Two payday lenders have filed an emergency request for preliminary injunctive relief with a federal district court to stop "Operation Choke Point," the program created by the Department of Justice to "choke out" companies that were seen as posing a high risk of payment fraud, money laundering, or other abuses by denying them access to the banking and payments system. The lenders, the Community Financial Services Association of America (CFSA) and Advance America, are co-plaintiffs in a case, CFSA et al. v. Federal Deposit Insurance Corp. et al., that is pending discovery before the U.S. District Court for the District of Columbia.
CFSA’s press release states that the emergency filing results from a "stepped up government campaign of strong-arm tactics against banks forcing them to end business relationships with payday lenders." CFSA’s memorandum in support of its motion and proposed order says the effects of Operation Choke Point "are now reaching crisis stage as banks have continued terminating their relationships with payday lenders."
"The need for immediate relief is more urgent than ever," said CFSA CEO Dennis Shaul. "Our largest member very recently had its final national banking relationship terminated. This effectively cuts off our member’s access to basic banking services for more than 1,200 of its stores and affects even its ability to pay employees and vendors."
Court ruling. On Sept. 15, 2015, the D.C. District Court ruled that it has jurisdiction to entertain the suit brought by the lenders. The court dismissed the counts of the complaint pertaining to alleged violations of the federal Administrative Procedure Act but refused to dismiss the counts pertaining solely to the regulators’ alleged violations of the payday lenders’ procedural due process rights under the Fifth Amendment to the U.S. Constitution. Since the initial ruling, the parties in the case have been awaiting further ruling from the Court before discovery proceedings may ensue.
OIG report. According to CFSA, a September 2015 audit by the FDIC’s Office of Inspector General confirms that "FDIC officials had used their regulatory leverage to coerce banks to close the accounts of law-abiding companies—specifically short-term lenders." The OIG reported that, although there was no evidence that the FDIC used the high risk list to target financial institutions, the agency "created the perception" that it discouraged institutions from conducting business with certain merchants, particularly payday lenders.For more information about the DOJ's Operation Choke Point, subscribe to the Banking and Finance Law Daily.