Apparently, there's been some bipartisan gagging induced by Operation Choke Point and parallel throttling of the online payday lending by the OCC and the FDIC. According to the American Banker, a group of Republican and Democrat legislators wrote a letter to the OCC and the FDIC that their efforts to ostensibly "crack down" on online lending fraudsters were causing the sensitive souls in Congress "grave concern."
"Banks should not be forced to throw out legitimate customers they have successfully banked for decades," the letter states. "Regulators should instead directly target predatory actors who are breaking existing laws and resist any broad approach that causes undue consequences on an entire industry."
Yes, that would be the logical course of action if the regulators were actually concerned about targeting only criminal elements within the business of payday lending. However, a broader crackdown makes sense if, as some payday lending industry representatives (and various cranks like this one) believe, the goal is stamp out a business that ideologues at the federal level believe violates their refined ideas of "social justice." The've already driven banks out of the business of deposit advance loans and are doing their best to hammer the tax refund anticipation loan business to bits, and why stop with those sordid outliers? If the legality or illegality of a business is irrelevant to the discussion, then "fraudsters" is merely a pretext for a regulatory crackdown.
The latest congressional letter — spearheaded by Rep. Blaine Luetkemeyer, R-Mo. — states that efforts to stamp out fraud are praiseworthy, but that legitimate, licensed businesses are also being hurt by the government's actions.
"Banks that have terminated these services," the letter states, "are reflecting blanket concerns about heightened regulatory scrutiny as opposed to engaging in appropriate, risk-based determinations based on individual customer circumstances."
The letter does not cite any specific licensed companies that have been harmed, but it claims that examiners from the Fed and OCC are playing a role in discouraging banks from processing lawful transactions.
The Fed said it will respond to the letter and the OCC declined to comment. Expect both agencies to respond in a manner similar to the response of the DOJ when it received a similar letter of concern from Republican congress persons. It met with congressional representatives, refused to characterize the results of the meeting in any manner, and issued the reply that the DOJ "is committed to pursuing any evidence of financial fraud, particularly fraud that harms consumers and threatens the integrity of the financial system." In other words, "we heard you and will supply you with numerous buckets full of sand and a sufficient supply of mallets with which to pound it."
I don't expect the war on politically incorrect lines of business to abate until at least after the 2016 election, and then only if a Republican is elected to the White House. Until that time, the DOJ and the CFPB, aided and abetted by those at the top of the regulatory food chain in D.C. who share their sensibilities, will do their best to wipe out payday lending and other targeted businesses that provided high-cost credit to borrowers who present higher credit risks, or, at least, make it so unprofitable that access to such credit will be limited and consumers who would otherwise use it will seek "extra-judicial" sources, which will be the only ready sources left in the game. Banks who process payments for such businesses or otherwise "bank" them will subject to continued enhanced scrutiny and duress in an effort to make it so uncomfortable for them to bank these "untouchables" that they will drop them as customers. By choking off access to the banking system, the businesses will be effectively driven out of business, as have many of the tribal online payday lenders via the same tactics.
That's the way it's done in a world where the federal government officials get to pick winners and losers among businesses that are otherwise legal, but full of "potential fraud."