Turning Credit Cards into Comprehensive Financial Surveillance
In 2011 the Obama administration unleashed Operation Choke Point to use informal regulatory pressure on banks to debank the firearms industry, but that plan withered when exposed in congressional hearings. A few years later, the gun prevention lobbies convinced several states to mandate separate merchant category codes (MCCs) for stores that sell firearms; unfortunately for this initiative, the number of states with statutes that
(opens in a new tab)forbid special MCCs for such stores far exceeds the number of states that mandate them. Today, the gun prevention movement is receiving an unexpected gift from merchant lobbies who are pushing to embed sophisticated surveillance infrastructure into the basic architecture of electronic commerce. With that architecture in place, the government will be able to track every item purchased with a credit card — firearms and everything else. The surveillance scheme emerges as an unintended consequence of superficially appealing legislation — namely state-level interchange fee laws — which are promoted as being aimed at helping waitresses, waiters, and small mom-and-pop shops.
This post first describes Operation Choke Point, then its replacement by Merchant Category Codes(MCCs) tracking, and finally the new program for comprehensive surveillance of all purchases. The first two matters are described in my Dickinson Law Review article Big Business as Gun Control, and in my recent post summarizing the article. This post is coauthored with Kristian Stout, who is Director of Innovation Policy at the International Center for Law & Economics, a public policy research organization whose “work is dedicated to the memory”of the famous Law and Economics scholars Armen Alchian and Henry G. Manne.
The first state-level interchange fee statute was enacted in Illinois in June 2024. In the state legislatures, based on who’s lobbying for what, the battles over interchange bills often appears as credit card companies versus big box stores, with pro-waitress and pro-small business lobbies chiming in to support the big box stores. But this framing ignores the enormous privacy implications for everyone who uses a credit card: namely forcing credit card companies to make records of the items purchased in every transaction.
A First Foray into Financial Weaponization: Operation Choke Point
The Obama administration unleashed Operation Choke Point in 2011 in an attempt to debank, and thus destroy, politically disfavored businesses. The Federal Deposit Insurance Corporation issued a guidance document warning banks about “merchant categories that have been associated with high-risk activity.”
The “high-risk” activity was not high risk that a banking client might use his or her account for something illegal, such as money laundering, for which there are already extensive regulations from the Treasury Department units: the Office of the Comptroller of the Currency (OCC) and the Financial Crimes Enforcement Network (FinCEN). To the contrary, “high risk” was claimed to include the amorphous concept of “reputation risk.” That is, a banking client might be politically unpopular, and so the bank’s reputation might be harmed.
The “guidance” about “reputation risk” was accurately understood by banks as a threat. The same as if an organized crime underboss told a building contractor, “Just some friendly non-binding guidance: if you keep doing business with that cement supplier we don’t like, you might get a bad reputation. They’re not very popular around here.”
The FDIC deliberately conflated entirely legal businesses with patently illegal activities. The agency’s “high-risk” list included legitimate enterprises such as “Ammunition Sales,” “Firearms Sales,” and “Coin Dealers” alongside clearly illegal operations such as “Ponzi Schemes” and “drug paraphernalia.” Rather than pursuing transparent rulemaking, the FDIC made implicit threats to achieve their anti-gun policy objectives without legislative authorization.
Just about any bank can be killed through ratings downgrades and uber-audits. Even if the bank ultimately prevails in court, the bank can be ruined or severely damaged by years of intense targeted investigations. Submitting to the Obama administration’s unlawful regulatory threats, banks began debanking firearms businesses. For example, Maryland ammunition dealer TomKat Ammunition, with an unblemished record of regulatory compliance, was systematically denied financial services, with banks citing only its “industry” as justification.
The illegal Operation Choke Point was exposed through official investigations. The FDIC Office of Inspector General documented predetermined supervisory outcomes aligned with political objectives rather than legitimate safety concerns. Following legal challenges, the FDIC admitted that employees had engaged in “regulatory threats, undue pressure, coercion, and intimidation designed to restrict access to financial services for lawful businesses.”
Notwithstanding the FDIC’s admissions that Operation Choke Point had been illegal, the Biden administration in January 2023 began what critics called “Operation Choke Point 2.0,” featuring coordinated attacks on the cryptocurrency and fintech sectors. The abuses included systematic debanking of targeted individuals based on political views, with tech investor Marc Andreessen documenting over 30 entrepreneurs debanked during the Biden administration. As detailed in Kopel’s Dickinson Law Review article, other debanking targets during the Biden administration included Melania Trump and Christian religious organizations. In short, the Biden administration flagrantly defied the law and created “a privatized sanctions regime” that operated independently of traditional oversight mechanisms.
MCCs: The Institutionalization of Surveillance Infrastructure
The push for firearm-specific Merchant Category Codes represented an evolution from the covert pressures of Operation Choke Point to overt, institutionalized surveillance infrastructure. In September 2022, the International Organization for Standardization approved MCC 5723 for “Firearms Stores, Gun Stores, and Ammunition Stores” following a petition by a coalition of gun control advocates.
Merchant credit codes are used to distinguish broad categories of businesses — such as agriculture, transportation, professional services, or retail. There are a few codes used for businesses where the risk of credit card fraud is particularly high, such as casino gaming chips or online tobacco sales. Merchants who are assigned these categories typically have to pay higher interchange fees (which are described below).
Unlike Operation Choke Point’s informal regulatory “guidance,” behind-the-scenes pressure, and implied threats of enforcement action, the MCC system creates self-executing surveillance that requires no ongoing regulatory intervention. Using the firearms Merchant Category Code, payment networks and f
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