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FDIC Reaches Settlement in Choke Point Case

The Federal Deposit Insurance Corp. announced last week that it had “resolved” a lawsuit filed by a number of payday lenders, alleging that banks had used Operation Choke Point to cut off the lenders’ access to financial services.

Under the terms of the settlement, the FDIC, which regulates commercial banks and savings institutions and provides insurance to individuals with bank accounts, the FDIC was required to issue a statement summarizing its longstanding policies and guidance regarding the circumstances in which the FDIC recommends that a financial institution terminate a customer’s deposit account and reiterating preexisting public guidance to financial institutions about providing banking services, and a cover letter transmitting the statement to the plaintiffs that reiterates prior correspondence from the FDIC Chairman, summarizes applicable FDIC policy, and notes that the FDIC is conducting additional training of its workforce.

Operation Choke Point was an initiative under the administration of former President Barack Obama that sought to cut off access to financial services for certain types of companies, including payday lenders and debt collectors, that were thought to be at a higher risk for illegal activities such as fraud and money laundering. The initiative was officially terminated in August 2017, but officials at the FDIC and Office of the Comptroller of the Currency, which regulates national banks, who were appointed during the Obama administration may have been secretly continuing to carry out the initiative’s mission, according to documents that were unsealed last year.

In the letter, the FDIC included a document that Jelena McWilliams, the chairwoman of the FDIC, sent to Rep. Blaine Luetkemeyer [R-Mo.], ranking member of the House Financial Services Committee’s Financial Institutions and Consumer Credit Subcommittee, which said: “I am troubled that certain FDIC employees acted in a manner inconsistent with FDIC policies in what has been generically described as ‘Operation Choke Point.’ … Regulatory threats, undue pressure, coercion, and intimidation designed to restrict access to financial services for lawful businesses have no place at this agency.”

While the settlement and the FDIC’s reiteration of its stance toward Operation Choke Point should be welcome news for the credit and collection industry, companies should still be very aware of actions at the state level that could impact their businesses going forward.

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