Payday Lenders File To Halt Regulatory Push
WASHINGTON (dpa-AFX) - Payday lenders have asked for a court injunction to stop U.
S. federal banking regulators' move to cut them off from the mainstream financial system.
Last week, the Community Financial Services Association of America or CFSA, a trade association representing the payday loan industry, and payday lenders Advance America and Cash Advance Centers Inc filed a motion for preliminary relief in federal court in Washington, D.C. They allege that regulators undertake a back-room campaign to prevent banks from doing business with payday lenders, which threatens their survival.
The motion reportedly was against the Federal Reserve, the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency.
Payday lending industry stated that their access to traditional banks have been severely restricted with the recent regulatory efforts to rein in short-term, high-interest loans.
Payday lenders generally make small short-term loans that can help tide over cash-strapped borrowers. Meanwhile, these loans charge huge interest rates, trapping the borrowers into more and more loans as they take new payday loans to repay older loans.
Advance America noted that five banks last month decided to cut ties. This included a 14-year relationship with U.S. Bancorp.
In addition, payday lenders are also losing banking relationships due to the 2013 Department of Justice initiative, Operation Choke Point, which blocks access to payment systems by companies deemed at greater risk of fraud.
Charles Cooper, a lawyer for the CFSA, wrote, "Protecting consumers from credit fraud is, of course, a commendable goal. But the manner in which the defendant agencies have chosen to pursue that ostensible goal betrays that their true intent has always been to eradicate a disfavored industry."
U.S. District Judge Gladys Kessler will consider the preliminary injunction request. She oversees the CFSA's June 2014 lawsuit claiming that regulators violated its members' due process rights.
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