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From Banking and Finance Law Daily, October 15, 2018

Payday lenders seek summary judgment in ‘Operation Choke Point’ suit against banking regulators

By Colleen M. Svelnis, J.D.

Payday lenders have filed a motion for summary judgment in their lawsuit targeting what it characterizes as efforts by the Federal Reserve Board, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation to pressure banks to end banking relationships with payday lenders due to risk to the banks’ reputations, referred to as "Operation Choke Point" (Advance America, Cash Advance Centers, Inc. v. Federal Deposit Insurance Corporation, Oct. 12, 2018).

The payday lenders allege that the regulators have threatened banks with longer and more intrusive examinations, reduced ratings, and other punitive actions in efforts to coerce them into dropping payday lenders as customers. This has been done without regard to the legality of the lenders’ business practices (See Banking and Finance Law Daily, June 6, 2014). The motion includes documents released as part of the motion for summary judgment in the lawsuit.

Summary judgment is appropriate if the movant "shows that there is no genuine dispute as to any material fact." The motion asserted that the undisputed facts show beyond any genuine dispute that the payday lenders have standing to sue; the agencies violated the payday lenders’ Due Process rights; and the payday lenders are entitled to declaratory and injunctive relief.

According to the motion filed in the U.S. District Court for the District of Columbia along with a statement of undisputed facts, the agencies have violated the payday lender’s due process rights under the StigmaPlus Theory and the "reputation plus" theories. According to the motion, "where a person’s good name, reputation, honor, or integrity is at stake because of what the government is doing to him," "notice and an opportunity to be heard are essential." Additionally, the motion stated that the defendants violated the payday lenders’ due process rights under the "reputation plus" theory where defamation in the course of the termination of employment is" actionable under the Due Process Clause.

Injunctive relief requested. The motion asks for injunctive relief by closing off both of the mechanisms "through which Defendants have stigmatized Plaintiffs and harmed their background legal rights." According to the payday lenders, the court should "end Defendants’ campaign of direct coercion by enjoining them, and their employees and agents, from applying informal pressure on banks to terminate their relationships with payday lenders" or otherwise depriving them of access to the banking system.

The motion further states that the court should end the agencies’ attempts to raise the cost of doing business with payday lenders by requiring them to issue a public clarification that payday lending is not a disfavored, "high risk" business, and that having a payday-lender or a third-party that processes payments for payday lenders as a customer "does not, standing alone, necessitate any kind of heightened monitoring or enhanced due diligence obligations."

Documents released. Chairman of the House Financial Institutions and Consumer Credit Subcommittee Blaine Luetkemeyer (R-Mo), in response to the document released with the motion, issued a statement that he is "appalled by the blatant intimidation and bias employed by unelected bureaucrats to play partisan politics with the livelihood of our citizens. No matter your ideological leanings, the American government should not be able to destroy all that you have worked for."

Luetkemeyer, a frequent critic of the Justice Department’s "Operation Choke Point," sponsored legislation that would end the Obama-era program. H.R. 2706, The Financial Institution Customer Protection Act of 2017, would require federal banking agencies to provide banks or credit unions written justification of any request to terminate or restrict a customer’s account, except in instances of national security. The bill would also require the federal banking agencies to issue an annual report to Congress that describes the number of customer accounts the agency requested or caused to be closed and the legal authority on which the agency relied. The bill was passed by the house on Dec. 11, 2017 (see Banking and Finance Law Daily, Dec. 12, 2017).

The Case is No. 14-953-TNM.

Attorneys: Brian W. Barnes (Cooper & Kirk, PLLC) for Advance America, Cash Advance Centers, Inc., Check Into Cash, Inc. and NorthState Check Exchange. Duncan Norman Stevens for the FDIC.

Companies: Advance America; Cash Advance Centers, Inc.; Check Into Cash, Inc.; Northstate Check Exchange; Federal Deposit Insurance Corp.

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