Payday lenders in the U.S. are facing what they call a threat to their survival.
The companies petitioned a federal judge in Washington, D.C., for emergency relief from an effort by U.S. regulators to prevent banks from doing business with them, Reuters reported.
The Community Financial Services Association of America (CFSA) and payday lender Advance America, Cash Advance Centers Inc. requested a preliminary injunction to halt the “back-room campaign” of coercion perpetrated by the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency, according to a court filing submitted last week.
Advance America said in the last month that five banks have stopped doing business with the company, which has put the payday lender in what it describes as a dire situation. One of those banks, U.S. Bancorp, ended its 14-year relationship with Advance America and cut ties with the company.
The CFSA said payday lenders are losing out on banking relationships due to an initiative by the Department of Justice launched in 2013, called “Operation Choke Point,” that attempts to block companies considered to be greater fraud risks from access to payment systems.
“Protecting consumers from credit fraud is, of course, a commendable goal,” Charles Cooper, a lawyer for the CFSA, said in a statement. “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.”
According to Pew Charitable Trusts, about 12 million Americans take out a payday loan each year. The typical loan is $375. Borrowers are usually employed full-time (thus the “payday” moniker), must have an active checking account and, by most accounts, would appear to be “middle class” or “working class,” according to Pew.
But earlier this year, the Consumer Financial Protection Bureau proposed new regulations for the payday lending industry aimed at “ending payday debt traps.”
“The Consumer Bureau is proposing strong protections aimed at ending payday debt traps,” CFPB Director Richard Cordray said in June.
“Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt. It’s much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey. By putting in place mainstream, commonsense lending standards, our proposal would prevent lenders from succeeding by setting up borrowers to fail.”