Three payday lenders and the Federal Deposit Insurance Corp. agreed to settle a lawsuit related to Operation Choke Point, an Obama administration program designed to pressure financial institutions to stop serving businesses involved in illegal activity or fraud that some criticized as regulatory overreach.
Advance America Cash Advance Centers Inc., Check Into Cash Inc. and Northstate Check Exchange filed the suit against the FDIC and other federal regulators, alleging improper terminations of payday lender bank accounts. The regulators, which include the Federal Reserve Board and the Office of the Comptroller of the Currency, filed to dismiss the lawsuit, but the motion was denied by the U.S. District Court for Washington, D.C., in July 2017.
As part of the settlement, the FDIC issued a letter to the plaintiffs' counsel admitting that certain of its employees abused their powers under Operation Choke Point and agreed to conduct additional training for its examiners by the end of 2019. The regulator also issued a statement to clarify internal policies in which it would recommend a financial institution terminate a customer's deposit account.
The Office of the Comptroller of the Currency released a separate statement, stating the dismissal of the case confirms that it did not participate in Operation Choke Point nor in any conspiracy to force plaintiffs or other payday lenders to terminate bank accounts.
A March 2016 review of the FDIC's involvement in Operation Choke Point by the Office of Inspector General revealed cases wherein an FDIC attorney allegedly threatened three banks being investigated, leaked confidential information about one bank to weaken its arguments against exiting a particular business and used a bank's underwriting plan as a basis of enforcement action, even though an initial review suggested the underwriting effectively mitigated risks associated with the loans. The FDIC said it believed its enforcement actions against the three banks mentioned in the review were appropriate but admitted the employee's actions were inconsistent with its policies.
The U.S. Department of Justice in August 2017 said it ended all investigations related to Operation Choke Point and terminated the program. The DOJ, in a letter to then-House Judiciary Committee Chair Bob Goodlatte, R-Va., agreed with the assertion that the operation was used to hound businesses the Obama administration allegedly disliked, such as payday lenders and gun shops.