United States regulators are being accused of requesting financial institutions to cease serving certain bad credit loan lenders as part of an anti-fraud campaign called “Operation Choke Point.”
Operation Choke Point is an initiative started by the U.S. Department of Justice in 2013 to circumvent access to payment systems by companies that have been identified as high-risk or fraudulent in nature. However, opponents of the endeavor say it’s a program that simply targets businesses that the Obama administration does not like.
Payday loan lenders may be one of them.
U.S. District Judge Gladys Kessler in Washington, D.C ruled Friday that the Community Financial Services Association of America, a main industry trade group representing payday lenders could file claims against the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency. The judge warned the main trade group could accuse the U.S. regulators of violating its members’ due process rights.
Advance America and Cash Advance Centers, which have more than 2,400 offices and are plaintiffs, allege that defendants had installed “back-room pressure” on banks to help shut their doors. According to documents, they say more than 80 banks, including JPMorgan Chase & Co., Capital One Financial Corp and Bank of America Corp, have ended relationships with payday lenders due to the crackdown.
Bad credit loan stores lend funds through money they borrowed from financial institutions.
The judge threw out claims that said there were violations of federal administrative procedure law.
“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,” Kessler wrote.
When the Consumer Financial Protection Bureau (CFPB) released its series of proposals to curtail the payday loan industry and adopt a number of reforms, President Obama showed his support for the measures. The proposed regulations include capping interest rates and mandating lenders to ensure borrowers repay their online loans. The CFPB believes its new rules would end so-called payday debt traps.
“As Americans, we don’t mind folks making a profit,” Obama said earlier this year in Alabama. “But if you’re making that profit by trapping hardworking Americans in a vicious cycle of debt, then you need to find a new business model. You need to find a new way of doing business.”
Over the next several months, we could see Congress introduce legislation and debate the merits of CFPB’s proposals. This past summer, CFPB officials have been meeting with many states across the country to gather feedback and gage public support. Florida has been a fierce opponent of the rules as they say their model strikes the right balance.
The case is Community Financial Services Association of America et al v. Federal Deposit Insurance Corp et al, U.S. District Court, District of Columbia, No. 14-00953.