Government Payday Choke Hold

For all the coverage of Donald Trump’s Twitter blasts against one company or another, hardly anyone notices that the Obama Administration has spent years targeting entire industries merely because the left dislikes them. Case in point is the onslaught against payday lenders, and a lawsuit presents an opportunity to expose an extralegal cross-agency campaign.

In 2013 the Justice Department launched Operation Choke Point, which involves pressuring banks to cut off financial services for payday lenders, no evidence of lawbreaking required. According to a House Oversight Committee report, the Justice Department has pumped out subpoenas under a statute that allows the government to go after outfits that commit fraud against banks, not punish banks that do legal business with legal businesses.

The operation seems to have been coordinated among several agencies. A report last year from the Federal Deposit Insurance Corp. Inspector General found that three of six FDIC regional directors thought their job description included discouraging banks from servicing payday lenders. A former director of the Atlanta office told his staff: “Any banks even remotely involved in payday should be promptly brought to my attention.”

Ditto for the Office of the Comptroller of the Currency. Ed Lette, CEO of Business Bank of Texas, said it a November statement under oath that OCC had all the forced him to close a payday account. The bank had received “no customer complaints” about Power Finance Texas, which had not violated rules “nor any bank regulations,” according to Mr. Lette’s account. “They were an ideal customer.”

But then an officer from OCC’s San Antonio branch total Business Bank to cut ties, and thus ended “this long-standing and beneficial relationship” which generated hefty income to the bank. The OCC official said that continuing the account would incur “significant repetitional risk,” essentially threatening investigation. This is thuggery, and Mr. Lette’s said it’s only the only reason he terminated the account.

The Community Financial Services Association of America, a trade group for payday lenders, filed a lawsuit against FDIC, OCC of the Federal Reserve alleging that Choke Point violates due process protections in the Constitution. A federal judge allowed the suit to proceed to the discovery phase, though a motion to dismiss from the government has held up the process. We look forward to seeing the internal memos and emails that agency officials assumed would never be public.

Last month the trade group, with member Advance America, filed an emergency request for injunctive relief against Choke Point. The petition notes that agencies have shut down arrangements “without statutory authority, without observing the formal procedures required by law, and without providing the affected parties with any notice or opportunity to defend themselves, their livelihoods and their good names.” That is compelling evidence of irreparable harm, and an injunction is also warranted because the lawsuit is likely to prevail on the merits. A hearing is set for January.

Payday lenders provide credit to people who have few options beyond loan sharks, and state governments have gone a long way to police bad actors. The Trump Administration should end Choke Point, another example of the regulatory abuse that has defined the Obama era.