On November 23, 2016, Advance America, Inc., a payday lender, and Community Financial Services Association of America, Ltd., a trade organization which represents the interests of payday lenders,  (“Plaintiffs”) filed a request for a preliminary injunction against the Federal Deposit Insurance Corporation, the Office of Comptroller of the Currency, and the Board of Governors of the Federal Reserve System (collectively, “the Regulators”)  to stop pressuring national banks from cutting off payday lender’s access to the financial services banks offer.   Indeed, the request states that the payday lenders that have managed to survive the Regulators’ attempt to shut down the industry are now facing catastrophic consequences with additional banks moving to terminate their relationships with payday lenders and close payday lender’s accounts.  These account closures leave lenders without: access to ACH networks that allow them to collect on past-due loans, the ability to accept non-cash payments or access to simple, cost effective treasury services, which allows them to pay their employees.   Regulators have denied any involvement in trying to categorically deny payday lenders access to financial services.

The Plaintiffs’ response to having financial services institutions terminate business relationships with them began in 2014 with a lawsuit against the Regulators. Plaintiffs accused them of participating in the Department of Justice’s Operation Choke Point to violate the constitutional rights of payday lenders.  The Plaintiffs allege that since 2011, when the Department of Justice launched Operation Choke Point, the Regulators have worked together to essentially shut down the payday lending industry, which is viewed by some as immoral.   Plaintiffs argue that the key issue is the fact that the Regulators can control banks through the idea that the payday lenders carry reputational risk, which is an amorphous term which cannot be quantified in any real way.

For example, the FDIC included payday lending in its list of “high –risk” industries, which included gun sales, Ponzi schemes and pornography. By comparing payday lending to illegal or questionable activities, the government was sending a message that the industry itself was problematic.   In addition, although payday lending is legal, and there is no statute or regulation prohibiting its existence, Plaintiffs allege that the Regulators have threatened severe consequences to banks that keep payday lenders as clients.  For instance, Business Bank of Texas explicitly ended its relationship with Power Finance Texas because of pressure from the OCC, and absent regulatory pressure, the Bank says it would restore banking services to Power Finance Texas.  Plaintiff Advance America believes that US Bank terminated its relationship because of regulatory pressure just this past month, and US Bank further terminated its relationship with other payday lenders.  Prior to the termination, US bank provided financial services to over 1,200 Advance America locations.

While the judge has already found that the Plaintiff’s constitutional claims survived, and the Plaintiff has provided evidence regarding the imminent harm the Plaintiffs will suffer from its accounts closing, it is unclear that an injunction will issue.  The preliminary injunction request asks that the Regulators cease “putting pressure” on banks to terminate relationships with payday lenders, but it’s unclear what that would mean in practice or how the judge would be able to avoid intruding on the Regulator’s enforcement authority.