Examples: Damage by Operation Choke Point to Payday Lenders

“I will offer a few examples of the damage that Operation Choke Point has already done to the short-term credit industry. One lender, Advance America, has lost longstanding and positive business relationships with at least nine banks as a result of Operation Choke Point. Hancock Bank and Whitney Bank informed Advance America of their intention to close its accounts on the ground that they were “unable to effectively manage [the lenders’] Account(s) on a level consistent with the heightened scrutiny required by [their] regulators . . . .” Fifth Third Bank wrote that it would stop doing business with short-term credit providers altogether on the ground that the entire industry is “outside of [its] risk tolerance.” Synovus Bank and Umpqua Bank likewise terminated Advance America’s accounts. At least two of Advance America’s banks expressed regret and explained that the service terminations were the result of pressure from their prudential regulator. Cadence Bank also terminated Advance America’s accounts without explanation. Advance America has not been able to find local banks to service certain stores that were affected by the terminations; many of the banks it contacted for that purpose had decided to exit the short-term small-dollar industry entirely due to regulatory pressure. No bank expressed a concern about Advance America; every bank based its determination on a sweeping judgment of the industry as a whole, an irrational judgment they were compelled to make by their regulator.”

“Another CFSA member, Cash Tyme, has received termination notices for its accounts at three financial institutions. Two alluded to the regulatory environment. Fifth Third Bank informed Cash Tyme, as it had informed Advance America that the entire industry was “outside [its] risk tolerance.” Regions Bank informed Cash Tyme that it “ha[d] chosen to end relationships with certain types of customers deemed to be high risk.” Cash Tyme has been unable to find substitute banks to service certain stores affected by the terminations, nor has it been able to find a bank that will provide ACH services.”

“CFSA Member Speedy Cash, Inc. (Lending Bear), after a seventeen year banking relationship, also received a termination notice from Bank of America. A bank officer told Speedy Cash, Inc. that Bank of America was “exiting the payday advance space,” expressed regret at the decision, and led it to believe that the termination decision depended only on Speedy Cash Inc.’sclassification as a short-term credit provider. Indeed, Speed Cash recently received a formal notice from Bank of America that its small business accounts would soon be closed “based on the nature of your business and associated risks.” Furthermore, two of its current banking partners now refuse to open new accounts for Speedy Cash, Inc.”

“CFSA member Xpress Cash Management likewise received a termination notice from Fifth Third Bank that explained that the short-term small-dollar loan industry is “outside [its] risk tolerance.”

“The foregoing specific examples of banks that have terminated their relationships with CFSA members as a result of regulatory pressure are merely illustrative of the severely harmful effects of Operation Choke Point on the short-term credit industry. Numerous other CFSA members have lost longstanding, positive banking relationships, despite their law-abiding and responsible business practices.”

Read the entire piece here: Statement of David H. Thompson before House Judiciary Committee July 17, 2014

Comments ( 5 )

Leave A Comment

Your email address will not be published. Required fields are marked *