Payday lender's emails tell a different story on Choke Point

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Payday lenders have long blamed bias at federal agencies for banks’ decisions to terminate their accounts, but executives at one of the nation’s largest high-cost lenders acknowledged a more complicated reality in newly released emails.

While Advance America, a payday loan chain that operates in 28 states, was accusing regulatory officials of strong-arming banks to cut ties with payday lenders, top executives at the Spartanburg, S.C.-based company were citing bankers’ concerns about anti-money-laundering compliance.

The emails were released by the banking regulators in court filings that rebut the payday lenders’ allegations of misconduct.

Companies that offer high-cost, short-term loans to consumers have accused the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency of waging a stealth campaign — in conjunction with the Department of Justice’s Operation Choke Point — to shut them out of the banking system.

During a four-year legal battle, the payday lenders have uncovered evidence that some Obama-era regulatory officials were hostile to their industry. Much of the payday industry’s criticism has focused on the FDIC in particular.

But in court papers that were unsealed on Friday, the FDIC pointed to anti-money-laundering compliance concerns — rather than any personal vendettas — to explain why certain payday lenders lost some of their bank accounts.

“There is no FDIC ‘campaign’ against payday lenders,” the agency wrote in a 56-page court filing.

The lawsuit was brought by Advance America, which operates more than 1,700 stores, and two other payday lenders. Advance America said in a recent court filing that it has lost 21 banking relationships since 2013.

U.S. Bancorp in Minneapolis was one of the banks that terminated Advance America. After that decision, Christian Rudolph, Advance America’s chief financial officer, wrote in a 2016 court declaration: “In my experience, the only logical reason a bank would terminate a longstanding, mutually beneficial relationship without warning or explanation is regulatory pressure.”

But days earlier, Rudolph offered a different explanation in an email. At the time, U.S. Bank was under investigation by the U.S. Attorney’s Office in Manhattan for its relationship with payday loan baron Scott Tucker, who would eventually go to prison.

“I would bet the investigation related to US Bank’s relationship with Scott Tucker and its AML controls was the trigger to exit the entire industry,” Rudolph wrote.

Earlier this year, U.S. Bank entered into a deferred prosecution agreement and agreed to pay $613 million in penalties for anti-money-laundering violations that stemmed in part from its relationship with Tucker. U.S. Bank has declined to comment on why the bank severed ties with numerous payday lenders.

Advance America is owned by a Mexican company called Grupo Elektra, and the two banking agencies argued in their court filings that banks were wary of the payday loan chain because its foreign ownership posed heightened risks under the Bank Secrecy Act.

To support that argument, the OCC pointed to a March 2015 email by Advance America CEO Patrick O’Shaughnessy. He wrote that “the major banks which we have lost have claimed it is due to our parent (Grupo Elektra, a Mexican bank holding company), not anything to do with our compliance management system or Operation Choke Point."

“I believe this to be the truth,” O’Shaughnessy added, pointing to specific banks that were continuing to do business with other payday lenders.

Advance America has alleged that it incurred costs of $2.5 million per year as a result of account closures. But the company currently has substantially more banking relationships than it had before 2013 according to the FDIC.

The FDIC also stated that Advance America bought a corporate jet in March 2017 for at least $4.5 million, noting that the purchase came shortly after the company represented in court that it had a “date with the guillotine,” and pointing out that the transaction was financed by a bank.

A spokesman for Advance America said Monday that the extent of the coordinated effort by regulators to cut off the company's access to the banking system only became clear as the company gathered evidence during the litigation process.

"That evidence also sharply contrasts issues such as the behavior of bad actors wholly unconnected to our business, alleged concerns regarding money laundering and use of the automated clearinghouse system that conveniently provided regulators the cover to deploy their campaign against businesses they find objectionable," Jamie Fulmer, senior vice president of public affairs at Advance America, said in an email.

David Thompson, a lawyer for the payday lenders, was asked recently about the possibility that anti-money-laundering concerns motivated some banks to terminate accounts for payday lenders.

“The evidence overwhelmingly proves that the federal government attempted to cut off the payday lending industry from the banking system,” he said. “It is hardly surprising that the government would choose different pressure points for different banks to accomplish its unlawful scheme.”

The FDIC and the OCC filed their briefs in October under seal, and they were made public on Friday. Both the plaintiffs and defendants are asking a federal judge to resolve the long-running case in their favor in advance of a potential trial.

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Payday lending AML Compliance De-risking Advance America FDIC OCC U.S. Bank
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