COMMUNITY FINANCIAL SERVICES ASSOCIATION OF AMERICA, LTD. et al v. FEDERAL DEPOSIT INSURANCE CORPORATION et al

Filing 63

MEMORANDUM OPINION to the Motions to Dismiss, et al.. Signed by Judge Gladys Kessler on 9/25/15. (CL)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

)

COMMUNITY FINANCIAL SERVICES
ASSOCATION OF AMERICA, LTD.,
et al.,

)
)
)
)

Plaintiffs,

)
)

v.

Case No. 14-CV-953 (GK)

)
)

FEDERAL DEPOSIT INSURANCE
CORPORATION, et al.,

)
)
)

Defendants.

)

~~~~~~~~~~~~~~~~->
MEMORANDUM OPINION

In

June

2014,

Plaintiffs· Community

·Association of America,
Advance

Centers,

Inc.

Ltd.

("CFSA")

("Advance

Financial

Services

and Advance America,

America")

filed

a

Cash

Complaint

against Defendants the Federal Deposit Insurance Corporation ("the
FDIC") , the Board of Governors of the Federal Reserve System ("the
Board") ,
Thomas J.
the

and the Office of the Comptroller of the Currency and
Curry,

Currency

in his official capacity as the Comptroller of

("the

OCC").

Plaintiffs

seek

declaratory

and

injunctive relief to set aside certain informal guidance documents
and other actions by the

FDIC,

the Board,

grounds that they exceed the agencies'

and the OCC on the

statutory authority,

are

arbitrary and capricious, were promulgated without following the

procedures

required by

law,

and deprive

Plaintiffs

of

liberty

interests without due process of law.
This matter is before the Court on Defendants'

Motions to

Dismiss for Lack of Jurisdiction and for Failure to State a Claim
(collectively,

"Motions

Plaintiffs'

Motion

Discovery")

[ Dkt.

for

No.

to

Dismiss")

[Dkt.

Jurisdictional

25],

Nos.

16,

Discovery

and Plaintiffs'

17,

18],

("Motion

for

Motion for Leave to

File a Second Amended Complaint [Dkt. No. 56]. Upon consideration
of

the

motions,

1

support, response,

oppositions,

replies,

surreplies,

notices

of

the entire record herein, and for the reasons

stated below, the Motions to Dismiss are granted in part and denied
in part, the Motion for Discovery is denied,

and the Motion for

Leave to File a Second Amended Complaint is granted.
I .

Background
A.

Factual Overview2

Plaintiff

CFSA

is

a

national

trade

organization

that

represents payday lenders and Plaintiff Advance America is a payday

See Section I. B, Procedural Background, infra, for a detailed
history of the relevant briefs and their shorthand citations.
1

2 For

purposes of ruling on a motion to dismiss, the factual
allegations of the complaint must be presumed to be true and
liberally construed in favor of the plaintiff. Aktieselskabet AF
21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 15 (D.C. Cir.
2008); Shear v. Nat'l Rifle Ass'n of Am., 60u F.2d 1251, 1253 (D.C.
Cir. 1979). Therefore, the facts set forth herein are taken from
the First Amended Complaint. The Court is not required though, to
accept "a legal conclusion couched as a factual allegation" or
2

lender and member of CFSA. SAC

~~

14-16. Payday lenders are by and

large licensed and regulated by the states, as well as some federal
consumer protection laws. Board Mot. at 3. The Dodd-Frank Act gave
the Consumer

Financial

Protection Bureau

("CFPB")

authority to

supervise payday lenders and promulgate regulations pertaining to
payday lending. See

SAC~~

39-41; Dodd-Frank Act Wall Street Reform

and Consumer Protection Act,

12 U.S.C.

549l(a). CFPB is not a

§

party in this case.
Defendant

FDIC

is

an

independent

agency

and

acts

as

the

primary federal regulator for certain state-chartered banks.
that capacity,

In

the FDIC prescribes standards to promote banks'

safety and soundness,

and may do so by regulation or guideline.

The FDIC also examines banks,

prepares examination reports,

and

brings enforcement actions. See FDIC Mot. at 2; FDIC, Who is the
FDIC?, available at www.fdic.gov/about/learn/symbol.
Defendant

OCC

is

an

independent

bureau

within

the

U.S.

Department of the Treasury that functions as the primary supervisor
of

federally

chartered

(national)

banks

and

savings

and

loan

associations. The OCC administers statutory provisions governing
most aspects of the federal banking system and has broad authority
to examine the safety and soundness of the banks it supervises.

inferences unsupported by the facts set forth in the complaint.
Trudeau v. Fed. Trade Comm'n, 456 F.3d 178, 193 (D.C. Cir. 2006).
3

See

OCC

Mot.

5;

at

OCC,

About

the

available

OCC,

at

http://www.occ.gov/about.
Defendant Board of Governors of the Federal Reserve System is
a federal agency authorized to regulate and examine bank holding
companies and state-chartered banks that are members of the Federal
Reserve System. State member banks that are regulated by the Board
are

also

regulated

by

state

banking

agencies.

See

Board Mot.

at 2-3.
Payday lenders utilize the services of banks as part of their
business. For example, "[w]hen a prospective borrower applies for
the loan . . . he or she typically provides a post-dated check or
an electronic debit authorization for the value of the loan, plus
a fee.
after

The lender immediately advances the customer funds,
a

specified

period

of

time,

usually

determined

by

then
the

customer's next payday, the borrower returns to repay the loan and
fee.

But

if

the

customer

does

not

return,

the

terms

of

the

transaction permit the lender to deposit the post-dated check or
to execute the debit authorization. In order to have that security,
the lender must have a deposit account with a bank and/or access
to the Automated Clearing House (ACH) network." SAC
OCC Motion to Dismiss ("OCC Mot.")
lender

typically must

submit

'II

28; see also

[Dkt. No. 18-1] at 1 ("a payday

checks provided by its

borrowers

through the payment system by causing the checks to be deposited
at a bank.")
4

Plaintiffs allege that Defendants participated and continue
to

participate

in

a

campaign

Department of Justice ("DOJ"),
to

force

banks

to

terminate

initiated

by

the

United

States

known as "Operation Choke Point,"
their business

relationships

with

payday lenders. Operation Choke Point has recently been the subject
of a House Committee Investigation and reports. See SAC

56-58;

~~

STAFF OF H. COMM. ON OVERSIGHT & GOV'T REFORM, 113TH CONG., REP.
ON

THE

DEP' T OF

CHOKING

JUSTICE'S

OFF LEGITIMATE

"OPERATION

BUSINESSES?

CHOKE

(Comm.

POINT":

Print

ILLEGALLY

2014)

("Comm.

Report"); STAFF OF H. COMM. ON OVERSIGHT AND GOV'T REFORM,
FEDERAL

CONG.,

DEPOSIT

INSURANCE

CORPORATION'S

"OPERATION CHOKE POINT" (Comm. Pri,nt 2014)

113TH

INVOLVEMENT

IN

("Comm. FDIC Report").

Defendants allegedly forced banks to terminate relationships
with

Plaintiffs

regulatory

and

guidance

Plaintiffs'
regarding

members

"reputation

by

first

risk,"

relying on the reputation risk guidance "as the

promulgating
and by

later

fulcrum for a

campaign of backroom regulatory pressure seeking to coerce banks
to terminate longstanding, mutually beneficial relationships with
all payday lenders." Pls.' Opp'n at 9.
B.

Procedural Background

On June 5,

2014,

Plaintiffs fil.ed their original Complaint

against Defendants asserting violations of the APA and due process
[Dkt. No.
2014

1]. The First Amended Complaint was filed on July 30,

("FAC")

[Dkt. No.

12]. On August 18, 2014,
5

the Board filed

.
its Motion to Dismiss for Lack of Jurisdiction, or Alternatively
for Failure to State a Claim

[Dkt.

No.

FDIC filed a similar Motion [ Dkt. No.
the OCC [Dkt. No. 18]

16]

1 7]

("Board Mot.").
("FDIC Mot.") ,

The

as did

("OCC Mot."). On October 2, 2014, Plaintiffs

filed their Opposition to Motions to Dismiss [Dkt. No. 23]

("Pls.'

Opp' n") .
The following day,
[Dkt. No. 25]

Plaintiffs filed a Motion for Discovery

("Discovery Mot."). On October 31, 2014, the Board

filed its Reply in support of its Motion to Dismiss [Dkt. No. 41]
("Board

Reply")

and

its

Discovery [ Dkt. No. 42]
its Reply
4 5]

[Dkt. No.

46]

Opposition

to

Plaintiffs'

Motion

("Board Discovery Opp' n") ; the FDIC filed
("FDIC Reply")

and Opposition

[Dkt. No.

("FDIC Discovery Opp' n") ; and the OCC filed its Reply

No. 44]

("OCC Reply") and Opposition [Dkt. No. 43]

Opp'n").

for

[ Dkt.

("OCC Discovery

Plaintiffs filed their Reply in support of their Motion

for Discovery [ Dkt. No. 4 9]

( "Pls.' Discovery Reply") on November

10, 2014. Plaintiffs also filed a Surreply to Defendants' Replies
in

Support

Surreply")

of

Motions

the same day.

[Dkt. No. 51]
On

the

to

Dismiss

In response,

October

23,

2014,

prior

Supplemental Support [Dkt. No. 35]
Court

of

No.

50]

("Pls.'

the FDIC filed a Surreply

("FDIC Surreply") on November 14, 2014.
to

Replies and Discovery Oppositions,

the

[Dkt.

a

letter

from

an
6

the

filing

of

Defendants'

Plaintiffs filed a Notice of
("Pls.' First Supp.") notifying

FDIC

official

to

a

depository

institution. On December 12, 2014, after briefing was complete on
the Motions to Dismiss and the Motion for Discovery,

Plaintiffs

filed a Second Notice of Supplemental Support [Dkt. No. 52]
Second

Supp. ")

Representatives

to

notify

Committee

Operation Choke Point.

the

Report

Court
on

the

On December 23,

of

a

U.S.

FDIC' s
2014,

("Pls.'

House

involvement

the

of
in

FDIC filed a

Response to Plaintiffs' Second Supplemental Notice [Dkt. No.

53]

("FDIC Supp. Resp.").
II.

Second Amended Complaint

After briefing was complete on the Motions to Dismiss and the
Motion for Jurisdictional Discovery, Plaintiffs filed a Motion for
Leave to File a Second Amended Complaint on April 10, 2015
No.

56].

Defendants'

[Dkt.

only opposition to the Motion to Amend is

that the proposed Second Amended Complaint is futile because it
does not overcome the alleged deficiencies in the First Amended
Complaint with regard to standing and/or failure to state a claim.
Consequently, Defendants argue that the Motion to Amend should be
denied as futile. See Opp'ns to Motion to Amend. Because this Court
finds, infra, that Plaintiffs have standing and some claims survive
the Motions to Dismiss, and are therefore not futile, Plaintiffs'
Motion to Amend will be granted.

7

For purposes of deciding the

Motions to Dismiss,

the Court will

Complaint [Dkt. No. 56-1]

rely on the Second Amended

("SAC") in this Memorandum Opinion.

III. Jurisdiction
A.

As

Standard of Review Under Fed. R. Civ. P. 12(b) (1)

courts

of limited

only those powers

jurisdiction,

federal

courts possess

specifically granted to them by Congress

or

directly by the United States Constitution. Kokkonen v. Guardian
Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). The plaintiff bears
the burden of establishing by a preponderance of the evidence that
the Court has subject matter jurisdiction to hear the case.
Shuler v. United States,
deciding

whether

to

531 F.3d 930,

grant

a

motion

jurisdiction under Rule 12 (b) ( 1) ,

932

(D.C. Cir.

to . dismiss

for

See

2008).

In

lack

of

the court must "accept all of

the factual allegations in [the] complaint as true." Jerome Stevens
Pharmaceuticals,
54

(D.C. Cir.

Inc. v. Food & Drug Admin.,

2005)

402 F.3d 1249, 1253

(quoting United States v.

Gaubert,

499 U.S.

315, 327 (1991)). The Court may also consider matters outside the
pleadings,

and may rest

its decision on its own resolution of

disputed facts. See Herbert v. Nat'l Acad. of Sci., 974 F.2d 192,
197 (D.C. Cir. 1992).
B.

Standing

As a threshold matter,
not

Defendants argue that Plaintiffs do

have

III

standing.

jurisdiction

of

Article
federal

of the Constitution limits

courts
8

to

certain

"Cases"

the
and

"Controversies." See U.S. Const. art. 3,

2. "[N]o principle is

§

more fundamental to the judiciary's proper role in our system of
government

than

the

constitutional

limitation of

federal-court

jurisdiction to actual cases or controversies." Clapper v. Amnesty
Int'l USA,
Corp.

v.

133 S. Ct. 1138, 1146 (2013)

Cuno,

547 U.S.

332,

341,

(quoting DaimlerChrysler

(2006)).

"One element of the

case-or-controversy requirement is that plaintiffs must establish
that they have standing to sue." Id.

(internal quotation marks and

citation omitted).
"[T]he

irreducible

contains three elements.
an injury in fact .
and

(b)

actual

or

constitutional

minimum

standing

of

First, the plaintiff must have suffered

. which is (a) concrete and particularized,
imminent,

not

conjectural

or

hypothetical.

Second, there must be a causal connection between the injury and
the

conduct

complained of

Third,

it must be

likely,

as

opposed to merely speculative, that the injury will be redressed
by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S.
555,

560-61

(1992)

(internal

quotation

marks,

citations,

and

footnote omitted) .
"A plaintiff's burden to demonstrate standing grows heavier
at each stage of the litigation." Osborn v.
7 004 ,

2 0 15 WL 4 619 8 7 4 ,

at

Visa Inc.,

* 5 ( D. C . Cir . Aug . 4 , 2 0 15 )

No.

14-

( citing

Lujan, 504 U.S. at 561). "At the pleading stage, general factual
allegations of injury resulting from the defendant's conduct may
9

suffice, for on a motion to dismiss we 'presume that the general
allegations embrace those specific facts which are necessary to
support the claim.'" Lujan,

504 U.S.

at

5 61

(quoting Lujan v.

National Wildlife Federation, 497 U.S. 871, 889 (1990)).
Our Court of Appeals recently reiterated and emphasized the
requirement

that

courts

must

"accept

as

true

all

material

allegations of the complaint" at the pleadings stage. Osborn, 2015
WL 4619874, at *5 (internal citation omitted). In Osborn, the Court
of Appeals found that the plaintiffs' alleged facts were "specific,
plausible, and susceptible to proof at trial," and therefore they
"pass[ed] muster for standing purposes at the pleadings stage."
Id. at *6.
"When

a

plaintiff's

asserted

injury

arises

from

the

Government's regulation of a third party that is not before the
court,

it

becomes

'substantially more

difficult'

standing." Nat'l Wrestling Coaches Ass'n v.
F.3d 930, 938

(D.C. Cir. 2004)

to

establish

Dep't of Educ.,

366

(quoting Lujan, 504 U.S. at 562).

Where standing has been found on the basis of third-party conduct,
"the

record

presented

substantial

evidence

of

a

causal

relationship between the government policy and the third-party
conduct, leaving little doubt as to causation and the likelihood
of redress." Id.

at

941.

Therefore,

while the Court accepts as

true all material allegations made by Plaintiffs, Plaintiffs bear

10

a greater burden of what they must allege in order to show standing
on the basis of third-party conduct.
In this case,

the elements of causation and redressability

"hinge on the independent choices of the regulated third party,"
namely the banks.

Id.

at 938. While it is Plaintiffs'

burden to

"adduce facts showing that· those choices have been or will be made
in such a manner as to produce causation and permit redressability
of injury," Id.

(quoting Lujan, 504 U.S. at 562)

(emphasis added) ,

at the motion to dismiss stage, Plaintiffs need only allege facts
that are "specific, plausible, and susceptible to proof at trial."
Osborn, 2015 WL 4619874 at *14.
1.

Injury in Fact

Defendants do not dispute that Plaintiffs have suffered an
injury

in

fact.

CFSA's

members,

including

Plaintiff

Advance

America, have lost beneficial banking relationships, causing them
on short notice to lose business and expend resources to locate
new banking partners. Pls.' Opp'n at 11. Many payday lenders have
not been able to replace the terminated bank relationships.
Plaintiffs

have

also

alleged

that

11

Defendants'

actions

Id.
have

deprived them of their ability to compete for banks' resources and
have stigmatized them. Id. at 12-13.
In

sum,

sufficient
2.

to

it

is

clear

show an

that

Plaintiffs

injury in

fact

at

have
the

alleged

pleadings

facts
stage.

Causation

Defendants argue that Plaintiffs do not meet the causation
prong of standing because their injuries are not "fairly traceable"
to any acts by the Defendants,

and that it was the independent

decisions of the respective banks to terminate their relationships
with Plaintiffs' members.
12 f

See Board Mot.

at 10-11; FDIC Mot.

at

15 •
To show causation, Plaintiffs must show that the Defendants'

actions were a "substantial factor motivating the decisions of the
third parties that were the direct source of the [P]laintiff[s']
injuries." National Wrestling Coaches,

366 F.3d at 940-41.

Thus

the key issue is the degree of Defendants' alleged involvement or
influence on the banks' decisions to terminate relationships with
payday lenders.
Plaintiffs allege that the Defendants undertook a "two-stage
regulatory campaign designed to cripple and ultimately eliminate
the payday lending industry." Pls.' Opp'n at 9.

The first stage

involved Defendants issuing informal regulatory guidance regarding
"reputation risk." Plaintiffs allege that the Defendant agencies
expanded

the

definition

of

"reputation
12

risk"

beyond

its

...

traditional

understanding

to

include bad publicity due

to

the

actions of third parties, even when the actions were unrelated to
work done on behalf of the bank. SAC

~

5, 47-51.

Plaintiffs cite to several documents issued by the FDIC, as
well as one by the OCC, as examples of the expansion of "reputation
risk." See e.g., OCC, Third-Party Relationships: Risk Management
Guidance,

OCC Bulletin 2013-29

(Oct.

30,

2013);

FDIC,

Financial

Institution Letter: Guidance for Managing Third-Party Risk,
44-2008

(June

6,

2008);

FDIC,

Financial

Institution

FIL-

Letter:

Guidance on Payment Processor Relationships, FIL-127-2008 (Nov. 7,
2008);

FDIC,

Financial

Institution

Letter:

Payment

Processor

Relationships, FIL-3-2012 (Jan. 31, 2012); FDIC, Managing Risks in
Third-Party

Payment

Processor

Relationships,

8

SUPERVISORY

INSIGHTS (Summer 2011) . The Supervisory Insights article included
a list of merchant categories--including payday loans--"that have
been associated with high-risk activity." Managing Risks in ThirdParty Payment Processor Relationships,
7;

Pls.

Second

Supp.,

Ex.

B

at

8 SUPERVISORY INSIGHTS at

157

(collectively,

"Agency

Documents") .
The second stage,

according to Plaintiffs'

theory,

is that

Defendants relied on the expanded definition qf "reputation risk,"
as . outlined in the

regulatory guidance,

"as the

fulcrum for a

campaign of backroom regulatory pressure" to coerce banks
terminating relationships with payday lenders.
13

into

Pls.' Opp'n at 9.

Defendants allegedly acted in concert with DOJ in Operation Choke
Point and "used their prudential 'safety and soundness' regulatory
authority" to pressure banks. SAC ! 5; see also SAC !! 56-60.
Plaintiffs further allege that,
Point,

Defendants

privately

as part of Operation Choke

threatened

banks

with

adverse

regulatory action if they continued doing business with payday
lenders. See id. In support of their theory, Plaintiffs cite to an
internal DOJ memo titled "Operation Choke Point: Eight-Week Status
Report," in which meetings with the FDIC and the possibility of
the FDIC assigning agents to work on DOJ cases were discussed.
Pls.' Opp'n at 25 (citing Memorandum from Michael S. Blume, Dir.,
DOJ Consumer Prot. Branch, to Stuart F. Delery,
Ass't Att'y Gen.,

DOJ Civil Div. at 6 (Apr.

Principal Deputy

17, 2013),

in Comm.

Report app. at HOGR-3PPP000048.
Plaintiffs also refer to a February 15, 2013 letter from FDIC
Regional Director M. Anthony Lowe to an unidentified bank regarding
that bank's involvement in payday lending. See Pls.' Supp. Support,
Ex.

A

[Dkt.

No.

generally found

35-1].
that

In

the

activities

letter,

Lowe

related to

states,

"we

have

payday lending are

unacceptable for an insured depository institution." Id.

at 2.

Lowe also states that members of the Region's Senior Management
will be contacting the bank in the near future "to further discuss
[its]

concerns

relative

to

the

aforementioned

[payday

lender]

relationship." Id. Similarly, Plaintiffs cite to an internal email
14

from Marguerite Sagatelian, Senior Counsel with the FDIC Consumer
Enforcement Unit, stating that FDiC Legal was "looking into avenues
by

which

the

FDIC

can

potentially

prevent

[its]

banks

from

facilitating payday lending." Pls. Second Supp., Ex.Bat 118 [Dkt.
No. 52-2].
Plaintiffs

bolster

their

allegations

by

noting

that

the

Federal Reserve Board of Governors is the prudential regulator for
three

banks

that

have

already

terminated

relationships

with

Plaintiffs and their members, the OCC is the prudential regulator
for seven banks that terminated relationships with Plaintiffs and
their members, and that the FDIC is the prudential regulator for
four banks that terminated relationships with Plaintiffs and their
members. SAC

~

84.

Plaintiffs also point to a DOJ memo indicating that it had
been in contact with "several state attorneys general, FTC, FDIC,
the

Federal Reserve Bank of Atlanta,

working with

the

OCC

soon,"

in

and

[they]

"an attempt

to

hope to begin
increase

their

knowledge and attention to the roles banks and payment processors
play in facilitating fraud." Memorandum from Michael S.

Blume,

Dir., DOJ Consumer Prot. Branch, to Stuart F. Delery, Ass't Att'y
Gen.,

DOJ Civil Division at 14

app.

at

HOGR-3PPP000339.

(Sept.
Finally,

9,

2013),

in Comm.

Plaintiffs

claim

Report
that

Defendants undertook the actions they did with the express purpose

15

of

pressuring

banks

to

terminate

relationships

with

payday

lenders.
In sum,
proven

true,

Plaintiffs have alleged sufficient facts,
could

show

that

the

Defendants'

that, if

conduct

was

a

"substantial factor motivating the decisions of third parties that
were

the

direct

source

of

[ P] laintiff [ s' ]

injuries."

National

Wrestling Coaches, 366 F.3d at 940-41. Because the "facts alleged
by the Plaintiffs are specific, plausible, and susceptible to proof
at trial, they pass muster for standing purposes at the pleadings
stage." Osborn, 2015 WL 4619874 at *6.
3. Redressability

Next, Defendants argue that Plaintiffs lack standing because
their injuries are not redressable by the Court.
requires that

Redressability

Plaintiffs demonstrate "a substantial likelihood 3

that the requested relief will remedy the alleged injury in fact."
Teton Historic Aviation Found.
719, 724 (D.C. Cir. 2015)

v.

U.S.

Dep' t

of Def.,

7 8 5 F. 3d

(quoting Vermont Agency of Natural Res.

Plaintiffs argue that they need only allege that the relief
requested would result in a "significant increase in the
likelihood" that their banking relationships will be reinstated."
Pls.' Opp'n at 19-20 {citing Utah v. Evans, 536 U.S. 452, 464
(2002)). Both phrasings are used in our Circuit and are essentially
the same in practice. See, e.g., Town of Barnstable, Mass. v. Fed.
Aviation. Admin., 659 F.3d 28, 31 (D.C. Cir. 2011)
(stating
"significant
increase
in
the
likelihood"
and
"substantial
probability" are synonymous); Spectrum Five LLC v. Fed. Commc'ns
Comm'n, 758 F.3d 254, 261 (D.C. Cir. 2014) (utilizing "significant
increase in the likelihood" standard) .
3

16

v. U.S. ex rel. Stevens, 529 U.S. 765, 771 (2000)). A "substantial
likelihood" requires "more than a remote possibility .
[Plaintiffs']

situation might

. that

improve were the court to

afford relief," Warth v. Seldin, 422 U.S. 490, 491 (1975), but is
not so demanding as to require Plaintiffs to "show to a certainty
that a favorable decision will redress [their] injury." Teton, 785
F.3d at 726 (quoting Nat'l Wildlife Fed'n v. Hodel, 839 F.2d 694,
705 (D.C. Cir. 1988)).
Plaintiffs' prayer for relief includes:
Agency Documents to be unlawful,

( 2)

(1) declaring various

declaring that

Defendants

significantly changed the definition of reputation risk without
notice

and

comment

rulemaking;

(3)

declaring

that

Defendants

deprived Plaintiffs of liberty without due process of law;
enjoining Defendants,

( 4)

"as well as those acting in concert with

them," from implementing the aforementioned Agency Documents, from
relying on the revised definition of "reputation risk," and from
applying informal pressure to banks to encourage them to terminate
relationships with payday lenders;
well

as

those

reputations

acting

in

(5)

enjoining Defendants, "as

concert with them,"

from harming the

of Plaintiffs and from seeking to deprive

access to financial services;

and

Court deems just and proper. SAC

~

(6)

them of

other such relief as the

205.

Defendants focus their redressability arguments primarily on
the

invalidation

of

the

Agency
17

Documents,

offering

little

discussion about
argue

that

12

Plaintiffs'
U.S.C.

other requested relief.

1818(i) (1)

§

prevents

this

They also
Court

from

providing any injunctive relief that interferes with "the issuance
or enforcement of any notice or order." Board Mot. at 15-16; FDIC
Mot.

at 43-44; OCC Mot.

relief

the

Court

is

at 18-19.

able

The nature of any injunctive

to provide

is

extremely relevant

to

standing, as "Plaintiffs cannot establish standing by requesting
relief that the Court lacks the authority to grant." Long Term
Care Pharmacy All. v. Leavitt,

530 F.

Supp. 2d 173, 185

(D.D.C.

2008) .
Therefore, the Court will address the parties' redressability
arguments regarding the invalidation of the Agency Documents and
injunctive
"substantial

relief

separately,

likelihood"

of

and

will

redressability.

then

assess

Teton

the

Historic

Aviation Found., 785 F.3d at 724.
i.

Invalidation of Agency Documents

Defendants argue that, even if the Court were to invalidate
the Agency Documents that allegedly redefine reputation risk and
enjoin Defendants'

actions,

it does not necessarily follow that

the banks will re-establish relationships with the Plaintiffs. See
FDIC Mot. at 16-20; OCC Mot. at 13-14; Board Mot. at 14.
Defendants explain that the Agency Documents do not require
banks

to

sever relationships with any third parties,

provide guidance on risk management. For that reason,
18

but

only

Defendants

argue that the documents could not have been the impetus for the
termination of the bank relationships,

and invalidation of them

will not necessarily be the catalyst for reinstatement of the bank
relationships. See FDIC Mot. at 17; OCC Mot. at 14-15. The Board
argues that this is particularly true for it, because Plaintiffs
are not even seeking to invalidate any Board documents. See Board
Mot. at 14.
Defendants
Documents

argue

would not

further
provide

that

invalidation

prospective

relief

of

the

Agency

to

Plaintiffs.

Banks would still be required to abide by safety and soundness
standards, and independently determine whether they can adequately
manage risks. See OCC Mot. at 14-15; Board Mot. at 14.
Defendants also point out that the Agency Documents do permit
banks to have relationships with payday lenders.

Moreover,

the

FDIC notes that it recently promulgated two Financial Institution
Letters

("FILs")

explicitly

manage"

relationships

with

stating

that

customers

banks

engaged

"that
in

properly

higher-risk

activities, and the associated risks, "are neither prohibited nor
discouraged from providing" services to those customers. FDIC Mot.
at

18-19

(quoting

invalidating

the

prospective relief,

FIL-43-2013) .
Agency

Thus,

Documents

is

the

FDIC

unlikely

argues
to

as there would be no change in the

that

provide
FDIC' s

official position, which already permits relationships with payday
lenders. Id. at 19.
19

Although

invalidation

of

the

Agency

Documents

would

not

necessarily lead to restoration of banking relationships,

it may

certainly affect

in the

future.

Defendants'

Plaintiffs

have

ability to pressure banks

argued

that

Defendants

relied

on

the

definition of "reputation risk" contained in the Agency Documents
as the "fulcrum" of their campaign pressuring banks to terminate
relationships
Plaintiffs'
Agency

with

theory,

Documents

Plaintiffs

are

payday
it is

could

not

lenders.

Pls.'

likely that

deprive

required

to

favorable decision will redress

the

Defendants
"show

to

[their]

Opp'n

at

9.

Under

invalidation of the
of
a

this

"fulcrum."

certainty

that

a

injury." Teton Historic

Aviation Found., 785 F.3d at 726 (internal citation omitted).
ii.

Section 1818(i) and Injunctive Relief

Defendants argue that Section 1818 of the Federal Deposit
Insurance Act

("FDI Act")

divests the Court of jurisdiction to

grant Plaintiffs most of the injunctive relief they seek. See Board
Mot.
§

at

15;

OCC Mot.

at 18-20;

FDIC Mot.

44-45;

12 U.S.C.

1818 (i) (1). Section 1818 (i) (1) states that "no court shall have

jurisdiction to affect by injunction or

otherwis~"

future enforcement action by Defendants,
suspend,
§

at

terminate,

or

set

aside"

any ongoing or

or to "review, modify,

such

actions.

12

U.S.C.

1818 (i) (1).
As an initial matter,

Plaintiffs correctly point out that

there is no enforcement action at issue here, nor are they asking
20

the Court to enjoin future enforcement actions. See Pls.' Opp'n at
25.
Defendants argue that any injunction the Court might enter is
likely to interfere with or effectively enjoin future enforcement
actions,

and is therefore precluded by Section 1818 (i) (1).

See

Board Mot. at 15-17;, OCC Mot. at 20; FDIC Reply at 22-23. The FDIC
further argues that the limitation imposed by Section 1818 ( i) ( 1)
extends
findings

~o

supervisory

actions

as

well,

such

and notices of undercapi tali zed status.

as

examination

See FDIC Mot.

at 44-45; FDIC Reply at 22-23.
While

it

is

true

that

Section

1818 (i) (1)

precludes

this

Court's jurisdiction to issue an injunction that interferes with
an enforcement action or an order under Sections 1818, 18310, or
1831p-1, that does not preclude the Court's ability to grant any
injunctive relief against Defendants.
injunctive

relief

this

Court

might

The exact contours of any
grant

would

depend

on

the

specific facts that are proven. Mere speculation that an injunction
"might" interfere with "any notice or order" does not necessarily
mean that the Court has no authority to grant Plaintiffs' claims
for injunctive relief that do not cover Sections 1818,

18130,or

1831p-1.
Moreover,

all

the

cases

cited

by

Defendants

involve

challenges to specific enforcement actions or orders. See, e.g.,
Board of Governors of Fed. Reserve Sys. v. MCorp Fin., Inc., ·502
21

U.S. 32, 39 ( 1991)

(court lacked jurisdiction to enforce automatic

stay in bankruptcy against agency enforcement proceeding); Ridder
v.

Office of Thrift Supervision,

1998)

146 F.3d 1035, 1039

(no jurisdiction under 1818 (i) (1)

(D.C. Cir.

to enjoin provision in

consent order); Groos Nat'l Bank v. Comptroller of the Currency,
573 F.2d 889, 895 (5th Cir. 1978)

(court cannot issue declaratory

judgment that would prevent agency from pursuing enforcement).
That is simply not the case here.

Section 1818(i)

does not

necessarily prevent the Court from granting Plaintiffs' requests
for injunctive relief . 4
iii. Likelihood of Redressability

Even

if

Plaintiffs,

some

injunctive

relief

might

be

available

to

the Court must also. determine if injunctive relief

and/or the invalidation of the Agency Documents will result in a
"substantial

likelihood"

that

Plaintiffs'

injuries

will

be

unrelated to

the

redressed.
Defendants

point

out

that

other

reasons

challenged Agency Documents and actions by Defendants may affect
banks' individual decisions on whether to reinstate relationships
with

payday

lenders.

See

Board

4

Mot.

at

15

(citing

National

The FDIC also argues that Plaintiffs' requested injunctions
are overbroad and improper. FDIC Mot. at 45. While the FDIC may
turn.out to be correct, that alone does not, at this time, defeat
jurisdiction to provide injunctive relief.
22

Wrestling Coaches,

3 66

F.

3d at

93 9) ;

FDIC Mot.

at

Such

14.

factors include safety and soundness standards, bank capacity and
systems to effectively manage

risk,

DOJ' s

continued activities

under Operation Choke Point, etc. See OCC Mot. at 14; Board Mot.
at 14. Due to these factors,

Defendants contend, it is not clear

that a decision by this Court would change the outcome of banks'
decisions.
Plaintiffs

believe

that,

because

some

banks

regretted

terminating payday lenders, "they presumably would reverse those
decisions if the coercive regulatory influence was removed." Pls.'
Opp'n at 20. Plaintiffs support this assumption with letters from
banks indicating that the banks were "very sorry" to terminate the
relationship,

were

"frustrated

and

disappointed"

with

the

situation, and, in the case of one bank, expressing the "hope [that
they could] find a way to work together again soon." Id. (citations
omitted).

These letters do suggest that some banks would likely

consider re-establishing relationships.
Although they believe banks would resume relationships with
them should the Court order relief,

Plaintiffs argue that it is

not necessary to show that even a single bank would restore service
to payday lenders in order to establish redressability. Pls.' Opp'n
at 19.

Instead,

deprived

them

Plaintiffs argue that,
of

"the

ability

to

to the extent Defendants

compete

for

banks'

limited

compliance and risk management resources on an equal footing," and
23

therefore Plaintiffs need only demonstrate that they are "able and
ready" to compete for banking services should the Court provide
relief.

Pls.'

Opp' n at 19

(citing Northeastern Fla.

Chapter of

Associated Gen. Contractors of Am. v. City of Jacksonville, Fla.,
508 U.S. 656, 666 (1993).
City

of

Jacksonville,

and

the

redressability

standard

Plaintiffs cite it for, do not support Plaintiffs' argument.
of

Jacksonville

involved

a

challenge

to

a

minority

City

business

program that required 10% of the amount spent on city contracts be
set aside for "Minority Business Enterprises." Id.
Supreme Court
plaintiff

did

found
not

that,
need

in order to
to

show

that

659.

The

establish standing,

the

it

the

would

at

have

won

contracts, but rather only needed to demonstrate that the policy
prevented it from competing for the contracts on an equal basis.
Id. at 666. Unlike City of Jacksonville, this case does not involve
any

sort

of

set-aside

or

quota

program.

Nor

was

City

of

Jacksonville a third-party standing case, which is "substantially
more difficult." Lujan v. Defenders of Wildlife, 504 U.S. 555, 562
(1992).

Moreover,

relationships

were

Plaintiffs
terminated

do

not

because

even

allege

Plaintiffs

that
were

bank
at

a

competitive disadvantage due to· Defendants' actions.
Plaintiffs

argue

that

the

injunctive

relief

they

request

would "restrain Defendants from inflicting additional injury by
continuing to pressure banks to terminate [Plaintiffs'] accounts,"
24

thereby

providing

meaningful

prospective

and

relief

redressability. Pls.' Opp'n at 19 (emphasis omitted).
However,

Defendants

counterargument

as

to

why

provide

in

little

injunctive

way

the

relief would not

of

redress

Plaintiffs' injuries. The FDIC and OCC do not address the issue at
all, and instead rely wholly on their belief that injunctive relief
is not available because of Section 1818(i) (1). See FDIC Reply at
3-4; OCC Reply at 9-13. The Board responds that, even if the Court
enjoined Defendants from exerting regulatory pressure, it does not
necessarily· follow that banks would restore any relationships and
"banks

still

could

terminate

these

relationships"

with

payday

lenders for a multitude of lawful business reasons. See Board Reply
at 10-11 (emphasis in original) .
While the Board is correct that banks could still terminate
payday

lenders

even

if

Plaintiffs

received

injunctive

relief,

Plaintiffs are not required to show that banks could not,
any

circumstances,

redressability.

terminate

relationships

in

order

under

to

show

If Plaintiffs are able to prove that injunctive

relief would result in a substantial likelihood that banks will
restore

relationships

or

not

terminate

relationships

in

the

future, they have sufficiently established.
Assuming for now the truth of Plaintiffs'

allegations that

Defendants expanded the definition of reputation risk and relied
on that expanded definition to pressure banks into terminating
25

relationships with payday lenders,

it is reasonable to conclude

that

the

a

Court

order

invalidating

guidance

enjoining Defendants would redress Plaintiffs'

documents

injuries.

and

In the

absence of such pressure, some banks may well choose to reestablish
relationships
pressure

is

with

Plaintiffs.

also

likely

to

Finally,
prevent

the

absence

additional

of

such

banks

from

terminating relationships with Plaintiffs in the future.
In sum, Plaintiffs have alleged facts sufficient to show that
there is a "substantial likelihood" that a

favorable ruling by

this Court would redress their injuries.
C.

Mootness

The FDIC argues that the two guidance documents it has issued
render Plaintiffs'

case moot,

FDIC Mot.

at 22,

because,

to the

extent the FDIC Agency Documents may have previously led banks to
terminate relationships with payday lenders, the two more recent
FILs

they have

issued expressly clarified that

termination of

relationships is not required.
The two new guidance documents, as noted previously, are FILs
issued in September 2013 and July 2014. The FILs state that banks,
with appropriate controls in place, may continue to do business
with "merchant customers engaged in higher risk activities," and
those

who

prohibited
lenders

properly
nor

manage

such

relationships

discouraged"

from

doing

(among others).

FIL-43-2013 at 2;
26

business

"are
with

neither
payday

FIL-41-2014 at 2. The

July

2014

FIL

also

removed

the

list

of

high-risk

merchant

categories, due to "the misperception that the listed examples of
merchant categories were prohibited or discouraged." FIL-41-2014
at

2.

Therefore,

the

FDIC

concludes,

even

if the

FDIC Agency

Documents did force banks to terminate their relationships with
payday lenders, the two FILS negate any such action now.
The doctrine of mootness is premised upon the notion that
"[a]

federal

court

is

constitutionally

forbidden

to

render

advisory opinions or 'to decide questions that cannot affect the
rights of litigants in the case before them.' "Better Gov't Assoc.
v.

Dep't of State,

780 F.2d 86,

90-91

(D.C. Cir.

1986)

(quoting

North Carolina v. Rice, 404 U.S. 244, 246 (1971)). Plaintiffs state
that under the two-pronged test established by the Supreme Court,
Defendants

bear

the

burden

of

showing

that

" ( 1)

there

is

no

reasonable expectation that the alleged violation will recur and
( 2)

interim

relief

or

events

have

completely

and

irrevocably

eradicated the effects of the alleged violation." Pls.' Opp'n. at
22

(quoting Reeve Aleutian Airways,

F.2d

1139,

1142-43

(D.C.

Cir.

Inc.

1989));

v.

see

United States,
also

889

County of Los

Angeles v. Davis, 440 U.S. 625, 631 (1979). This burden "is a heavy
one." Reeve Aleutian Airways, 889 F.2d at 1143).
The FDIC has not met this heavy burden. The invalidation of
the Agency Documents is only one facet of the relief Plaintiffs'
seek -

Plaintiffs'

other alleged harms and requested relief are
27

not mooted by the FDIC's clarification of the Agency Documents.
Furthermore,

in

addition

Documents

forced

banks

Plaintiffs

also

allege

to

to

the

allegation

terminate

that

the

that

relationships

Agency

Documents

the
with

Agency
them,

improperly

redefine "reputation risk" and violate the APA. SAC ! ! 137, 169,
195.

The September 2013

and July 2014

definition of or even mention

~reputation

FILs

do

not

change the

risk." See. FIL-43-2013;

FIL-41-2014; see also Pls.' Opp'n at 23. Nor do the FILs remedy
the alleged APA violations of the previous FILs.
Therefore, while the September 2013 and July 2014 FILs may
have addressed a portion of Plaintiffs' allegations, they have not
resolved the entirety of Plaintiffs' claims. Therefore Plaintiffs'
claims are not moot.
· D. Plaintiffs' Motion for Jurisdictional Discovery

In response to Defendants' contention that the Court has no
jurisdiction,

Plaintiffs have filed a Motion for Jurisdictional

Discovery in order to further support their Complaint. Because the
Court has found that it has jurisdiction, Plaintiffs' Motion for
Jurisdictional discovery is moot and is therefore denied.
E. Prudential Standing

Defendant FDIC argues that, even if Plaintiffs have Article III
standing, Plaintiffs fail to meet prudential standing requirements
because they are not within the zone of interests protected by the
relevant statutes.

FDIC Mot.

at 20.
28

The principle of prudential

standing "denies a right of review if the plaintiff's interests
are so marginally related to or inconsistent with the purposes
implicit in the statute that it cannot reasonably be assumed that
Congress intended to permit the suit." Clarke v. Sec. Indus. Ass'n,
479 U.S. 388, 399 (1987).
The FDIC states that the statutes giving it the authority to
promulgate guidelines, as well as the FDIC Agency Documents, are
focused on promoting the safety and soundness of banks, and that
those interests are not implicated by Plaintiffs'

claims.

FDIC

Mot. at 21.
Plaintiffs
Opposition,

failed

to

respond

to

this

argument

in

their

and the FDIC argues that Plaintiffs have therefore

conceded this point.

See Pls.' Opp'n; FDIC Reply at 5; see also

Clifton Power Corp. v. Fed. Energy Reg. Comm'n, 88 F.3d 1258, 1267
(D.C.

Cir.

1996)

(taking as conceded a seemingly sound argument

that was not opposed); Rosenblatt v. Fenty, 734 F. Supp. 2d 21, 22
(D.D.C.
opponent

2010)
fails

("an
to

argument

in

a

dispositive

address

in

an

opposition

motion
may

that
be

the

deemed

conceded") .
It was only after the FDIC stated that Plaintiffs had conceded
this

argument

that

Plaintiffs

filed

a

Surreply

addressing

prudential standing. Plaintiffs counter that "inherent in all of
Plaintiffs' arguments that are based upon the [FDI] Act .

29

is

the proposition that Plaintiffs' injuries fall within the zone of
interest protected by the [FDI] Act." Pls.' Surreply at 2-3.
How~ver,

the Supreme Court's recent decision in Lexmark Int'l,

Inc. v. Static Control Components,

Inc., 134 S. Ct. 1377

(2014),

"makes plain the zone of interests test no longer falls under the
prudential

standing

umbrella."

Crossroads

Grassroots

Strategies v. Fed. Election Comm'n, 788 F.3d 312, 319
2015)

Policy

(D.C. Cir.

(citing Lexmark, 134 S. Ct. at 1387 n. 4). Nor is the zone

of interests test a jurisdictional requirement.
Supreme

Court

ruled

that

considered a merits issue,

the

zone

of

Id.

Instead, the

interests

test

is

now

in which the "court asks whether the

plaintiff 'has a cause of action under the statute.'" Id.

(quoting

Lexmark, · 134 S. Ct. at 1387) .
Given the clear holdings from the Supreme Court and our Court
of Appeals' clear rulings that the zone of interests test is not
related

to

jurisdiction or

standing,

the

FDIC' s

argument

that

Plaintiffs lack prudential standing necessarily must be denied.
IV.

Failure to State a Claim
A.

Standard of Review Under Fed. R. Civ. P. 12(b) (6)

To survive a motion to dismiss under Rule 12(b) (6) for failure
to state a claim upon which relief can be granted,

a plaintiff

need only plead "enough facts to state a claim to relief that is
plausible on its face" and to "nudge[ ] [his or her] claims across
the line from conceivable to plausible." Bell Atlantic Corp. v.
30

Twombly, 550 U.S. 544, 570 (2007). "[O]nce a claim has been stated
adequately,

it

may be

supported

by

showing

any

set

of

facts

consistent with the allegations in the complaint." Id. at 563.
Under the Twombly standard,

a "court deciding a motion to

dismiss must not make any judgment about the probability of the
plaintiffs' success .

[,] must assume all the allegations in

the complaint are true

[, and]

(even if doubtful in fact)

must give the plaintiff the benefit of all reasonable inferences
derived from the facts alleged." Aktieselskabet AF 21.

November

2001 v. Fame Jeans Inc., 525 F.3d 8, 17 (D.C. Cir. 2008)

(internal

quotation

marks

'and

citations

omitted).

The

court

does

not,

however, accept as true "legal conclusions or inferences that are
unsupported by the facts alleged."
Inv.

in

omitted).

U.S.,

F.3d

Furthermore,

assertion[s]'
suffice.

758

devoid of

Ashcroft v.

a

315

(D.C.

complaint

Cir.

which

2014)

(citation
'naked

"tenders

'further factual enhancement'" will not

Iqbal,

Twombly, 550 U.S. at 55 7)
B.

296,

Ralls Corp. v. Comm. on Foreign

556 U.S.

662,

678

(2009)

(quoting

(alteration in Iqbal) .

APA Claims

Plaintiffs allege that Defendants violated the APA in a number
of ways.

The APA requires that the Court "hold unlawful and set

aside agency action,

findings,

and conclusions" that are,

inter

alia: "arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law";

"contrary to constitutional right,
31

power,

privilege,

or

immunity";

jurisdiction, authority,

"in

excess

of

statutory

or limitations"; or "without observance

of procedure required by law." 5 U.S.C.

§

Plaintiffs allege that Defendants:

706(2).
( 1)

promulgated binding

rules without providing notice and comment,

as required by law,

see SAC, Counts 1, 5, and 9; (2) exceeded their authority conferred
by 12 U.S.C.
see

SAC,

§

1831p-1 to set standards for safety and soundness,

Counts

2,

6,

and

10;

acted

( 3)

arbitrarily

and

capriciously, see SAC, Counts 3, 7, and 11; and (4) deprived them
of protected liberty interests without due process of law,

see

SAC, Counts 4, 8, and 12.
1.

Final Agency Action Requirement

Before the Court can evaluate the merits of Plaintiffs' APA
claims,

it must first determine whether Defendants'

considered

final

agency

actions.

The

APA

actions are

authorizes

judicial

review only of "[a] gency action made reviewable by statute and
final agency action for which there is no other adequate remedy in
a court." 5 U.S.C.
the

FDI

Act

§

704.

authorizing

Plaintiffs have cited no provision of
judicial

review

beyond

that

which

is

provided for in the APA. Therefore, the alleged agency actions by
Defendants must be final agency actions in orde.r to be judicially
reviewable. 5 Nat'l Ass'n of Home Builders v. Norton,

5

415 F.3d 8,

An alternate way of viewing the final agency act·ion question is
whether the action constitutes "a de facto rule or binding norm
32

13 (D.C. Cir. 2005); see also Lujan v. Nat'l Wildlife Fed'n, 497
U.S. 871, 882 (1990)

("When . . . review is sought not pursuant to

specific authorization in the substantive statute, but only under
the general review provisions of the APA, the 'agency action'
question must be 'final agency action.'")
"The

Supreme

Court

has

(citing 5 U.S.C.

established

a

two-part

§

in

704).

test

to

determine when an agency action is reviewable as final." Nat' 1
Ass'n of Home Builders,
review

"must

mark

415 F.3d at 13. First, the action under
the

'consummation'

of

agency's

the

decisionmaking process--it must not be of a merely tentative or
interlocutory nature." Id.
154,

177-78

(1997)).

(quoting Bennett v.

Second,

Spear,

520 U.S.

the action must "be one by which

'rights or obligations have been determined,' or from which 'legal
consequences will flow.'" Id.

(quoting Bennett, 520 U.S. at 178).

Final

comprised

agency

action may be

of

"a

series

of

agency

pronouncements rather than a single edict." Ciba-Geigy Corp.

v.

Envtl. Prot. Agency, 801 F.2d 430, 435 n. 7 (D.C. Cir. 1986).
Our Court of Appeals has also given guidance for evaluating
whether

legal

consequences

flow

from

an

action.

One

line

of

analysis "considers the effects of an agency's action, inquiring

that could not properly be promulgated absent" the requirements of
the APA. Ctr. for Auto Safety v. Nat' 1 Highway Traffic Safety
Admin., 452 F.3d 798, 806 (D.C. Cir. 2006). By demonstrating the
latter, a party implicitly proves the former, "because the agency's
adoption of a binding norm obviously would reflect final agency
action." Id.
33

whether the agency has '(l) impose[d] any rights and obligations,
or (2) genuinely [left] the agency and its decisionmakers free to
exercise discretion.'" Id.

(quoting CropLife Am. v. Envtl. Prot.

Agency, 329 F.3d 876, 883 (D.C. Cir. 2003)). "The language used by
an agency is an important consideration in such determinations."
Id. "The second line of analysis looks to the agency's expressed
intentions. This entails a consideration of three factors:

(1) the

agency's own characterization of the action; (2) whether the action
was

published in

Regulations;
private

and

parties

the
(3)
or

Federal

Register

or

the

Code of

Federal

whether the action has binding effects on
on

the

agency."

Id.

at

806-07

(internal

quotation marks and citation omitted).
2.

Defendants' Actions Constitute Neither Final Agency
Actions Nor Binding Norms

Plaintiffs point to two actions by each of the Defendants
that they consider final agency actions:

1)

the promulgation of

the Agency Documents; and 2) coercive back-room communications and
the

creation

of

a

de

facto

rule

services to all payday lenders.

against

See SAC

~~

providing
116-22,

financial

127,

148-54,

159, 180-184, 189. The FDIC and OCC argue that the Agency Documents
do not constitute final agency action, see FDIC Mot. at 23-24; OCC
Mot. at 21-29, while the Board notes that Plaintiffs do not even
allege that any guidance documents issued by the Board violate the
APA, see Board Mot. at 18. In addition, Defendants argue that the

34

communications Plaintiffs cite in support of their argument of a
de facto rule .do not constitute final agency action. Board Mot. at
19; FDIC Mot. at 36-37.
As noted above, under Bennett, Defendants' actions cannot be
viewed as "final agency action" under

704 of the APA unless they

§

"mark the consummation of the agency's decisionmaking process" and
either

determine

"rights

consequences." Bennett,

or

obligations"

520 U.S.

at 178

or

result

in

"leg.al

(citations and internal

quotation marks omitted).
After setting forth the two-step Bennett analysis, Plaintiffs
inexplicably fail to discuss the first Bennett step and make no
argument as to how the Agency Documents or the alleged de facto
rules

"mark

the

consummation

of

[Defendants']

decisionmaking

processes." See Pls.' Opp'n at 27-28. The closest Plaintiffs come
to

addressing

stating,
"purport

the

first

Bennett

step

without further explanation,
to

reflect

the

agencies'

is

a

passing

reference

that the Agency Documents
expertise,

experience,

and

reasoned reflection." Pls.' Qpp'n at 29. Plaintiffs continue that
"[n]othing in the guidelines suggests that they are
open to further
action."' Id.

consideration,

'tentative,

or conditional on future agency

(quoting City of Dania Beach,

Fla. v.

F.A.A.,

485

F.3d 1181, 1188 (D.C. Cir. 2007)).
Plaintiffs'

statement sufficiently alleges that the Agency

Documents reflect the consummation of the agencies decision-making
35

process,

rather than a tentative or interlocutory step in that

process.

Given

that

the

documents

were

published

and

widely

distributed by the FDIC and OCC, it is reasonable to view them as
the

consummation

of

the

agencies'

decision-making

processes.

Therefore, the Court finds that the first Bennett prong has been
met with regard to the Agency Documents.
Plaintiffs have alleged that Defendants created a de facto
rule--in other words, Defendants' alleged "coercive communications
with

banks,"

taken

together,

have

effectively

created

a

rule

against providing financial services to payday lenders.
It is not readily apparent how the amorphous de facto rule
against payday lenders alleged by Plaintiffs is the consummation
of the Defendants' decision-making processes. 6 In the absence of
any explanation by Plaintiffs, the Court concludes that the alleged
de facto rule fails to meet the first step of the Bennett test.
Having failed the first prong of the Bennett test, any alleged de
facto rule created by Defendants is not a final agency action and
therefore not subject to review under the APA. 7

6

Plaintiffs' allegation of a de facto rule is not to be confused
with a legal conclusion that Defendants created a de facto rule
sufficient for purposes of § 704.

7

In the SAC, Plaintiffs also allege that Defendants coerced Early
Warning Services ( "EWS") , a credit reporting company, "directly
and indirectly through its five parent banks" to set an effective
Annual Percentage Rate cap of 36% and cease providing its services
to payday lenders. SAC ~ 112. EWS is not regulated by Defendants.
Plaintiffs fail to allege in the SAC any facts that could support
36

Turning to the second prong of the Bennett test, Plaintiffs
make several arguments regarding the legal consequences of the
Agency Documents.

Plaintiffs characterize them as "filled with

obligatory language and threats of enforcement actions."

Pls.'

Opp'n at 31. Such characterizations are clearly unsupported by the
facts on which Plaintiffs rely.
the

Agency

Documents

such

as

Plaintiffs excerpt phrases from
"it

is

essential

that,"

"it

is

imperative that," and "the FDIC expects," as examples of obligatory
language. Id. Read in context, it is clear that the language does
not create new legal obligations.

Instead,

the language is used

with regard to banks' overall responsibility to manage risks and
third-party risks 8
Documents.

In

-

obligations that existed pri9r to the Agency

addition,

the

documents

consistently

use

non-

mandatory language such as "should," rather than "shall" or "must."
See e.g.,

FIL-127-2008; OCC Bulletin 2013-29;

see also Holistic

Candlers & Consumers Ass'n v. F.D.A., 664 F.3d 940, 944 (D.C. Cir.

an argument that Defendants' alleged coercion was the consummation
of the Defendants' decision-making processes.
For example: "The FDIC expects a financial ins ti tut ion to
adequately oversee all transactions and activities that it
processes and to appropriately manage . and mitigate operational
risks, Bank Secrecy Act (BSA) compliance, fraud risks, and consumer
protection risks,·among others." FIL-3-2012 at 2 (emphasis added);
"Financial institutions that do not adequately manage these
relationships may be viewed as facilitating fraudulent or unlawful
activity by a payment processor or merchant client. Therefore, it
is imperative that financial institutions recognize and understand
the businesses with which they are involved." FIL-127-2008 at 1
(emphasis added) .
8

37

2012)
no

(use of "should" and "may" make plain that "there has been

order compelling

the

appellants

to

do

anything")

(internal

citation omitted).
Indeed,
of

the

Plaintiffs actually acknowledge the advisory nature

Agency

Documents,

stating

that

"[a] lthough

the

banks'

failure to follow the agencies' informal guidance may not directly
trigger civil liability, these guidance documents set a standard
for risk management that may also be used indirectly in other civil
enforcement actions," Pls.' Opp'n at 33,

and alleging that some

"letters encourage banks to cut off relations .
are too great." Id.

at 32

. if the risks

(emphasis added) . Al though the Agency

Documents provide guidance on the FDIC and OCC's views regarding
risk management, they do not impose any obligations or prohibitions
on banks.

Guidance that "does not tell regulated parties what

they must do or may not do in order to avoid liability" is merely
a general statement of policy.

National Mining Ass'n.,

2014 WL

3377245 *6 (July 11, 2014).
Furthermore, the Agency Documents expressly state that they
are not obligatory and are meant only to serve as guidance.

See

e.g., FIL-44-2008 at 2 ("[t]he guidelines should not be considered
a set of mandatory procedures"); OCC Bulletin 2013-29 at 1 ("[t]his
bulletin provides guidance to national banks and federal savings
associations") .
documents

from

While this alone does not totally insulate the
having

legal
38

consequences,

the

agency's

characterization of the documents is one of the relevant factors
for

consideration.

Ctr.

for

Auto

Safety,

452

F.3d at

806-07.

Guidance documents must establish a "new substantive rule" before
they

can

be

characterized

as

final

action

under

the

APA.

Broadgate, Inc. v. USCIS, 730 F. Supp. 2d 240, 245 (D.D.C. 2010).
The Court need not limit its analysis to the four corners of
the Agency Documents.

Our Circuit has "looked to post-guidance

events to determine whether the agency has applied the guidance as
if it were binding on regulated parties." Nat'l Min.

Ass'n v.

McCarthy, 758 F.3d 243,. 253 (D.C. Cir. 2014).
Plaintiffs allege that Defendants engaged in a campaign of
backroom pressure against banks and payday lenders, relying on the
definition of "reputation risk" outlined in the Agency Documents.
See Pls.' Opp'n at 29. Specifically, Plaintiffs argue that the use
of

"reputation

indicates

that

risk"
the

in

many

termination

redefinition

of

letters

"reputation

from

risk"

banks

has

been

actively enforced. Id. However, these letters are from banks, not
Defendants,

and

do

not

indicate

any

legal

consequences

or

enforcement stemming from the Agency Documents or Defendants.
In a similar vein, Plaintiffs argue that DOJ's attachment of
an FDIC guidance document to subpoenas is indicative of the legal
effect of the guidance document.

Pls.'

Opp' n at 33.

Plaintiffs

cite to Barrick Goldstrike Mines Inc. for the proposition that an
informal action stating an agency's position, along with the threat
39

of enforcement action,
Pls.'

Opp' n at

may constitute final

2 9-30

agency action.

(citing Barrick Golds trike Mines

Inc.

See
v.

Browner, 215 F.3d 45, 48 (D.C. Cir. 2000).
While an enforcement action may be sufficient to show legal
consequences, it is not per se indicative of final agency action.
The enforcement action must still be evaluated within the Bennett
rubric of "rights or obligations" or "legal consequences."
In Barrick, an enforcement letter from the guidance-issuing
agency,

relying

on

the

guidance

enforcement,

caused

consequences.

document

In this case however,

the

as

document

guidance

the
to

basis
have

for
legal

none of the Defendants have

issued any enforcement letters and Barrick is not relevant.
DOJ's use of an FDIC guidance document does not necessarily
reflect the FDIC's views, nor do any legal consequences flow from
the document itself; any legal consequences flow from the actions
of DOJ. Plaintiffs point to no case law to support the contention
that

DOJ' s

use

of

the

FDIC' s

document constitutes

enforcement

action--and therefore final agency action--by the FDIC.
Plaintiffs

also

allege

Defendant agencies with a
submit a

that

the

guidelines

step

the

justification for requiring a bank to

safety and soundness plan,

which is

"an initial step

toward exercising their enforcement powers." Pls.'
Obviously,

provide

Opp'n at 32.

there is an important distinction between an initial

toward

an

enforcement

action,
40

and

an

actual

enforcement

action.

See Reliable Automatic Sprinkler Co.

Safety Comm'n,

324 F.3d 726,

731-32

(D.C.

v.

Cir.

Consumer Prod.
2003)

(no final

agency action where agency issued preliminary determination of
violation of law, but was required by statute to bring a formal
action before

it

could make

a

legally binding determination) .

Plaintiffs are not alleging that the Agency Documents commit the
FDIG or OCC to a particular course of action.

It remains within

the FDIC and OCC's discretion to determine whether an enforcement
action is warranted.
For all the foregoing reasons, the Court concludes that the
Agency Documents are not final agency actions for purposes of

§

704

review because they do not determine any rights or obligations.
Consequently,

they are not subject to judicial review under the

APA and all of Plaintiffs claims under the APA fail to state a
claim. Therefore, Defendants' Motions to Dismiss shall be granted
with regard to Counts 1, 2, 3, 5, 6, 7, 9, 10, and 11, as well as
the portions of Counts 4,

8, and 12 that plead violations of the

APA.
C.

Violation of Fifth Amendment Due Process

In Counts

4,

8,

and

12

of the

Second Amended Complaint,

Plaintiffs allege that Defendants stigmatized them, deprived them
of their bank accounts, and threatened their ability to engage in
their chosen line of business, all without notice and opportunity
to be heard, in violation of their procedural due process rights
41

·.
under the Fifth Amendment to the United States Constitution. See
SAC

~~

141-47, 173-79, 198-204; U.S. Const. amend. V.

The

Fifth

Amendment's

due

process

clause

protects

the

indi victual citizen from the arbitrary exercise of power by the
government. Mathews v. Eldridge,

424 U.S. 319, 332

(1976). For a

plaintiff to establish a procedural due process claim,
show that

(1)

it has a protected interest,

deprived it of this interest,

and

(3)

without proper procedural protections.

(2)

it must

the government

the deprivation occurred
See Indus.

Safety Equip.

Ass'n, Inc. v. Envtl. Prot. Agency, 837 F.2d 1115, 1122 (D.C. Cir.
1988).
1.

Applicability of Due Process Protections

Defendants argue that the Supreme Court has held that due
process protections are not applicable to legislative activities
of an administrative agency that are generalized in nature and
affect a large number of parties. See Board Mot. at 28-29 (citing
Natural Res. Def. Council,
156,

194

Inc. v. Envtl. Prot. Agency,

(D.C. Cir. 1988); Bi-Metallic Inv. Co. v.

859 F.2d

State Bd. Of

Equalization Colorado, 239 U.S. 441 (1915)); OCC Mt. at 37-38. In
Bi-Metallic,

the

constitutionally

Supreme
required

Court
prior

held
to

that

a

decision

no
by

hearing
Colorado

was
to

increase the valuation of taxable property. Bi-Metallic Inv. Co.,
239 U.S. at 445-46.

42

However,

the Supreme Court has recognized a distinction in

administrative

law

"between

proceedings

for

the

purpose

of

promulgating policy-type rules or standards, on the one hand, and
proceedings designed to adjudicate disputed facts in particular
cases on the other." United States v.
410 U.S.

224,

individualized

245

Florida E. Coast Ry. Co.,

(1973). Adjudicative proceedings require more

process

than

rule-making

decisions.

See

id.

at 244-45.
Plaintiffs' allegations fall somewhere in between the Court's
two

opposing poles.

Plaintiffs

first

allege

that

Defendants'

promulgated guidelines,

which are akin to "policy-type rules or

standards."

also

coercive

Plaintiffs

backroom

allege

communications

targeted specific payday lenders.

that

aimed

Defendants
at

See Pls.'

payday

engaged

in

lenders

and

Opp'n at 43 n.

17.

Plaintiffs allege that Defendants took these actions for the direct
purpose of putting them out of business, which is more akin to an
informal adjudication.
The FDIC also argues that the Due Process Clause does not
apply to the indirect adverse effects of government action.
FDIC Mot. at 43
U.S.

773,

789

See

(citing O'Bannon v. Town Court Nursing Ctr., 447
(1980)).

While

the

O'Bannon court

distinguished

"between government acti?n that directly affects a citizen's legal
rights, or imposes a direct restraint on his liberty, and action
that is directed against a third party and affects the citizen
43

only indirectly or

incidentally,"

category.

447 U.S.

O'Bannon,

this

actions were directed at the banks,

into

neither

Though Defendants'

at 788.

case

fits

alleged

Plaintiffs argue that they

were the intended targets - that Defendants undertook the actions
with

the

express

purpose

of

affecting

Plaintiffs.

Taking

Plaintiffs' allegations as true, the impact was neither "indirect"
nor "incidental," and therefore O'Bannon is inapplicable.
Defendants'

actions,

as

alleged

by

Plaintiffs,

are

not

legislative in nature and are more analogous to an adjudication of
payday

lenders

right

to

do

business.

Nor

are

the

effects

of

Defendants' alleged actions indirect or incidental. Therefore, the
Court concludes that Plaintiffs have sufficiently stated a claim
for which due process protections apply.
2.

Turning
claim,

Interests Protected by Due Process

to

"[t] he

the merits

first

of

Plaintiffs'

alleged due

inquiry in every due process

process

challenge is

whether the plaintiff has been deprived of a protected interest in
'property' or 'liberty.'" American Mfrs. Mut. Ins. Co. v. Sullivan,
526 U.S. 40, 59 (1999)

(U.S. Const. amend. 14). In order to have

a life, liberty, or property interest, a party must have more than
an abstract need or desire -

the party must have "a legitimate

claim of entitlement to it." Board of Regents of State Colleges v.
Roth,

4 08 U.S.

564,

5 77

( 197 2) .

Interests afforded due process

protection are not created by the Constitution, but are defined by
44

existing "rules or understandings that secure certain benefits and
that support claims of entitlement to these benefits." Id.
Plaintiffs allege that the stigma resulting from Defendants'
actions

have affected two of their protected interests:

interest

in

their bank accounts;

and 2)

an

interest

in

1)

an

their

ability to engage in their chosen line of business. Pls.' Opp'n at
42-43.
While a company may have a "liberty interest in avoiding the
damage to its reputation and business" caused by stigma,

Reeve

Aleutian Airways,

Inc. v. United States, 982 F.2d 594, 598

(D.C.

Cir.

Supreme

1993),

the

Court

has

held

that

stigma

alone

is

insufficient to implicate due process interests,

see Gen.

Co. v. Jackson, 610 F.3d 110, 121 (D.C. Cir. 2010)

(citing Paul v.

Davis,

424

U.S.

693,

reputational harm,

7.08

(1976).

In

addition

to

Elec.

stigma

or

the plaintiff must be able to show "that

( 1)

the government has deprived them of some benefit to which they
have a legal right, e.g., the right to be considered for government
contracts in common with all other persons; or (2) the governmentimposed stigma is so severe that it broadly precludes plaintiffs
from pursuing a chosen trade or business." Id. at 121

(internal

quotation marks and citations omitted).
Plaintiffs

have

alleged

that

the

stigma

promulgated

Defendants has resulted in lost banking relationships,
the continued loss of banking relationships
45

~ay

by

and that

preclude them from

pursuing their chosen line of business. Pls. Opp'n at 42-43. This
is

sufficient to constitute a

"tangible change in status" and

implicate a protected liberty interest.

O'Donnell v.

Barry,

148

F.3d 1126, 1141 (D.C. Cir. 1998).
Plaintiffs also argue that the stigma deprived them of their
right to a bank account.
Resistance

of

Iran

v.

Plaintiffs cite to National Council of
Department

of

State

("NCRI")

for

the

proposition that our Court of Appeals has previously held that a
colorable allegation of a property interest in a bank account is
sufficient to support a due process claim. See Pls.' Opp'n at 4243 (citing NCRI, 251 F.3d 192, 204 (D.C. Cir. 2001)).
It is important to distinguish between the right to have a
bank account, and the right to the contents of one's bank account.
In NCRI, it was not only the bank account alone, but also the funds
that it contained. NCRI,

251 F.3d at 204. The issue here is not

that Plaintiffs have been denied access to their funds, but that
they have been denied an account at all.
In Wisconsin v. ·Constantineau,

the Supreme Court held that

"[w]here a person's good name, reputation, honor, or integrity is
at stake because of what the government is doing to him,

notice

and an opportunity to be heard are essential." See 400 U.S. 433,
437 (1971). The Supreme Court elaborated its Constantineau holding
in Paul v. Davis, stating that when an individual is "deprived .
of a right previously held under state law" as a result of
46

stigmatization, due process is required.
693,

708

(1976)

Paul v. Davis, 424 U.S.

The deprivation at issue in Constantineau was

"the right to purchase or obtain liquor in common with the rest of
the citizenry." Id.
Plaintiffs have alleged a

similar deprivation here -

"the

previously held right to .

. hold bank accounts. NCRI, 251 F.3d

at 204.

would consider

"Many people

[this]

important than the right to purchase liquor." Id.

right[]

more

The loss of a

bank account as a result of stigma is sufficient to implicate a
right to due process.
In

sum,

Plaintiffs

have

sufficiently

alleged

liberty interests are implicated by Defendants'

that

their

alleged actions

and that the alleged stigma has deprived them of their rights to
bank accounts and their chosen line of business, so as to state a
claim for violation of constitutional due process.
V.

Conclusion

For all of the

foregoing reasons,

Defendants'

Motions

for

Lack of Jurisdiction, or Alternatively for Failure to State a Claim
are granted in part and denied in part.
Jurisdictional

Discovery is denied,

47

Plaintiffs'

Motion for

and Plaintiffs'

Motion for

Leave to File a Second Amended Complaint is granted. An Order shall
accompany this Memorandum Opinion.

September 25, 2015

Copies via ECF to all counsel of record

48