State regulators are pushing back against the federal crackdown on Web-based payday operations. Banks are worried that pressure from federal banking regulators and the Department of Justice, which is running an investigation called Operation Choke Point, is resulting in severed ties even with legitimate payday lenders.
For months, financial industry trade groups have complained that the campaign against unlicensed online payday lenders also harms state-licensed payday stores, though there is little public evidence to support this argument. One owner of a state-licensed payday lender in Minnesota said recently that Wells Fargo recently forced him to choose between staying in the payday loan business and keeping his relationship with the bank. With payday lending accounting for only about 10 percent of his store's revenue, which also offers check cashing, he decided to exit the payday loan niche.
It is unknown how many states have raised concerns about the federal crackdown. Thirty-six states allow some form of payday lending, according to the Pew Charitable Trusts. Agencies involved in the federal investigation say they are not targeting payday lenders that follow applicable state laws. Rather, their goal is to prevent fraudsters from using the electronic payment system to access consumer bank accounts.