The FDIC has announced that it has entered into a settlement of the lawsuit filed against it and the OCC in 2014 by a trade group and several payday lenders challenging “Operation Choke Point” — a federal  enforcement initiative involving the FDIC, OCC and other federal agencies.  In July 2017, the D.C. federal district court denied the agencies’ motions to dismiss and/or for summary judgment and permitted the plaintiffs’ due process claims to proceed.  Initiated in 2012, Operation Choke Point targeted banks serving online payday lenders and other companies that have raised regulatory or “reputational” concerns.

In connection with the settlement, the plaintiffs filed a stipulation of dismissal and pursuant to that stipulation, the court entered an order dismissing the entire lawsuit with prejudice, including the plaintiffs’ claims against the OCC.  The OCC issued a press release in which it stated that it was “pleased by the plaintiffs’ decision to dismiss the OCC from their long-running lawsuit” and that the resolution “confirms what the OCC has long told the U.S. District Court and the Congress: namely, that the agency did not participate in ‘Operation Choke Point’ or in any purported conspiracy to force banks to terminate the bank accounts of plaintiffs or of other payday lenders.”  The OCC also stated that it “has not entered into any settlement agreement or made any other concessions to plaintiffs in exchange for their agreement to dismiss all claims against the agency.”

The FDIC issued two documents in exchange for the plaintiffs’ agreement to dismiss the lawsuit.  First, it issued a Statement setting forth the FDIC’s policies on providing banking services and terminating deposit accounts.  The Statement includes the following:

  • The FDIC encourages institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers without regard to the risks presented by an individual customer or the financial institution’s ability to manage the risk.
  • Institutions that properly manage customer relationships and risks are neither prohibited nor discouraged from providing services to customers operating in compliance with applicable federal and state law.
  • If an institution is not properly managing risks associated with deposit accounts, the FDIC may take supervisory action, including recommending or requiring termination of a deposit account.  Such recommendations are not made through informal suggestions and the FDIC will not criticize an institution’s management of deposit accounts, or mitigation of risk, through informal suggestions. Any such examiner criticism must be made in writing in a supervisory Report of Examination (ROE). Recommendations or requirements for terminating deposit accounts must be approved in writing by the Regional Director before being provided to and discussed with an institution.  Before including such findings in an ROE or pursuing supervisory action, the recommendations must be thoroughly vetted with regional office and legal staff.  The Examiner in Charge must include the supervisory basis for an account termination recommendation or requirement, including if applicable, any specific laws or regulations the examiner believes are being violated.

The second document issued by the FDIC as part of the settlement is a cover letter from the FDIC’s Deputy General Counsel transmitting the Statement to the plaintiffs’ counsel.  The letter includes the FDIC’s acknowledgment “that certain employees acted in a manner inconsistent with FDIC policies with respect to payday lenders in what has generically been described as ‘Operation Choke Point’  and that this conduct created misperceptions about the FDIC’s policies.”  It also states that “regulatory threats, undue pressure, coercion, and intimidation designed to restrict access to financial services for lawful businesses have no place at the FDIC.”  The letter describes steps taken by the FDIC to clarify its policies on providing services to lawful businesses and indicates that the FDIC will conduct additional training of its examination workforce on such policies by the end of 2019.