Six Plaintiffs Join Advance America Complaint Against Federal Government’s 'Operation Choke Point'

January 13, 2017 | Press Releases

On January 11, 2017, six new plaintiffs joined Advance America in asking the Court for emergency relief from unlawful regulatory actions committed by the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve (Board), and the Office of Comptroller of the Currency (OCC) under the auspices of Operation Choke Point. Previously, on November 23, 2016, Advance America filedan emergency injunction with the Court seeking an immediate end to Operation Choke Point after a slew of banks severed financial ties with the company.

Operation Choke Point is a coordinated federal initiative that pressures banks to terminate their financial relationships with certain types of businesses that they disfavor. When these bank terminations occur, the affected businesses must either find a replacement bank willing to take their account(s) or they are forced to cease operations. This illegal, backroom strong-arming is a deliberate attempt to drive entire industries out of business.

The new plaintiffs who have joined Advance America include:

• Check Into Cash, Inc. (CiC) [Declaration]

One bank employee informed the CFO of CiC that (i) the decision to cease doing business with the payday industry was not the bank’s decision and (ii) at the time the bank was instructed to exit the payday business it was also instructed to stop servicing companies in the firearms and student loan business. Another bank official, when asked whether the terminations of payday lenders were a direct result of Operation Choke Point, responded: “Well it was a Chokepoint for us.”

• NCP Finance Limited Partnership & NCP Finance Ohio, LLC [Declaration]

“[At PNC Bank] there were never any issues related to the operation of NCP accounts, and PNC never complained or expressed concerns about our compliance with any requirements. On July 23, 2014, however, PNC sent us a letter closing our accounts as of August 18, 2014….I called the bank manager to ask for an explanation, and the explanation given was that PNC's risk department realized NCP was involved in the payday loan industry after a recent application for an additional account. NCP was thus forced to close these accounts…”

• Northstate Check Exchange [Declaration]

“[W]e received a letter dated April 22, 2015, informing us that ‘it is the policy of the Bank to not bank or lend money to Pay Day Lenders.’”

“Northstate has been able to continue in business and stay afloat, at substantial additional costs, by using an account with Edward Jones for the payday lending side of Northstate's business, but Northstate has arrived at a point where its ability to continue in the payday lending line of business is in serious jeopardy.”

• PH Financial Services, LLC [Declaration]

“[W]e had no problems or complaints from US Bank prior to receiving a letter on January 12, 2016 closing our account on January 26, 2016.…. No reason for this termination was given in the letter, but it is my belief this account was closed due to the same regulatory pressure that was being applied on BOA and Bank of Kentucky.

• Richard Naumann [Declaration]

“…the bank manager of the local Umpqua bank branch was in tears when she had to tell me she was being forced to terminate the banking relationship with Calaveras Cash because of the pressure the bank was receiving from its federal regulators not to do business with payday lenders.”

In addition to their own declarations, the new plaintiffs also submitted the Expert Report of Charles W. Calomiris, the Henry Kaufman Professor of Financial Institutions at Columbia Business School, in support of their motion.

It is the opinion of Professor Calomiris that “the evidence clearly shows that the unprecedented wave of bank terminations of relationships with Payday Lenders coincided with, and was caused by, regulatory actions, working through guidance and alleged concerns about ‘reputation risk,’ which successfully discouraged banks from maintaining relationships with Payday Lenders that were profitable and viable” (Calomiris Rept. at 27-28). Professor Calomiris bases his conclusion on five factors (Calomiris Rept. at 15-27):

1. There is evidence that many banks have discontinued their relationships with Payday Lenders.
2. It is clear from the economic literature on payday lending that it is a viable industry, and therefore, it is not plausible to argue that this wave of terminations reflects fundamental economic problems with payday lending.
3. The timing of these terminations clearly has coincided with the actions of regulators to discourage banks’ relationships with payday lenders.
4. Testimony about the reasons for terminations has pointed directly to the actions of regulators.
5. It is clear that regulators have been very active participants in the political movement against payday lending.

Professor Calomiris’s opinion adds further support to the argument that the defendant agencies’ actions have caused the bank terminations experienced by the new plaintiffs and other members of the payday lending industry.

A hearing is scheduled for February 1, 2017. The Plaintiffs’ amended complaint can be found here.