Payday lenders are seeking a court injunction to stop what they say is a concerted effort by federal banking regulators to cut them off from the mainstream financial system.
Advance America, a Spartanburg, S.C.-based payday loan chain, said in court filings Wednesday that it has lost five banking relationships over the last month, including a 14-year-old relationship with Minneapolis-based U.S. Bank.
Other payday lenders have also received termination notices from banks in recent weeks, according to documents filed by the Community Financial Services Association of America, a trade group for small-dollar, short-term consumer lenders.
The affected firms argue that banking regulators are to blame. "In my experience, the only logical reason a bank would terminate a longstanding, mutually beneficial relationship without warning or explanation is regulatory pressure," J. Christian Rudolph, Advance America's chief financial officer, said in a court declaration.
The payday lenders are asking U.S. District Judge Gladys Kessler to enjoin the Federal Deposit Insurance Corp., the Federal Reserve Board and the Office of the Comptroller of the Currency from informally pressuring banks to end their business relationships with payday lenders.
The court papers filed Wednesday include a statement from Ed Lette, the chief executive of Business Bank of Texas in Austin, who said that an assistant deputy comptroller in the OCC's San Antonio office recently pressured his $110 million-asset bank to end its relationship with a particular payday lender.
Spokesmen for the Fed, the OCC and the FDIC declined to comment.
The emergency court filing comes more than two years after Advance America and other payday lenders filed suit against the FDIC, the OCC and the Fed, arguing that the banking agencies were unfairly targeting payday lenders. The lawsuit is still pending.