Justice Department Turns Up Heat in Online Lending Probe

January 23, 2014
American Banker 
payday lending news
"Operation Choke Point" -- the name given to the Department of Justice investigation into online payday lenders, banks, and payment processors -- is itself under scrutiny by some lawmakers.

In a recent letter to Attorney General Eric Holder, House Oversight Committee Chairman Darrell Issa (R-Calif.) requested documents from DOJ and suggested that the probe is a concealed attempt to wipe out even legal online lending, rather than the crackdown on fraudsters that investigators say it is. Online lenders themselves have complained that the industry is being unfairly targeted.

A proposed $1.2 million settlement between DOJ and Four Oaks Bank in North Carolina may be the first agreement in connection with Operation Choke Point. In its complaint, DOJ alleged that various online payday lenders misled customers and manipulated repayment withdrawals to cause unexpected charges, violating state laws that include interest rate caps and licensing requirements. Four Oaks is accused of ignoring fraud complaints from loan customers and warnings about unauthorized debits from customer bank accounts.

Since Issa's letter, consumer advocates have defended the investigation. The National Consumer Law Center noted that the Four Oaks case not only concerns online payday lending, but an alleged Ponzi scheme and other illegal transactions as well.

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