FDIC Issues Resolution in Operation Choke Point Lawsuit

Payday lenders’ 2014 complaint ends with actions by FDIC to prevent termination of banking services to certain industries.

6/10/2019 8:00 AM

FDIC Issues Resolution in Operation Choke Point Lawsuit

A lawsuit initiated five years ago by payday lenders fighting Operation Choke Point—a program where the Federal Deposit Insurance Corporation (FDIC) and U.S. Department of Justice (DOJ) reportedly applied pressure to financial institutions to cut off financial services to certain licensed, legally operating industries—has reached a conclusion.

According to an article from the Manatt law firm, “Operation Choke Point Lawsuit Comes to an End,” the FDIC stated in its resolution that: “[r]egulatory threats, undue pressure, coercion, and intimidation designed to restrict access to financial services for lawful businesses have no place at the FDIC. The exercise of FDIC responsibilities rests on laws and regulations and will not be based on personal beliefs or political motivations.”

The lawsuit originated in a 2014 complaint against the FDIC, Federal Reserve Board of Governors and the Office of the Comptroller of the Currency alleging the agencies continued to operate under Operation Choke Point. A request to dismiss the suit from the regulators was denied by a Washington, D.C. federal court judge and later the FDIC reached an agreement from the plaintiffs, according to Manatt. The plaintiffs also agreed to drop the FDIC and Federal Reserve from the case.

In return, the FDIC issued the following statement on its policies for regulating banking services: “The agency encourages institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers” … “as individual customers within broader customer categories present varying degrees of risk,” Manatt reports.

The statement also details the FDIC’s process when it does recommend or require termination of accounts, including that it must be documented and approved in writing, state supervisory reasons for the decision and “any specific laws or regulations the examiner believes are being violated, if applicable.”

Manatt notes the conclusion of the statement from the FDIC: “Importantly ‘[a] recommendation to an institution to terminate a deposit account relationship cannot be based solely on reputation risk to the institution.”

The impact of Operation Choke Point, while ostensibly over, remains a problem for the accounts receivable management industry. This past fall, new facts highlighting the depravity of Operation Choke Point came to light, showing why it is still necessary to enact legislation prohibiting such an initiative in the future, and why it’s important to add certain checks and balances that unfair practices are not still going on. Read more on the impact on the ARM industry in the January 2019 issue of Collector magazine.

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