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November 23, 2020

Currency Comptroller’s Proposed Rule Breaks Banking Discrimination

By Larry Keane

The days of corporate banking overlords forcing discriminatory policies on lawful industries is, hopefully, coming to an end. The Office of the Comptroller of the Currency released a proposed rule that would end the practice of unaccountable banking executives denying firearm industry businesses banking services to force gun control even as they take advantage of the taxpayer-funded insurance protections.

The proposed rule is about fair and equal access to financial services – or making the phrase on the dollar bill, “This note is legal tender for all debts, public and private” mean what it says. It’s overdue and promises to reverse the corporate virtue signaling by nameless and faceless finance executives who foist their personal gun control views on the public by choking off essential banking services. Corporate America was attempting to do precisely what the Obama administration was chastised for doing with the illegal “Operation Choke Point” that directed financial institutions to discriminate against members of the firearm industry, and other legal industries.

The proposed rule would ensure fair access to banking services provided by national banks, federal savings associations, and federal branches and agencies of foreign bank organizations, according to a press release from the Office of the Comptroller of the Currency. The proposal would codify more than a decade of OCC guidance stating that banks should provide access to services, capital, and credit based on the risk assessment of individual customers, rather than broad-based decisions affecting whole categories or classes of customers.

What It Does

The proposed rule evens the playing field. It stops corporate banks from picking winners and losers based on executives’ personal politics. The rule would put into force protections that were passed by Congress and signed into law with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Those laws made the Currency Comptroller responsible for “… fair access to financial services, and fair treatment of customers by, the institutions and other persons subject to its jurisdiction.”

This was specifically included after banks were bailed out by taxpayers in 2008 to the tune of nearly $500 billion. Lawmakers agreed then that banks that were buoyed by American taxes would have to be on the hook to provide fair access to those essential banking services.  They couldn’t play favorites and pick winners and losers based on shifting political favorites.

The rule will apply to the largest banks in the country that may exert significant pricing power or influence over sectors of the national economy. It would require those banks to make their products and services available to all customers in the community it serves, based on consideration of quantitative, impartial, risk-based standards established by the bank.

In other words, banks would be required to approve or deny their services based on merit and creditworthiness of individual borrowers. That would remove the “reputational risk” mask that banks hide behind when they force businesses to adopt gun control policies that are beyond the scope of federal, state and local laws or lose access to banking services.

Instead of subjective standards that shift like the winds, banks would be required to objectively apply standards of creditworthiness, ability to pay, or other quantitative, impartial, risk-based reasons.

What It Doesn’t Do

The proposed rule doesn’t force banks to do business with businesses. If a business is overleveraged, doesn’t have the necessary assets, credit or a business model that would demonstrate their ability to pay debts, it doesn’t get a free pass.

“Banks retain the right to choose what businesses they undertake but if a bank provides a service, it cannot deny that service to a customer except on the basis of an objective analysis of the riskiness of that client,” wrote Brian P. Brooks, the Acting Comptroller of the Currency in an op-ed.

Why It’s Needed

Financial discrimination against the firearm industry started during the Obama administration. Operation Chokepoint formalized the discrimination by the Federal Deposit Insurance Corporation (FDIC) and Department of Justice (DOJ) to stop financial institutions from offering services to some regulated industries in an attempt to choke off banking services. This was done by those federal agencies labelling gun and ammunition businesses as risky businesses without any evidence or justification. The campaign against the firearm industry “… was real, and it exceeded legal limits. Overwhelming evidence, in the form of more than 900 pages of newly unsealed emails and depositions, proves government officials illegally targeted lawful businesses in an ideological crusade based on personal disdain,” according an analysis by American Banker.

U.S. Rep. Blaine Luetkemeyer (R-Mo.) was dogged in his pursuit to uncover and repudiate this corruption. After it was revealed the Obama administration was illegally pushing this discriminatory agenda and was forced to abandon it, corporate banks began doing it for themselves. They privatized Operation Choke Point.

Citigroup announced in 2018 they wouldn’t do business with firearm businesses unless they adopted their policies that went beyond federal and state laws. That included putting in place age-based gun bans for young adults. Bank of American announced they would end business with companies that manufactured and sold modern sporting rifles. Wells Fargo initially bucked the trend, but this year announced they were severing ties with gun businesses. A growing number of other “to big to fail” banks have followed suit, often in response to pressure from social justice advocates.

This was as alarming to Congress as it was the firearm industry. It’s the role of elected officials who are accountable to voters to set public policy. That’s not the domain of corporate executives in high-rise buildings.

U.S. Sen. U.S. Sen. Kevin Cramer (R-N.D.), along with Sen. John Kennedy (R-La.), introduced the NSSF-supported Freedom Financing Act (S. 821), which would prevent financial institutions from accessing taxpayer-subsidized federal programs which allow them to survive and prosper when they are at the same time denying banking services to lawful industries. Rep. Roger Willams (R-Texas) introduced a House of Representatives companion bill, H.R. 2079.

Senate Banking Committee Chairman Mike Crapo (R-Idaho) has continuously applied pressured to banking CEOs in hearings that their discriminatory practices were intolerable. Just two weeks ago, he said in his opening statement at committee hearing, “It is vitally important that our country’s financial institutions, especially the largest, not deny credit financing based on political preferences related to firearms, oil and gas, or others. Lending decisions should be based on creditworthiness, and should not target specific industries, especially as we work to restore our economy to pre-pandemic strength.”

Sen. Crapo was elated at the news of the OCC’s proposed rule.

“I commend the OCC for reaffirming that banks must not deny services or limit fair access to legal businesses and individuals,” Sen. Crapo wrote in a statement. “Business lending decisions should be based on creditworthiness, rather than politics or political pressure.  This has long been a priority of mine, especially since the inception of Operation Choke Point, and I appreciate the critically important work the OCC has done on this issue.”

The proposed rule will right a wrong and allow banks to do what they do best. They can help businesses grow based on their success, not get caught up in the shifting winds of political debates.

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