impact on the Merchant Acquiring Industry”, click here.

For media inquiries, contact Meghan Cieslak at 202-677-7406 or [email protected].

About ETA

The Electronic Transactions Association (ETA) is the global trade association representing more than 500 payments and technology companies. ETA members make commerce possible by processing more than $4.5 trillion in purchases in the U.S. and deploying payments innovations to merchants and consumers.