President Trump today issued an executive order directing federal agencies to investigate whether banks and credit unions denied services to customers because of their political beliefs or because they were engaged in certain business activities, such as cryptocurrency.
In addition, the order directs agencies to rescind rules and regulations that caused financial institutions to deny services to categories of customers, in particular rules related to reputational risk.
The order directs agencies to investigate financial institutions for possible violations of the Equal Credit Opportunity Act, antitrust statutes or consumer protection laws, and to take disciplinary action if necessary, according to the White House. It accuses some financial institutions of participating in government-directed surveillance programs targeting the political right. It also accuses bank regulators of using “supervisory scrutiny and other influence over regulated banks to direct or otherwise encourage politicized or unlawful debanking activities.”
The order follows similar legislative proposals in Congress, such as the FIRM Act, which the American Bankers Association supports.
ABA, associations respond
In response to the order, ABA, Bank Policy Institute and two banking associations said it will help ensure all consumers and businesses are treated fairly.
“It’s in banks’ best interest to take deposits, lend to and support as many customers as possible,” the associations said. “Unfortunately, regulatory overreach, supervisory discretion and a maze of obscure rules have stood in the way as the [order] makes clear. We thank the administration for its efforts to protect access to banking and rein in runaway regulations and look forward to working with the White House, Congress and the agencies to create a national standard that advances these goals.”
The associations listed several ongoing legislative and regulatory efforts that align with the order’s goals, such as bills to eliminate reputational risk from bank supervision and to establish a fair process for banks to appeal supervisory decisions. They also provided a list of principles that should guide policymakers as they seek to address debanking caused by regulatory overreach and supervisory pressure. They include:
- Allowing individual financial institutions to be able to make their own risk- and business-based decisions consistent with their particular business models, strategic priorities and expertise, taking into account safety and soundness standards. They also must be permitted to offer different terms and pricing in accordance with sound risk-management and prudent business practices.
- Any legislative or regulatory solution should explicitly allow financial institutions to take actions to protect against financial crimes risk as required under the federal Bank Secrecy Act/anti-money laundering and sanctions laws and regulations, and to comply with lawful requests by law enforcement. Banks must be permitted to make risk-based decisions to manage and mitigate financial crimes risk.
- Fair access requirements should apply to deposit accounts and fee-based services of an insured depository institution, and similar accounts of nonbank financial institutions.
- Pursuant to the U.S. Constitution, federal requirements must broadly and expressly preempt any non-federal fair access or account closure legislation to avoid inconsistent and unduly burdensome requirements across 50 states.
- Requirements should be enforced by the financial institution’s appropriate federal financial regulatory agency, informed by existing consumer complaint mechanisms.
