Payday Lenders Get to Pursue Choke Point Lawsuit Against Regulators

A federal judge ruled on Friday that the Community Financial Services Association of America (CFSA) may pursue claims that the FDIC, the OCC, and the Board of Governors of the Federal Reserve have been participating in a campaign initiated by the Department of Justice to force banks to end their business relationships with payday lenders. Called “Operation Choke Point,” the campaign has been the subject of a House Committee Investigation.

insideARM reported on this story when the lawsuit was originally filed, in June 2014.

CFSA alleges that the defendants have laid the groundwork by issuing informal regulatory guidance regarding “reputation risk,” and then later relying on that guidance to support its campaign to pressure banks to terminate their relationships with all payday lenders. Plaintiffs allege that the agencies expanded the definition of “reputation risk” beyond its traditional understanding to include bad publicity due to the actions of third parties, even when actions were unrelated to work done on behalf of the bank. They further allege that the Defendants privately threatened banks with adverse regulatory action if they continued doing business with payday lenders.

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