Payday loans providers blame the Obama administration for attempting to utilize Operation Choke Point to shut down their industry. This has caused a situation of urgency where businesses are not being able to perform their basic functions, such as paying their employees and have also lost numerous banking relationships.
A group of short-term lenders requested for emergency relief from a federal judge in the District of Columbia from the government program.
CEO of Community Financial Services Association of America (CFSA), Dennis Shaul, said that immediate relief is more pressing than ever. CFSA represents about 9,000 brick-and-mortar short-term lenders. Dennis firmly believes that without an injunction against Operation Choke Point, some members of the CFSA will be compelled to slim down or completely shut down their operations.
In 2012, the Justice Department designed Operation Choke Point to attack telemarketing, internet, mail and other widespread market fraud by restricting scamsters’ access to the system of banking.
The Justice Department teamed up with the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency to crack down on scams by making use of the federal regulators to put pressure on banks to not provide services to businesses that are fraudulent.
However, critics of the program are of the opinion that it was utilized to pressurize on legal industries that the Obama administration did not like, such as payday lenders and firearms sellers.
One of Obama’s former official of the Justice Department said in April that the program had unconscious, but collateral consequence on the US consumers and banks.
Operation Choke Point: A Shadow Campaign
A spokesman for Advance America, Jamie Fulmer, said that this program is a shadow campaign. To eliminate short-term lending, regulators are using backdoor tactics. In a 2014 lawsuit filed against the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp. for their roles in the program the CFSA and Advance America are co-plaintiffs.
Twenty-one banks have already sent their termination notifications to the company since 2013 said Christian Rudolph, Advance America’s chief financial officer.
When requesting for an emergency injunction against the program, he said that the terminations of these banks have reached a tipping point and are beginning to diminish the ability of Advance America to carry out its operation. Advance America is on the verge of being refused to hold a bank account.
Payday lenders offer small-dollar loans and charge a fee of $15 per $100. The critics of short-term lending are worried that borrowers are going to be struggling with the repayment of loan and that will lead them to a cycle of debt. However, supporters are of the opinion that short-term lending gives millions of Americans a much-needed service when they are in a financial bind.
Last year, the case of CFSA et al. v. Federal Deposit Insurance Corp moves forward when it was found that the federal government have indeed violated the Fifth Amendment.
When CFSA and Advance America asked for an emergency relief, the lawyers provided Ed Lette’s written statement that highlighted how the Office of the Comptroller of the Currency’s federal regulators compelled him to put an end to a mutually beneficial relationship with a payday lender in Texas, Power Finance Texas.
An expert in financial regulations at the Heritage Foundation and a critic of the government program, Nobert Michel, said that it is not usual for bankers to discuss issues publicly with their regulator.
Operation Choke Point Reaches Beyond the Payday Lenders
Short-term lenders are not the only ones complaining about the unfair practices of the program. Chief operating officer of Western Shamrock, an installment loan organization based out of Texas, Tom Hudgins said that his industry also felt the pressure. Their funding sources are squeezed and their banking relationships at the local levels are being eliminated.
Installment loans have been there before payday loans and the loans are repaid over time. Since they are fully underwritten, needs stringent customer verification and span for a much longer time, it differs from payday loans.
New Administration Stems Hope
President-elect Donald Trump has not yet commented anything on the government program, the Republicans in the Congress have made several attempts to dismantle the program. Therefore, installment and payday lenders are feeling hopeful.
A legislation have been introduced to unravel the program and payday loans providers can look forward to situations changing for the better.
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