OCP Lawsuit Moves Forward in Federal Court

A federal judge ruled on July 5th that a lawsuit against the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) regarding the agencies’ coercion of banks during Operation Choke Point (OCP) could proceed to the discovery phase. Although the party that originally filed the suit, the Community Financial Services Association, was dismissed for lack of standing, a number of small dollar lenders have joined the litigation to keep it alive.

Operation Choke Point is a policy implemented by the U.S. Department of Justice and federal banking regulators to restrict access by certain industries to banking services and payment processors by threatening adverse action against those banks and payment processors. It relies on a standard of “reputation risk,” wherein a bank’s reputation might be injured by doing business with certain industries. This vague standard has led to some interesting results, including a lawsuit by a porn star when a bank began refusing to accept her deposits.

In May, Rep. Blaine Luetkemeyer (R- MO) introduced the Financial Institution Customer Protection Act of 2017 which seeks to eliminate Operation Choke Point. Since its inception, OCP has caused numerous banks to stop offering short term loans and cut ties with lenders that previously relied on banks for payment processing and other services. While federal regulators have generally scaled back OCP in recent months, the current lawsuit shows that the effects of OCP are still limiting banking services to legitimate businesses and restricting consumer access to financial products.