According to the American Banker (paid subscription required), state bank regulators are expressing their concern that the DOJ and federal bank regulators "Operation Choke Point" is throttling more than some bad guys the operation is supposedly intended to target.
Banking regulators in states that allow payday loans have become concerned that legally operating lenders are losing their banking relationships as a result of the multipronged federal effort, according to Margaret Liu, senior vice president at the Conference of State Bank Supervisors.
The worry is that banks — in the face of growing pressure from federal banking agencies and the Department of Justice, which is operating an investigation known as Operation Choke Point — are severing ties even with licensed payday lenders, Liu said Saturday.
"This is a troubling development," she said during a panel discussion at the spring meeting of the American Bar Association's business law section.
"It is one thing to be ensuring that a business partner, the client of a bank, is operating legally," she said. But a line is crossed when a payday lender "is being denied banking services because of concern about a federal agency advancing its own policy agenda, beyond appropriate supervisory responsibilities," she added.
The grievance will likely be the topic of future discussions between state and federal regulators, Liu said.
According to American Banker Kevin Wack, "there has been little public evidence" to back up assertions that the operation was shutting legal payday lending services out of access to the banking system. He then discusses a Washington Post article that featured a check cashing business in Minnesota whose owner was told by Wells Fargo to either drop the payday lending business or find another bank. The owner dropped the payday lending business. According to a follow-up interview with Wack, the owner told him that Wells Fargo's attitude was replicated by other banks he'd contacted. To all of them, payday lending is radioactive, notwithstanding that it may be legal, because the DOJ and federal bank regulators simply don't like it, and because they don't like it, the business brings with it increased regulatory scrutiny. Kids with regulatory proctoscopes poke into every nook and cranny of a bank's relationship with a payday lender, and make life miserably time-consuming and expensive. They also find all kinds of "heightened due diligence" that the bank needs to be performing on the payday lender, such as making sure every branch office in every locale across the nation is properly licensed under local municipal codes and determining whether any second cousin twice removed of any member of any cleaning crew that cleans any of those branch offices is now or ever has been a member of the Communist Party. You know, the usual and customary things any right-minded bank ought to be asking its business customers.
The article admits that although the CSBS is gagging on Choke Point, it is not clear how many of the 36 states that permit payday lending are also pushing back. It does note that New York, which doesn't allow payday lending, supports the federales. You all will recall that New York is the state where Spitzer-wanna-be Gentle Ben Lawsky is busy trying to drive business out of the state and to re-establish London as the financial capital of the world.
As a parting shot, Wack notes that the CFPB has entered the fray, which is a sign that defense lawyers are going to be fully employed for the foreseeable future.
...Christopher Peterson, a senior enforcement lawyer at CFPB, sent a warning shot Saturday to online payday lenders that lend money in states where they don't hold a license.
He said efforts to collect on those loans are "abusive" partly because the borrowers frequently don't know that their debts are legally void.
"Consumers don't understand, and it takes unreasonable advantage of their situation," Peterson said.
For nanny-staters like the CFPB, consumers will never fully understand anything and will increasingly need the CFPB to do their thinking for them in order to prevent lenders from the most "abusive" practice of all: making a profit.