| Sept 25
Sept 25 The main trade group representing payday
lenders may pursue a lawsuit accusing U.S. regulators of
pressuring banks to stop serving the group's members under an
anti-fraud campaign known as "Operation Choke Point," a federal
judge ruled on Friday.
U.S. District Judge Gladys Kessler in Washington, D.C. said
the Community Financial Services Association of America may
press claims that the Federal Reserve, Federal Deposit Insurance
Corp and Office of the Comptroller of the Currency violated its
members' due process rights.
The group and payday lender Advance America, Cash Advance
Centers Inc, which has more than 2,400 offices and is also a
plaintiff, claimed that the defendants exerted "back-room
pressure" on banks to drive them out of business.
They said more than 80 lenders including Bank of America
Corp, Capital One Financial Corp and JP Morgan
Chase & Co have ended relationships with payday lenders
as a result of the crackdown.
"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
The judge dismissed claims alleging violations of federal
administrative procedure law.
Fed spokesman Eric Kollig, FDIC spokeswoman Barbara
Hagenbaugh and OCC spokesman Bryan Hubbard declined to comment.
The trade group had no immediate comment.
Operation Choke Point is a 2013 U.S. Department of Justice
initiative meant to block access to payment systems by
businesses deemed higher in risk or fraudulent.
Critics have said the program unfairly targets legitimate
businesses that the Obama administration dislikes.
Payday loans are typically for $500 or less, and can help
tide over cash-strapped borrowers until their next paychecks.
But fees can drive effective interest rates well into three
digits, according to the U.S. Consumer Financial Protection
Bureau. Critics say borrowers can be trapped in an endless debt
cycle by regularly using new payday loans to repay older loans.
In March, President Barack Obama expressed support for a
proposed CFPB plan to craft rules to end "payday debt traps,"
and require lenders to take steps to ensure that borrowers can
repay their loans.
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.
(Reporting by Jonathan Stempel in New York; Editing by Tom