ICYMI: Operation Choke Point Lawsuit Proceeds to Discovery
A federal judge on Friday ruled that the Community Financial Services Association (CFSA) may move forward with its lawsuit against government regulators over Operation Choke Point, the back-room program that seeks to eliminate legitimate short-term lenders’ access to the banking system. The lawsuit will now proceed to the discovery phase.
The ruling, issued by Judge Gladys Kessler of the United States District Court for the District of Columbia, acknowledged that lenders have a valid claim for the court’s consideration. “Plaintiffs have sufficiently alleged that their liberty interests are implicated by defendants' alleged actions and that the alleged stigma has deprived them of their rights to bank accounts and their chosen line of business, so as to state a claim for violation of constitutional due process,” Judge Kessler wrote.
CFSA CEO Dennis Shaul applauded the decision. “Today’s ruling validates our decision to engage in litigation to protect lawful, regulated businesses from the banking agencies’ illegal Operation Choke Point,” Shaul said. “We are gratified by the Court’s decision and look forward to moving forward with our case and having our day in court.”
FDIC OIG Report Reaffirms Payday Lenders Were Uniquely Targeted
The decision comes on the heels of the FDIC Inspector General’s findings that the FDIC specifically targets payday lenders. The IG’s report reinforces previously uncovered documents by the House Oversight and Government Reform Committee detailing senior bank examiners’ personal, ideological disdain for payday lending – for instance, a senior FDIC examiner wrote that he “literally cannot stand payday,” and effectively ordered banks to terminate all relationships with the industry.
The FDIC IG report concludes that the director of the FDIC’s Division of Depositor and Consumer Protection did nothing to discourage or stop other FDIC officials from urging banks to discontinue relationships with short-term lenders, even though such actions were inconsistent with official FDIC policy and guidance. Three of the six FDIC regional directors believed that there was an expectation from FDIC executives to discourage institutions from conducting business with payday lenders, the report revealed. The report noted that in certain communications with banks, FDIC personnel “used moral suasion to discourage [banks] from adopting payday lending products or providing ACH processing for payday lenders.”
That “moral suasion” was felt by bank executives as well. Several banks reported feeling pressured to terminate the accounts of certain merchants, as outlined by the FDIC’s “high-risk” hit list. According to the FDIC report, “This perception was most prevalent with respect to payday lenders.”
In April, Advance America and CFSA amended their lawsuit to contend that agencies have not ended Operation Choke Point, as they claim, but rather have expanded their ideological campaign to end short-term lending.