Short-term lenders argue that the loans, when used responsibly, can provide vital credit for a whole swath of borrowers largely frozen out of the traditional banking services, while state law enforcement officials say that the lenders still have to abide by state restrictions aimed at shielding residents.
And the payday industry has its defenders. Representative Issa has begun an investigation into Operation Choke Point, according to a letter addressed to Attorney General Eric H. Holder Jr.
In the January letter — a copy of which was reviewed by The New York Times — Mr. Issa accused the Justice Department of trying to "eliminate legal financial services to which the department objects."
(Read more: Consumer Financial Protection Bureau deals with payday loans)
So far, it is unclear whether those objections will be enough to stifle the Justice Department's investigation. But the assistant United States attorney who led the investigation is scheduled to leave the investigations in February, according to several people with direct knowledge of the matter, and the Justice Department is not extending his detail. Other lawyers within the agency are working on separate investigations related to Choke Point. The Justice Department declined to comment on the investigation, but people with knowledge of the matter say that the agency is fully committed to the project.
Some victims of unscrupulous payday lenders are pointing fingers at banks, arguing that without the aid of Four Oaks and banks like it, they never would have been plunged deep into debt by the costly loans.
James Dillon of Trinity, N.C., contends that payday lenders ransacked his checking account at Wells Fargo. A handful of the loans that Mr. Dillon, 36, took out to buy Christmas presents for his children in 2012 and 2013 — some with interest rates beyond 1000 percent — came from lenders routing payments through Four Oaks, according to a copy of his bank statements reviewed by The Times.
"Without the access from the banks, it would be nearly impossible for these lenders to operate outside the U.S. regulatory system," said Stephen Six, a former Kansas attorney general who is part of a team of lawyers representing Mr. Dillon and other plaintiffs in lawsuits against banks over their role in processing transactions on behalf of payday lenders.
Within Four Oaks, some executives started to suspect early on that many online lenders were extending expensive credit without being licensed in the states where borrowers lived, according to the internal emails and other documents filed in connection with the lawsuit against the bank.
Bankers shrugged off evidence, even direct warnings from law enforcement officials, that their lender clients were violating state law, prosecutors say. In December 2012, for example, Arkansas's attorney general, Dustin McDaniel, sent a letter to Four Oaks and a payday lender routing payments through the bank, accusing the company of illegally making loans to residents in his state.