Judge Allows Payday Lenders to Press Lawsuit Against Regulators

By Chris Bruce

A federal judge in Washington said a group of payday lenders may press ahead with a lawsuit that says federal bank regulators are trying to cut them off from the banking industry ( Advance Am. v. FDIC , D.D.C., 14-cv-00953, 7/5/17 ).

The suit before Judge Gladys Kessler of the U.S. District Court for the District of Columbia, filed in 2014, claimed the Federal Deposit Insurance Corp., the Federal Reserve, and the Office of the Comptroller of the Currency joined Operation Choke Point, said to be a Justice Department effort to force banks to end business relationships with payday lenders.

Although some plaintiffs and claims have since been dismissed, Kessler’s July 5 ruling keeps alive the suit by Spartanburg, S.C.-based Advance America and other short-term lenders, which says regulators deprived them of liberty without due process.

Regulators moved for summary judgment against Advanced America, Check Into Cash, and NCP Finance, but Kessler denied the motion, saying she can’t “definitively conclude” that regulatory pressure won’t put them out of business. Although regulators said lenders’ haven’t backed up their due process claims, Kessler said that misses the point.

“The crux of Plaintiffs’ argument is that if Operation Chokepoint continues unabated, they will be effectively cut off from the banking system or broadly precluded from the payday lending industry in the future,” she said (emphasis in original).

Among other points, she did dismiss one plaintiff, PH Financial Services, saying it’s not a payday lender and therefore doesn’t have a rightful claim in the case.

The Community Financial Services Association of America (CFSA) is the national trade group for short-term lenders, and counts Advance America as its largest member. The CFSA, one of the original plaintiffs in the suit, was dismissed in 2016 after Kessler held the group lacks standing.

In a July 6 statement, the CFSA said it welcomes Kessler’s July 5 ruling. “For years, Operation Choke Point has threatened to suffocate the ability of legal and licensed businesses to operate freely and fairly, and the government bureaucrats who started this must be held accountable,” said CFSA Chief Executive Dennis Shaul said in the statement.

Shaul, who called Choke Point an Obama-era effort launched in 2013, said the effort is ongoing under the Trump administration. “While this ruling is a welcome development for our members, the federal government continues its campaign against small-dollar lenders,” he said. “Until justice is served, businesses will continue to operate in fear of the government’s unjust ideological crusade.”

The plaintiffs are represented by Charles J. Cooper, David H. Thompson, Howard C. Nielson Jr., Harold S. Reeves, and Peter A. Patterson of Cooper & Kirk in Washington.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bna.com

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