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From Banking and Finance Law Daily, December 21, 2016

Payday lenders’ association can’t sue to block Operation Choke Point

By Richard A. Roth, J.D.

A payday lenders’ association did not have standing, on its own behalf or for its members, to sue federal regulatory agencies in an effort to put an end to "Operation Choke Point," a U.S. District Judge has decided. According to the federal judge for the District of Columbia district, Community Financial Services Association of America did not have standing to sue the regulators (Community Financial Services Association of America, Ltd. v. FDIC, Dec. 19, 2016, Kessler, G.).

Operation Choke Point was described by the CFSA and payday lender Advance America as an effort by the federal financial regulatory agencies to misuse the concept of reputation risk to force banks to end their business relationships with payday lenders. The association and company originally claimed that the agencies had violated both the Administrative Procedure Act and the members’ due process rights under the U.S. Constitution. However, the APA claims previously were dismissed for lack of a reviewable final agency action (see Banking and Finance Law Daily, Sept. 28, 2015), leaving only the due process claims alive.

Attack on association’s standing to sue. According to the agencies, the dismissal of the APA claims meant that the CFSA no longer had standing to sue. The association could not assert its members’ due process claims, the regulators claimed.

An association can try to claim standing under any of three separate theories:

  • associational standing,
  • organizational standing, and
  • third party standing.

The judge agreed with the agencies that CFSA failed to establish any of the three.

Associational standing. The CFSA could meet some of the requirements to show associational standing, the judge said—at least one of its members had standing to sue in its own right and the suit was an effort to protect interests that were germane to the association’s purpose. However, it could not clear the final hurdle—showing that the individual participation of its members was unnecessary.

The claims remaining in the suit are that CFSA member’s due process rights had been violated because the members were subjected to a stigma that either deprived them of a benefit to which they had a legal right or prevented them from engaging in a trade or business of their choice. Specifically, the claims were that Operation Choke Point had stigmatized the payday lenders, that the lenders lost their banking relationships, and that the stigma caused the loss of those relationships. That could not be proved without the members’ significant participation in the suit, the judge said.

The request only for an injunction, rather than damages, did not matter, the judge added, and sampling the association’s members was not an appropriate replacement for the members’ individual participation.

Organizational standing. Establishing organizational standing required the CFSA to show an injury in fact to its own interests, not just the interests of its members, according to the judge. This could not be shown. Neither the association’s claim that its membership dues had fallen nor its claim that it had to divert resources to help members who had been hurt by the agencies’ actions convinced the judge.

Even if the decline in membership dues could be an injury in fact, the CFSA could not show that Operation Choke Point caused the drop or that the court could enter an order that would redress the injury, the judge said. The association had not named a single member that claimed to have reduced its dues payments due to the loss of its banking relationships. That being true, no court order could fix the problem.

Shifting resources was not an injury in fact, either, the judge continued. The questions to be answered were whether the regulators’ actions had injured the CFSA’s interests and whether the CSFA had to use its resources to counteract that injury. An injury to the CSFA’s interest would be perceptibly impairing its ability to provide services or carry out its ordinary operations.

The judge then said that CFSA’s claim essentially was that Operation Choke Point required it to use its resources to advocate for payday lending in a different way than it usually did. This was not an injury that would confer standing to sue.

Third party standing. A person ordinarily cannot sue to assert the interests of someone else, the judge pointed out. While this could be permitted in rare circumstances, CFSA would have to show its own standing to sue before it could asserts its members’ interests. However, the association did not have standing to sue on its own. Moreover, there was no demonstrated reason why CFSA’s members could not sue for themselves, a requirement of third party standing.

The case is No. 14-CV-953 (GK).

Attorneys: David Henry Thompson (Cooper & Kirk, PLLC) for Community Financial Services Association of America, Ltd., and Advance America, Cash Advance Centers, Inc. Duncan Norman Stevens for the Federal Deposit Insurance Corporation. Yvonne F. Mizusawa for the Federal Reserve Board. Peter Chadwell Koch for the Office of the Comptroller of the Currency and Thomas J. Curry in his official capacity as the Comptroller of the OCC.

Companies: Advance America; Community Financial Services Association of America

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