How Banks Make It Hard For Sexy Startups (Fast Company)

Read the full article by Whitney Mallett at FastCompany.com 

Porn and sex toys aren’t illegal, but banks often treat them that way. Critics say the practice is discriminatory and amounts to censorship.

Last summer, Zoë Ligon, an erotic artist, was in the early stages of starting an online sex-toy shop she anointed Spectrum Pleasure. She visited a Bank of America branch in Detroit, wanting to open a checking account and take out a line of credit in order to start purchasing inventory. For the latter order of business, a Bank of America banker put her through to a credit specialist. The woman on the other end of the line was disinterestedly running through a list of scripted questions until she saw the word “pleasure” in the LLC title.

“I remember, she just stopped short in the middle of the sentence and was like, ‘Ma’am, what kind of a business is this?’” recalls Ligon. “All of a sudden, her tone totally changed. I was being talked to like I had an illegal business.” With no further explanation, the credit agency refused to extend Ligon a line of credit because her shop qualified as an “adult business.”

Sex toy shops are legal but plagued by restrictions that range from municipal zoning laws to financial discrimination. Adult performers have had their personal bank accounts shut down without forewarning. Porn producers are routinely refused standard billing fees. Mainstream financial service providers like JPMorgan Chase, Bank of America, and American Express all treat adult businesses differently from other businesses, acting often under so-called “morality clauses” aimed at legal businesses with taboo reputations. (Gun sellers and marijuana companies also face difficulties getting loans and other services.) Even the new wave of financial tech startups like Paypal and Square prohibit some adult businesses from using their products, both explicitly and in tacit ways.

When softcore film producer Marc Greenberg tried to refinance his personal mortgage with JPMorgan, he was told that his application had been rejected on the basis of a morality clause.

“It’s a morality clause that’s buried somewhere in the 160 pages of documents you get when you refinance. I’d never heard of this morality clause, nor did I understand how it applied to me,” explains Greenberg. “When they first denied me, I said, ‘How do I know you’re not denying me because I’m Jewish or because my son is gay? Maybe my son being gay is morally reprehensible to you.’ I didn’t know what the reason was.”

In the end, it was Greenberg’s occupation that was interpreted as violating the morality clause. A bank employee had looked up his name on IMDB and rejected his application based on the names of the softcore erotica films that his company produced and distributed, movies like Bare Naked Desires, Bad and Busty and Wild Things 2, the direct-to-video sequel to the Hollywood thriller. “I was obviously outraged,” says Greenberg. He asked the employee, “‘Have you ever watched my movies?” The answer was “No.”

“Had anyone else [at the bank] seen my movies?” “No.” “Could you tell me who made this decision?” “No.” “Would you please send me an official document stating that you denied me based upon your morality clause?” “No.” “Would you point out where in the mortgage agreement the morality clause is?” “No.”

Adding to the bizarreness of the situation, JPMorgan had already held Greenberg’s mortgage for 10 years. This was not an application for a new mortgage but an application to refinance his existing mortgage.

While financial policies have come to be seen as a simple cost of doing business in the adult industry, that cost also represents a big opportunity for someone willing to go against the grain, [Cindy] Gallop says. “The first bank that says, ‘We welcome honest, legal, decent adult ventures’ is going to clean up!”