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A U.S. Court Upholds a Claim Against the CFPB’s Operation Choke Point Efforts
December 21, 2016

By Kevin Woodward

In a rare move against the Consumer Financial Protection Bureau, a federal court has upheld a counterclaim against the agency filed by a company that provides mortgage-payment services through the automated clearing house network.

The U.S. District Court in the Northern District of California ruled on Dec. 13 that Nationwide Biweekly Administration Inc., based in Xenia, Ohio, may proceed with its action against the federal agency in a case involving Operation Choke Point, a program in which federal authorities target what they regard as high-risk actors by shutting down their access to financial services.

The CFPB filed suit against Nationwide in 2015 alleging it operated a deceptive mortgage-payment program. Following the disclosure by the CFPB of the four banks that processed the company’s ACH transactions, these banks canceled their agreements with Nationwide, the company says.

Nationwide’s counterclaim seeks a preliminary and permanent injunction that prevents the CFPB from using Operation Choke Point tactics in the future with any bank providing services to Nationwide and its customers.

Nationwide says that, following the banks’ decisions to cancel their agreements, it suspended 130,000 of its consumer accounts and laid off nearly two-thirds of its staff, which numbered 160 employees at one time.

In a statement to Digital Transactions News, Nationwide says it "has already asked the court to grant declaratory and injunctive relief, as well as attorneys’ fees and costs against the CFPB for trampling on Nationwide’s constitutional and civil rights and ruining the business."

The case against Nationwide continues with additional procedural meetings scheduled for early next year. The company expects to announce legal action against the first of the four banks that terminated their relationships with Nationwide, the statement continued. "We are confident we will prevail in the courts not only for Nationwide, but also for the benefit of our customers. Stay tuned."

While actions taken under Operation Choke Point have dwindled, some payments companies remain guarded.

The ATM Industry Association, which represents independent ATM operators, issued a report this summer blasting the regulatory effort. Some banks, apparently at the behest of examiners influenced by Operation Choke Point guidelines, are still looking at independent ATM deployers with suspicion, according to the David Tente, the ATMIA’s U.S. executive director. “It’s something that just won’t go away,” he says. “We’re still seeing that our members are getting account-closure letters.”

And the Third Party Payments Processors Association stepped in with a “friend of the court” brief in August in a case involving the CFPB and Intercept Corp., a company the agency alleged enabled unauthorized ATM withdrawals.

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