With federal regulators targeting payment processors in an effort to take on potentially fraudulent business practices such as payday lending, the Electronic Transactions Association is working to be part of the solution by releasing a set of best practices for its members to follow.

Could the best way to deal with “Operation Choke Point” be to create a choke point of your own?

That’s what one association is hoping. With federal regulators raising questions about what goes through payment processor systems, the Electronic Transactions Association (ETA) is trying to keep its members away from federal scrutiny. More details:

The issue: Over the past year, the U.S. Department of Justice has ratcheted up its efforts to go after businesses that may rely on fraudulent transactions, such as the payday loan industry. Payday loans, which cover immediate financial needs for borrowers at high interest rates, have drawn particular interest from regulators for their perceived predatory nature—especially online. The Justice Department’s approach to such risky companies has shifted in recent years to focus on the infrastructures that allow these companies to operate. “We are changing the structures within the financial system that allow all kinds of fraudulent merchants to operate,” a Justice Department official told The Wall Street Journal of the plan last year, adding that the goal involves “choking them off from the very air they need to survive.”

The response: Trade groups and some legislators [PDF] have been critical of the plan (though others haven’t), and media outlets such as The Guardian have compared the strategy, called “Operation Choke Point,” to New York City’s stop-and-frisk program—in that the financial businesses being targeted often cater to lower-income Americans. “Operation Choke Point and comparable regulatory efforts are driving us toward ‘politically correct banking,'” the American Bankers Association’s Wayne Abernathy said of the program in March. The DOJ defended the probe this year, with one official saying the goal was to “protect the public from mass-market consumer fraud.”

Playing ball, begrudgingly: Last week, ETA, a trade group that represents payment processors, told The Hill that it would assist the government in spotting fraudulent payday loan companies—with the goal of preventing additional scrutiny against its own members. “We would like to help you find fraudulent merchants, but let’s go after the merchants, not their payment companies,” ETA CEO Jason Oxman told the publication. “We think we are a better partner than target, and we want to work with them to end fraud.” The association, which notes the challenges it’s faced from regulators going after payment processors, released new guidelines this month to help its members separate payday lenders operating outside the law from those operating inside it. Oxman noted that many of its members have dropped payday loan providers as a result.

The 100-plus page report, “ETA Guidelines on Merchant and ISO Underwriting and Risk Monitoring,” was given to attendees of the association’s TRANSACT 14 conference, held this month.

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