August 24, 2014

Regulators seek dismissal of 'Choke Point' lawsuit

Aug. 21, 2014 – Federal banking regulators want a lawsuit filed against them by a payday lending group over the Justice Department's "Operation Choke Point" program to be dismissed, saying that they are not pressuring banks to cut ties with lawfully operating payday lenders.

The lawsuit – filed in June by Community Financial Services Association of America and Advance America – alleges that federal banking regulators, including the Federal Reserve, FDIC and Office of the Comptroller of the Currency, are pressuring banks to stop serving payday lenders. American Banker noted that the court documents filed Monday by the regulators said that "banks are free to make their own decisions about customer relationships and that the guidance the agencies provide to banks is not binding."

Regarding those relationship banks have dropped since this program went into effect, lawyers for the FDIC wrote, "Any such termination decisions were the banks' business decision," American Banker noted.

The Operation Choke Point initiative was launched in an effort to fight consumer fraud by denying fraudulent businesses access to banking services and holding financial institutions and third-party processors accountable if they continue to serve a client operating in a fraudulent manner.

In April, NAFCU joined with other financial services trades in issuing a joint statement on "Operation Choke Point" that was submitted to the House Financial Services Committee. The trades noted concerns that this program "could seriously deter the natural growth and development of e-commerce and stifle future economic growth."

NAFCU continues to monitor this issue and its effects on credit unions.