U.S. Banking Regulator Proposes “Fair Access” Rule

The U.S. Office of the Comptroller of the Currency (OCC) has proposed a rule aimed at ensuring fair access to banking services provided by national banks, federal savings associations, and agencies of foreign bank organizations.

The rule would prohibit banks with more than $100 billion in assets from denying services such as lending and payment processing to businesses in one industry over another as long as the potential client passes an objective the risk assessment.

Codifying Decade Old Practice

OCC says its proposal is codifying more than a decade of the agency’s guidance indicating banks should provide access to capital, credit, and other services based on an objective risk assessment of individual customers, rather than broad-based decisions affecting whole categories or classes of customers.

“Fair access to financial services, credit, and capital are essential to our economy,” said Acting Comptroller of the Currency Brian P. Brooks in a statement. “This proposed rule would ensure that banks meet their responsibility to provide their services fairly since they enjoy special privilege and powers because if the system fails to provide fairness to all, it cannot be a source of strength for any.”

OCC says its proposal reflects language included in Title III of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), which charged OCC with “assuring the safety and soundness of, and compliance with laws and regulations, fair access to financial services, and fair treatment of customers by, the institutions and other persons subject to its jurisdiction.”

Dodd-Frank expanded OCC’s responsibilities to ensure “fair access separately from fair treatment, building upon the fundamental principle of nondiscrimination and would prevent banks—alone or in coordination with others—from limiting fair access to banking services by preventing a business or person from entering, or limiting their ability to enter, a particular market, or disadvantaging a person to benefit another person or interest,” according to OCC’s statement describing the rule.

Protecting Politically Controversial Industries from Discrimination

OCC’s proposal comes as interest groups and some Democratic lawmakers and prosecutors are applying pressure to banks to cease providing banking services for companies in politically controversial industries, for example fossil fuel producers and retailers, firearms manufacturers and gun sellers, and pay day lenders.

In the aftermath of an Obama-era initiative, Operation Choke-Point, intended to force banks to pay more attention the risks of fraud and money laundering, banks have increasingly severed their banking relationships with entire industries, such as payday lenders and companies involved in controversial political or social issues, such as border wall construction, climate change, gun violence, and immigrant detention.

In the past year, for instance, Citi, Deutsche Bank, Goldman Sachs, and JPMorgan Chase, instituted policies barring lending to new coal mines, coal-fueled power plants, and Arctic gas and oil drilling. Other banks have ended long-standing business relationships with companies involved with the construction of oil and gas pipelines. JPMorgan Chase announced it would no longer provide banking services to the private prison operators in 2019, and in 2018, Bank of America said no longer lend money companies that make semi-automatic firearms which resemble military weapons.

Banks should not deny legal industries banking services based on partisan political considerations, said Sen. Mike Crapo (R-ID), the Senate Banking Committee Chairman, in a November 20 statement.

“We are seeing a disturbing trend in the financial services industry – the intentional discrimination of entire industries, such as firearms manufacturers, by the largest banks in the United States,” Crapo said. “I commend the OCC for reaffirming that banks must not deny services or limit fair access to legal businesses and individuals.

“Business lending decisions should be based on creditworthiness, rather than politics or political pressure,” said Crapo.

Objective Assessment of Creditworthiness

Under OCC’s proposal, any covered bank’s decision to deny services would have to be based on an “objective assessment” of a person’s or particular business entity’s “creditworthiness, ability to pay, or other quantitative, impartial, risk-based reasons [that] would not violate the bank’s obligation to provide fair access.” In addition the proposal disallows affected banks from denying a person or entity service in order to disadvantage, limit, or prevent it from entering or competing in a legal market or business segment, or with a goal of benefitting another person, business or type of business.

OCC formally offered its proposed rule on November 20, with a short public comment period of 45 days. As a result, unless OCC changes its mind in the light of public comments, the rule would become finalized before presumptive President-elect Joe Biden is sworn in as president.

H. Sterling Burnett, Ph.D.(hsburnett@heartland.org)is the managing editor of Environment & Climate News.