The main payday lending trade group's legal action against several US regulators questions how the latter had used an anti-fraud initiative for their interests. The complaint, which was filed by the Community Financial Services Association of America yesterday in a Washington federal court, accused regulators including the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency for using Operation Choke Point to force them out of businesses, Bloomberg said.
According to the trade group in the complaint, "(The are engaged in) a concerted campaign (to drive payday lenders out of business by pressuring) banks and other regulated financial institutions to terminate their relationships (with the lenders)."
Bloomberg profiles payday lenders as businesses who offer small, short-term loans that initial meant to help a borrower with his financial troubles up until his next payday. Bricck-and-mortar lender loans are typically secured by a post-dated check. In online payday lenders, borrowers would need to provide a bank account number for direct debits. Payday lenders earned criticism from opponents who cite the niche industry as trapping poorer borrowers in a cycle of debt. Consumer Financial Protection Bureau has said that interest rates measured as a yearly percentage rate could reach 521%.
The payday trade group also alleged that because of the anti-fraud program of the US Justice Department, over 80 banks have severed their relationships with them due to coercive regulatory pressure, alluding that the latter receive pressure, which include harsher and longer examinations and other punitive measures if they continue their relationships with payday lenders.
Operation Choke Point is a federal program designed to combat mass-market consumer fraud by cutting off the access to payment systems. Bloomberg said that concern over the initiative has reverberated in the banking industry. Moreover, the news agency said that the lawsuit had mirrored that criticism, which labeled Operation Choke Point as a biased program.
"(Operation Choke Point a way of going after businesses) that are disfavored (by regulators, such as coin dealers, gun stores, tobacco outlets and dating services), but it is aimed primarily at the payday loan industry," the trade group argued.
