House Oversight and Government Reform Committee Chairman Darrell Issa, R-Calif., and Economic Growth, Job Creation and Regulatory Affairs Subcommittee Chairman Jim Jordan, R-Ohio yesterday requested information from Federal Reserve Chair Janet Yellen and Comptroller of the Currency Thomas Curry on the involvement by federal banking regulators in the multiple federal agency initiative known as “Operation Choke Point.” In Operation Choke Point, the Administration encouraged banks to terminate the accounts of legal businesses that they considered objectionable. While the administration has denied that it pressured banks to cease relationships with specific legal industries, the Committee found evidence that the FDIC encourage a target bank to terminate all relationships with payday lenders.
Chairman Issa and Chairman Jordan write in the letter to Federal Reserve Chair Yellen:
“The Federal Reserve Board is the primary supervisor and regulator of bank holding companies and state-chartered banks that are members of the Federal Reserve System. In the course of its investigation of Operation Choke Point, the Committee has learned that federal regulators are pressuring banks to terminate relationships with legal yet disfavored industries, without regard to the legitimacy or risk profile of individual companies.”
The chairmen cite a letter from a Regional Director of the Federal Deposit Insurance Corporation (FDIC), which effectively ordered a target bank to terminate all relationships with payday lenders, contradicting previous sworn statements before Congress.
From the FDIC letter:
The FDIC continually assesses the risk and appropriateness of the business lines and activities of our supervised institutions. We have recently become aware of [Bank’s] involvement in activities related to payday lending, specifically, the processing of transactions on behalf of [Payday Lender]. As a result, the FDIC and [State Banking regulator] conducted a joint Compliance and Risk Management visitation of your bank as of [date].
The focus of our visitation was on the risk associated with this relationship, compliance with consumer protection laws and regulations, and the effectiveness of Board and senior management due diligence and oversight of this relationship and the corresponding payday lending-related activities. It is our view that payday loans are costly, and offer limited utility for consumers, as compared to traditional loan products. Furthermore, the relationship carries a high degree of risk to the institution, including third-party, reputational, compliance, and legal risk, which may expose the bank to individual and class actions by borrowers and local regulatory authorities. Consequently, we have generally found that activities related to payday lending are unacceptable for an insured depository institution.
The chairmen continue in the letter to Yellen:
“On August 8, 2014, SunTrust Bank – a state-chartered member of the Federal Reserve System supervised and regulated by the Federal Reserve Board – issued a statement in response to several well-publicized account closures: ‘We have decided to discontinue banking relationships with three types of businesses – specifically payday lenders, pawn shops and dedicated check-cashers – due to compliance requirements.’ [emphasis added] SunTrust Bank is the 17th largest bank in the United States, with more than 400,000 small business clients. The Board’s enforcement of a compliance regime that forces banks to sever all relations with legal and legitimate customers is totally unacceptable.”
Read the entire Regional Director letter here.
Read the entire letter to Federal Reserve Chair Janet Yellen here.
Read the entire letter to Comptroller of the Currency Thomas Curry here.