tl;dr: JP Morgan Chase refused to do business with a company that markets condoms to women because it’s policy of not serving “adult” businesses. The mother/daughter team who founded the company out of concern for women’s health, have put up a petition at Change.org asking Chase to reconsider their position.

Some people have a problem with the phrase “War on Women.” Mostly, people object to the hyperbole, that it is not, in fact, a “war.” However, I don’t think it’s hyperbole to say that there are individuals in the U.S.A. who are waging a war on non-procreative sex. This isn’t just a war against women, although people with uteruses, most of whom are women, bear the brunt of these laws. Make no mistake about it, gents; these laws are meant for you, too.

I came across an article today, via Little Green Footballs (ht/FemNaziBitch), with the title “Chase Refuses to Process Payments for Condoms.” This sounded so over the top, my outrage was immediately put on hold by the thought, “Maybe this is the Onion.” After all, I don’t want to be one of those fools that goes all ballistic over what is to everyone else obvious satire. Right? I mean, with that Hobby Lobby case, and everything, the idea of a corporation suddenly having morals is a pretty obvious joke, right? Right? RIGHT? The link led to a site that I’ve only seen once or twice before, so I decided to type “Lovability” and “Chase” into Google’s search box to see if I could find some independent confirmation.

A little detail that you probably didn’t know about fojap, she used to be a regular reader of The American Banker, a fine, reputable periodical covering news of interest to the banking industry. They’re a sober trade paper, at least they were when I used to read it a couple of decades ago. It doesn’t look like much has changed. So, I feel that I can trust them when I see “JP Morgan, Condoms and the Problem of Reputational Risk” by Jeanine Skowronski and Marc Hochstein.

Reputational risk is just was it sounds like, the possibility of a company’s reputation being negative in public opinion. Companies take measures to insure that the public has a good opinion of them. In the case of banks, there’s an added issue that is not simply the public’s perception of a company’s reputation, but the regulators’ perception of the public’s perception. Skowronski and Hochstein point out that “regulators have become increasingly preoccupied with who banks are doing business with.” They describe a Justice Department effort called “Operation Choke Point.” The original intent of the effort was to crack down on banks who processed payments from online scammers. According to The American Banker, other agencies joined in:

In August, New York Financial Services Superintendent Benjamin Lawsky instructed 117 banks, including the nation’s four largest, to develop safeguards aimed at preventing unlicensed online lenders from accessing the payments system. Lawsky also filed suit against online lenders that he said were violating New York’s interest-rate cap. “We’re really trying to take a shock-and-awe strategy,” Lawsky said. “We want to make payday lending into New York, over the Internet, as unappetizing as possible.”

Meanwhile, the Federal Deposit Insurance Corp. also stepped its reviews of banks’ relationships with online lenders and other businesses that might pose heightened risk for banks.

This eventually expanded to include online lenders who were operating legally.

In another article which appeared in The American Banker last July, Peter Weinstock wrote:

So, what is happening here? Is it that the banking regulators are protecting the public from bankers that are colluding with others by providing access to the banking system to enable such third parties to take advantage of consumers? Or, are some of the bank regulators seeking to preclude certain businesses because regulators believe such enterprises provide services that are inherently harmful to consumers? In short, are the regulators seeking to ban certain products? (emphasis mine)

Weinstock cites a speech given by Sarah Bloom Raskin, a former member of the Board of Governors of the Federal Reserve System at the 2013 Banking Outlook Conference at the Federal Reserve Bank of Atlanta. Raskin suggests that regulators have a responsibility to consider anything that affects the stability of a bank. Since reputational risk can influence a bank’s profitability, it is appropriate for it to be regulated.

Consider that in today’s financial institution sector, a substantial portion of a bank’s enterprise value comes from intangible assets such as brand recognition and customer loyalty that may not appear on the balance sheet but are nevertheless critical to the bank’s success.

It is clear from her speech that she is mainly concerned with how the bank treats its customers, not who its customers are.

If bank profitability is going to improve in a context of low interest rates and higher compliance costs, lending income may remain low. Profits will need to come from elsewhere. One source of profits would be products that are not interest-rate dependent, but fee-dependent.

…. The pressure to generate enhanced profits through high fees is palpable, and banks may choose to move aggressively down these paths. But when a bank already suffers from a poor reputation…, it likely will face difficulties in introducing new fee-generating products or activities without inviting further criticism and damage to its reputation. So an evaluation of the effects of the new product or activity on the bank’s reputation prior to launch is arguably necessary.

However, it seems that this logic has been conscripted to serve the purpose of forcing commercial banks to refuse to do business with payday lenders. Furthermore, that effort has then been expanded to push banks to refuse to do business with a variety of other companies.

Skowronski and Hochstein note that the FDIC issued a letter “urging financial institution to do a better job managing the risk associated with their third-party processor relationships. That sounds fine, except some of the merchant categories listed as “high risk” are obvious choices. “Debt consolidation scams” and “Ponzi schemes,” for instance, should be unbankable, while others seem to be there simply because they’re icky (tobacco sales?).”

The FDIC’s list of merchants associated with high-risk activity is as follows:

From Skowronski and Hockstein:

This type of scrutiny should have everyone – banks, businesses and consumers – concerned. It’s one thing to ask banks not to do business with Iranian terrorists. It’s even conceivable why a bank would want to avoid doing business with porn sites, given they are a high-chargeback business that large swaths of the public frown upon. And, yes, payday lenders aren’t exactly going to win any popularity contests. But cutting off a company that makes contraceptive or prophylactic products puts us in murkier waters.

Which brings us back to the incident that originally prompted this post. According to the website The New Civil Rights Movement:

Chase Paymentech, the payment processing service offered by JPMorgan Chase, has refused to process payments for Lovability, a condom company, because they consider the action a “reputational risk”.

Loveability Inc., which Facebook classifies as a “health and beauty” company, was founded by mother-daughter team Pam and Tiffany Gaines “to empower women to take responsibility for their sexual health.”

….
Daily Kos reports that Pam and Tiffany were notified this week that Chase considered them an “adult oriented product” and would not process customer payments, lest their reputation suffer from the association. It seems not to have occurred to Chase Paymentech that condoms save lives, prevent unwanted pregnancies that lead to abortions, chronic poverty and child abuse. Condoms also stop the spread of STDs.

What part of any of that is a “reputational risk” to Chase bank?

Well, when I first read that post, I thought that my own would be a fairly quick one. I wasn’t quite sure why JP Morgan Chase would consider an association with this company, Lovability a risk. Now that I have looked into it further, it has turned out to be a more complicated story. In our contemporary society where few transactions do not involve the banking system, and I’m including business to business transactions as well, keeping a business out of the banking system is tantamount to banning it.

In the meantime, I would suggest that you consider signing the Gaines’ Change.org petition asking Chase Paymentech to remove condoms from its list of prohibited items.