June 6, 2014 / 4:55 AM / 5 years ago

Payday lenders sue US regulators over 'Operation Choke Point'

June 6 (Reuters) - A group of payday lenders filed a lawsuit against three U.S. banking regulators on Thursday, saying a federal anti-fraud initiative unfairly targets them by claiming the lenders are “reputationally risky” to the banks serving them.

The lawsuit, filed against the Federal Reserve, the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency, comes days after U.S. prosecutors opened criminal and civil probes into at least 15 banks and payment processors as part of a wide-ranging consumer fraud investigation.

The DoJ’s investigation, known as “Operation Choke Point,” is more than a year old and aims to crack down on fraud by going after firms that handle and move money for various suspect businesses.

The lenders allege that the regulators, with active support from the Department of Justice (DoJ), are engaged in a “concerted campaign” to drive payday lenders out of business “by exerting back-room pressure on banks and other regulated financial institutions to terminate their relationships with the payday lenders”.

The regulators were not immediately available for comment outside regular business hours.

More than 80 banks, including Bank of America, Capital One Financial Corp, JP Morgan Chase & Co , and Fifth Third Bancorp have terminated business relationships with payday lenders as a result of the regulatory crackdown, according to the lawsuit.

Representatives from Bank of America, JP Morgan and Capital One did not immediately respond to emails seeking comment.

Regulators have been keeping a close eye on the payday loan industry, in which borrowers take out small loans that usually must be paid back when they receive their next paycheck.

The case is Community Financial Services Association v. FDIC, 14-cv-00953, U.S. District Court, District of Columbia. (Reporting by Supriya Kurane in Bangalore; Editing by Gopakumar Warrier)

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