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It’s an honor to deliver this keynote address at the annual meeting of the Consumer Financial Services Association. CFSA members are important providers of consumer credit, particularly payday loans to lower and middle income borrowers.

These have been difficult times for many of you, particularly in light of what has been at times a hostile government environment at the federal level. Bank regulators, and more recently the Department of Justice with its Operation Chokepoint, have been forcing out of the banking system many companies offering small dollar loans, check cashing, and other services vital to working people. Over the past two years many of your companies engaged in lawful business activities have been cut off from access to check clearing, deposit accounts, and other routine banking services required to keep any company in operation.

The Justice Department program Operation Choke Point set a dangerous precedent by pushing banks to sever relationships with lawful businesses. Now the Federal Deposit Insurance Corp. is taking important steps to undo the damage — but some people apparently haven’t gotten the memo.

The FDIC issued a financial institutions letter in late January encouraging banks to manage their risks on a customer-by-customer basis rather than by grouping entire industries according to “reputational risk.” The effort, spearheaded by FDIC chairman Martin Gruenberg and vice chairman Thomas Hoenig, was accompanied by an internal memo to FDIC supervisory personnel outlining new procedures to be followed if and when examiners direct banks to cut off customer relationships. The directive to the bank must be in writing and receive prior approval from appropriate management personnel at the FDIC. Examiners must also have a sound legal basis other than “reputational risk” for demanding that banks end services to customers.

These actions are good news for thousands of legal lending businesses and the customers who rely on them.

Unfortunately, not everyone is on the same page with the FDIC. Bloomberg reports that Early Warning, a fraud prevention company owned jointly by several large banks, is cutting off some lenders’ access to valuable account data. Until now, the data had been available for both banks and nonbanks to use in their underwriting and fraud detection practices.

Here is the link to the full article

The Justice Department touts its Operation Choke Point as a good-faith effort to crack down on illegal businesses, weed out fraud and protect consumers. None of these claims is true.

It is becoming clear that the real goal of the program announced last year—or at the very least a desired collateral benefit—is to target entire industries deemed undesirable by putting regulatory pressure on the banks that serve them. The House Oversight and Government Reform Committee recently released evidence that “federal regulators are pressuring banks to terminate relationships with legal yet disfavored industries, without regard to the legitimacy or risk profile of individual companies,” Last week, the Federal Deposit Insurance Corp. and Justice Department announced that they will launch investigations into Operation Choke Point.

Here is the link to the full article