Payday Lenders Settle Operation Choke Point Lawsuit Against Federal Bank Regulators

A five-year-old lawsuit brought by payday lenders against federal banking regulators over the government’s controversial Operation Choke Point ended with a settlement this week.

Advance America, Cash Advance Centers Inc. (Advance America), and Check Into Cash had sued the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, the latter of which regulates national banks, alleging unlawful and arbitrary regulatory actions, including pressure on banks to terminate their accounts. The plaintiffs settled with the FDIC and moved in U.S. District Court in Washington, D.C., to dismiss the case against the OCC.

“Five years after taking the extreme and costly step of suing federal regulators, we are pleased with the FDIC’s actions to address past efforts to cut off our companies’ access to the U.S. banking system,” Jessica Rustin, Spartanburg, S.C.-based Advance America’s chief legal officer, said in a Wednesday news release. “We uncovered how some FDIC leaders and officials executed a campaign motivated by personal scorn for our industry, contempt for our millions of customers, and blatant disregard for due process. This settlement will help to prevent this disenfranchisement from happening again—our business or any other legal, regulated business.”

Operation Choke Point originated under the administration of former President Barack Obama as an effort by the U.S. Department of Justice and financial regulators to thwart fraudulent merchants by cutting off their access to payment services. But payday lenders and various merchants, including gun dealers, said the program devolved into a governmental effort to rein in legal but disfavored industries by denying them bank and merchant accounts.

The FDIC said in a news release that, in settling the suit, it agreed to issue a statement summarizing its longstanding policies and guidance regarding “the circumstances in which the FDIC recommends that a financial institution terminate a customer’s deposit account and reiterating preexisting public guidance to financial institutions about providing banking services and carrying out Bank Secrecy Act obligations.” The FDIC also said it agreed “to send a cover letter transmitting the statement to the plaintiffs that reiterates prior correspondence from the FDIC chairman, summarizes applicable FDIC policy, and notes that the FDIC is conducting additional training of its workforce.”

The FDIC noted, however, that “neither the summarizing statement nor the cover letter represents a change in the FDIC’s policies or guidance, and all of the FDIC’s existing applicable regulations and guidance documents remain in full force and effect.”

The OCC issued a statement Thursday saying the dismissal confirms its contention “that the agency did not participate in ‘Operation Choke Point’ or in any purported conspiracy to force banks to terminate the bank accounts of plaintiffs or of other payday lenders. Furthermore, the OCC has not entered into any settlement agreement or made any other concessions to plaintiffs in exchange for their agreement to dismiss all claims against the agency.”

The suit originally named the Federal Reserve Board as another defendant, but the plaintiffs agreed last September to dismiss the Fed from the action.