Operation Choke Point faces challenge in lawsuit from payday lenders

This past week the FDIC and the Fed hit another legal snag in an ongoing lawsuit seeking to minimize the damage being done to private business by what’s known as Operation Choke Point. One payday lending company has asked a judge to step in and provide emergency relief so that their business won’t be driven under by a lack of access to banking services. (Reuters)

Payday lenders asked a federal judge in Washington, D.C., for emergency relief to stop what they called a coordinated effort by U.S. regulators to stop banks from doing business with them, threatening their survival.

In Wednesday night filings, the Community Financial Services Association of America (CFSA) and payday lender Advance America, Cash Advance Centers Inc said a preliminary injunction was needed to end the “back-room campaign” of coercion by the Federal Reserve, the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency.

Advance America said its own situation became dire after five banks decided in the last month to cut ties, including a 14-year relationship with U.S. Bancorp, putting it “on the verge” of being unable even to hold a bank account.

This lawsuit has been going on for a while now and it covers a wide range of businesses, but probably none have received more attention than the payday lenders. The FDIC attempted to get the suit thrown out in September but a separate court tossed that request and the case is moving forward.

This one is worth watching, not so much for the specific plaintiffs involved here but for the broader impact of this Obama administration policy. To be very clear, I have zero love for the payday lending industry. I find it to be disreputable and predatory, preying upon primarily low income individuals in financial distress who are likely unaware of the trap they could be falling into by taking out payday loans. These offers can quickly spiral out of control and leave the applicant in a sort of debtor’s slavery situation, paying interest rates which would embarrass the mafia if they charged the same fees.

But going after them opens the door to far too much federal mischief. What Choke Point does is seek to browbeat banks and other lenders into cutting ties with “undesirable” businesses. Once their access to capital is gone, their business model can collapse. It’s easy enough to cheer when they go after the payday lenders, but the government never takes an inch when it can grab a mile. They go after other businesses in a similar fashion, including the firearms industry. One gun shop in Massachusetts found that out the hard way in 2014. (Washington Times)

A Massachusetts gun seller says it’s the latest victim of a federal multiagency task force that is squeezing financing sources for industries deemed “high-risk” by the Obama administration, such as porn stores, drug paraphernalia shops and gun merchants.

Powderhorn Outfitters, which sells firearms, archery gear and fishing equipment in Hyannis, Massachusetts, posted in an online forum this week that its longtime bank — TD Bank — had suddenly dropped its account.

As I said above, I have no love for the payday lending business, but the fact is that consumers in a free market economy are supposed to be responsible for their own affairs. As long as the rates being charged by the lenders are allowable by law, they have a right to conduct their business and have access to the banks like anyone else. If the government really wants to help they could better spend their time on educational campaigns warning people about the dangers of these short term, high interest loans. Operation Choke Point is a wolf in sheep’s clothing and this lawsuit deserves to have its day in court.