In a June 2014 alert, we discussed Community Financial Services Association vs. Federal Deposit Insurance Corporation, a payday loan industry suit challenging on various grounds certain supervisory and interpretive statements issued by the defendant bank regulatory agencies. The agencies issued the “guidance documents” in question as part of Operation Choke Point, the controversial Department of Justice-initiated effort to deny banking services to various targeted industries–including payday lending–whose activities were deemed to present unacceptable risk to insured depository institutions.

Media interest in Operation Choke Point has waned, and many observers believe that subsequent agency guidance, such as the FDIC’s January 2015 financial institution letter encouraging banks to take a “risk-based approach in assessing individual customer relationships, rather than declining to provide banking services to entire categories of customers,” signals a retreat by the agencies, and perhaps even the end of Choke Point.

Plaintiffs have continued to press their suit, however, and a September 25, 2015, decision by the U.S. District Court in Washington, D.C., rejected most of the arguments in the agencies’ motion to dismiss.

Judge Gladys Kessler’s accompanying memorandum opinion addresses each of the several grounds put forth by the defendants in support of their contention that the complaint fails to make out a “case or controversy,” a necessary element of the Court’s subject matter jurisdiction.

The agencies first challenged plaintiffs’ standing to sue. While acknowledging that the denial of banking services establishes one necessary element of standing (an “injury in fact”), defendants argued that the plaintiffs do not satisfy the two remaining elements, namely causation, a link between the defendants’ actions and the plaintiffs’ injuries, and redressability, evidence that a favorable ruling will redress the plaintiffs’ alleged injuries.

According to the defendants, the plaintiffs’ injuries resulted from independent decisions by their banks rather than the agencies’ guidance documents. Judge Kessler notes that the plaintiffs’ burden of eventually proving their “third party” causation theory−that the defendants’ conduct compelled the banks to deny them service−will be substantial. However, taking as true all of the plaintiffs’ factual allegations, as is required when deciding a motion to dismiss, she determined that the claims satisfy both the causation and redressability requirements.

Courts will ordinarily not hear cases when the subject matter has, through changed facts, law, or other circumstances, become moot. Although she agreed that the agencies’ subsequent pronouncements have largely superseded earlier Choke Point guidance, Judge Kessler rejected the defendants’ contention that this alone renders moot all of the plaintiffs’ claims. In particular, she notes that the plaintiffs claim they have been stigmatized and deprived of their ability to engage in a legally permitted business, all without constitutionally required notice and opportunity to be heard.

Another facet of the “case or controversy” requirement, commonly called “ripeness,” is implicated when the plaintiff challenges an administrative agency’s actions. The federal courts are generally constrained to review only final actions of administrative agencies. Typically, an action is considered “final” only if it determines the rights or obligations of the affected party. Here, the court agreed that the agencies’ publication of guidance documents did not rise to the level of a final action, and dismissed the plaintiffs’ claims under the federal Administrative Procedure Act.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

For more information, please contact Consumer Financial Services Practice Leader Alan S. Kaplinsky or the member of the Group with whom you work.


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