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“Operation Choke Point” Lawsuit Against Federal Bank Regulators Dismissed

The multi-year lawsuit alleging regulatory pressure to close payday lender bank accounts has been dismissed, according to the Office of the Comptroller of the Currency.

Advance America et al. decided to dismiss the OCC from its lawsuit, alleging that federal banking regulators pressured banks to terminate payday lender bank accounts.

This action puts an end to the 2014 lawsuit that payday lenders filed against federal regulators in Operation Choke Point, the Federal Deposit Insurance Corporation (FDIC).

Part of the deal included an acknowledgment that “certain employees acted in a manner inconsistent with FDIC policies with respect to payday lenders,” the agency stated. Though the agency was quick to warn that the statement did not represent a change in policy, it did show that some of the acts by Operation Choke Point were unlawful in nature.

Background on the Complaint

The Federal Reserve Board of Governors and the Office of the Comptroller of the Currency (OCC), and several payday lenders filed a complaint against the FDIC, alleging that the federal banking regulators participated in the Department of Justice’s (DOJ) Operation Choke Point. They claimed that operation forced banks to end their business relationships with payday lenders.

Eventually, the plaintiffs agreed to dismiss the Federal Reserve, the OCC, and the FDIC, and then, reached a deal with the plaintiffs. In exchange for the plaintiffs’ dismissal of the suit against the FDIC, the agency promised to issue a statement giving a synopsis of its long-standing policies and guidance regarding the circumstances in which it recommends that a bank terminate a customer’s deposit account.

The Other Actions the FDIC Plans to Take

In addition to its acknowledgments, the FDIC did make efforts to remedy the situation. The agency took steps to clarify and reinforce its policies, including the removal of the lists of examples of higher-risk merchant categories that were previously included in official FDIC guidance.

Additionally, the FDIC adopted an internal policy that governs the circumstances in which the agency may recommend that a financial institution terminate a customer’s deposit account.

Finally, the FDIC promised to conduct more training of its examination employees on its policies by the end of 2019. The training aims to ensure that examination employees comply with the highest standards of conduct and law.

In Conclusion

The resolution of the lawsuit shows that Operation Choke Point won’t continue. If this is the case, then this could be the end of politicizing bank examinations for the sole reason of limiting perceived less-than-desirable but legal businesses from accessing the national banking system. Hopefully, this will level the playing field and remove some pressure from those that offer payday lending services.

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