Loan-Payment Firm & Regulator Duke It Out in Court

SAN FRANCISCO (CN) – Wrapping up evidence in a six-day bench trial, a loan-payment company turned the tables on the Consumer Financial Protection Bureau, accusing the agency of abusing its power and disrupting its business relationships.

“It’s not easy to prepare a case against a secret government conspiracy,” attorney Helen Mac Murray said Monday in opening statements for her client’s counterclaims against the bureau. “Fortunately, this one is not all that secret, and it has a pretty cool code name, ‘Operation Choke Point.’”

Mac Murray represents Nationwide Biweekly Administration, an Ohio-based firm fighting a lawsuit accusing it of using deceptive sales tactics to bilk borrowers of millions of dollars.

Nationwide says it was victimized by the Department of Justice initiative Operation Choke Point, which pressured banks to cut ties with “disfavored” businesses, even if the businesses were not found guilty of wrongdoing.

Nationwide says it had to terminate or suspend its program for more than 130,000 customers in 2015 after the bureau filed suit, named its banking partners in a court filing and issued a misleading news release, spurring its business partners to stop working with it.

Representing the bureau, Thomas McCray-Worrall said Nationwide lacks evidence to show that the bureau’s mere filing of a lawsuit and sending out a “routine press release” caused the company to lose relationships with its partners.

No evidence exists of any “back-door pressure” on the banks, McCray-Worrall insisted, saying that any harm to Nationwide’s reputation “was the result of its own conduct.”

Nationwide offered as evidence transcripts of interviews with two employees from TD Bank and U.S. Bank, both of whom said the bureau’s lawsuit was either a “catalyst” or “the reason” the banks decided to cut ties with the company.

Testifying on behalf of his company, Nationwide president and owner Daniel Lipsky said he tried to explain to banking partners that the lawsuit was about marketing and did not pose a risk for banks to handle customer funds.

Lipsky said that after discussions with the bureau, the agency agreed to draft a “comfort letter” clarifying that point to Nationwide’s banking partners. But he said the bureau changed its mind and never sent the letter.

“Did the bureau do something in addition to filing a lawsuit that caused banks to terminate their relationships?” McCray-Worrall asked Lipsky on cross-examination.

Lipsky replied that the bureau’s relationships with financial institutions affected the banks’ decision making.

Citing other lawsuits filed by and against Nationwide over its sales and marketing practices before the bureau’s May 2015 lawsuit, McCray-Worrall asked if prior litigation may have also influenced the banks’ decisions to cut ties.

Lipsky said there was “never any discussion of concern” by TD Bank or other banking partners until after the bureau filed its lawsuit.

Nationwide spent only a few hours making the case for its counterclaims before ending the six-day bench trial.

Nationwide says the bureau violated its Fifth Amendment due process rights by using “Operation Choke Point” tactics to persuade banks to cut off critical services to it. It also claims the bureau has sought to squelch its First Amendment right to communicate factual information to consumers.

The bureau claims Nationwide, its subsidiary Loan Payment Administration and Lipsky violated the Consumer Financial Protection Act of 2010, the Telemarketing and Consumer Fraud and Abuse Prevention Act and its implementing regulation, the Telemarketing Sales Rule.

The bureau says Nationwide lied about how quickly customers would achieve savings, misrepresented its relationships with lenders, failed to disclose a hidden setup fee, and instructed employees not to be truthful during sales calls.

Nationwide collected more than $73 million in hidden fees from more than 126,000 customers from 2011 to 2015, and Lipsky earned more than $33 million in shareholder proceeds during that time, according to the bureau.

During the trial that began on April 24, the bureau presented a dozen witnesses, including two former Nationwide employees, four unhappy customers, two expert witnesses, and two representatives from loan companies that offer their own biweekly payment programs.

After wrapping up the evidentiary portion of the trial, U.S. District Judge Richard Seeborg asked both parties to submit briefs on findings of law based on the evidence presented. He set a hearing date of June 26 for both sides to make their final arguments.

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