Federal banking regulators are seeking the dismissal of a lawsuit filed by payday lenders that claim to be victims of Operation Choke Point.
The suit accuses the banking agencies of privately pressuring banks to sever their relationships with lawfully operating payday lenders.
But in court documents filed Monday, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Federal Reserve Board said that banks are free to make their own decisions about customer relationships, and that guidance the agencies provide to banks is not binding.
Referring to banks that have cut ties with payday lenders, lawyers for the FDIC wrote: "Any such termination decisions were the banks' business decision."
The lawsuit was filed in June by the Community Financial Services Association of America, a trade group for payday lenders, and Advance America, which is one of the nation's largest payday lenders. It accused regulators of engaging in a "concerted campaign" to drive payday lenders "out of business by exerting back-room pressure on banks."
The suit marked the latest stage in the payday industry's reaction against Operation Choke Point, a Department of Justice-led investigation aimed at cracking down on fraudsters' use of the payment system. The Justice Department has coordinated with other agencies, including the FDIC, as part of the probe.
While the Justice Department's efforts appear to be focused in large part on online payday lenders that are operating without state licenses, lawfully operating payday firms say they've suffered collateral damage.
The lenders' lawsuit cited the decisions by Fifth Third Bancorp and Regions Financial, among other banks, to stop doing business with payday lenders on the grounds that those relationships were outside of the banks' risk tolerance.
After the lawsuit was filed in June, the FDIC rescinded a controversial list of so-called high-risk businesses including payday lenders, ammunition sellers and purveyors of pornography that the agency first distributed to banks in 2011.
The payday lending trade group welcomed the FDIC's reversal last month, but it also suggested at the time that it would wait to see whether the agency's actions match its rhetoric.
In its response to the payday lenders' lawsuit, the FDIC argued Monday that the plaintiffs misread the agency's 2011 document, and that their legal challenge to the document is now moot in light of the FDIC's decision to withdraw the list.
The lawsuit is being heard by Judge Gladys Kessler of the U.S. District Court for the District of Columbia.