The Obama administration is using aggressive new tactics to go after payday lenders in an effort to shut down part of an industry it targeted previously in Operation Choke Point.
The Department of Justice has used the mob-inspired Racketeer Influenced Corrupt Organization Act, known as RICO, to go after payday lenders in at least three different cases. Those cases involved Native American tribes providing online loans to people in a number of states at rates that exceed limits imposed by those states. Since the tribes enjoy immunity from federal prosecution for violating the interest rate limits imposed by states, the agency went after their partners and lawyers for conspiring with the tribes to break the limits.
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"The government's decision to extend RICO's ‘collection of an unlawful debt’ language to online payday lenders is a significant moment in federal law enforcement," American Banker said of the move. "If this new theory of law enforcement survives legal challenges, look for the government to continue using it in the online payday lending industry and potentially beyond."
Those in the payday industry see the move as a follow-up to Operation Choke Point. During that effort the administration used the Federal Deposit Insurance Corporation to pressure banks not to extend credit or other financial services to certain industries. The effort was widely criticized and resulted in a congressional investigation.
"The government was badly burned by Operation Choke Point, which precipitated not only a lawsuit but also incredibly bad publicity and hearings and proposed legislation on the Hill. Despite those results, the government has been unrelenting in its efforts to suppress payday lending," Hilary Miller, an attorney who represents a number of payday lenders, said. "What's unique in the recent prosecutions is that Congress never intended that RICO would be used for ordinary business transactions without an organized crime nexus."
"I can tell you as a lawyer who practices in this industry it is literally terrifying for some of my colleagues. Prosecuting an attorney as a purported member of a RICO ‘enterprise’ for simply advising his client is far beyond the intended reach of the racketeering statute and a complete misuse of a law that was designed to deter organized crime."
Miller believes the Obama administration is unlikely to use the same RICO tactics against members of the gun industry. However, since payday loans and the sale of firearms were both targeted as "high risk" industries during Operation Choke Point, the move has raised concerns among gun rights activists.
Alan Gottlieb, founder of the Second Amendment Foundation, said his group is closely monitoring what the DOJ is doing in these cases. "Since gun rights advocates cannot trust the Obama administration we are watching this very closely," he said. "It would not surprise me if they tried to use this approach to hurt sales of firearms or to blackmail people in the firearms industry as a way to get them to support their anti-gun agenda."
Republican strategist Liz Mair said those in the gun industry "know they—and other types that aren't exactly well-loved in liberal activist circles—were wrapped up with one of the industries that's now again being targeted, and that combined with the potential for the term ‘enterprise' to be interpreted very loosely is and probably should be a concern to folks in the gun and firearms sector, but also to others previously targeted."
Miller said that the gun industry is right to be concerned about the new tactics being used against payday lenders. "Clearly the Justice Department is not beyond trying new things," he said. "They've got a smart people who work there, and they spend a lot of time thinking about how they can prosecute previously unreachable conduct to which they object."