A quick-and-dirty list of ideas for the Trump Admin to fight debanking

This is what the title says, a quick-and-dirty list. I hope to elaborate on it in the coming days.

Source

Trump has campaigned against debanking, which is good. If his administration wants to actually do something about it, and doesn’t want to rely on Congress, there are things it can (probably) do under current law. Here are some of them:

1.      Resurrect and Expand the OCC’s Fair Access rule.

The last Trump admin almost got a fair-access rule aimed at national banks across the finish line. They can pick up where they left off, but this time make it apply to all national banks, instead of just the largest ones (or at least don’t have asset size be the determining factor).The OCC should also provide more guidance on what criteria banks can use when making a decision to allow them to make decisions based on risk-adjusted returns and legitimate legal compliance (more on this below). But these determinations should not be made based on the bank or some other constituency wishing to de facto regulate.

2.      Apply Fair Access to FDIC-insured State Banks

Admittedly an aggressive legal argument, but the FDIC can argue that political debanking is inconsistent with why banks get deposit insurance. A rule that mirrors the OCC’s rule would also avoid disparate regulatory treatment of state and national banks.

3.      Remove Reputation Risk, at Least With Regard to Customers’ lawful activities, from Bank Supervision

Reputation risk, especially as applied to banks’ controversial customers, has been abused time and again by regulators to pressure banks to drop customers the regulators don’t like. When regulators lack an actual legal basis, they reach for reputation risk. Thankfully, reputation risk isn’t generally found in the law, the regulators came up with it themselves, so they can adopt internal regulations that prohibit its use.

4.      Provide Meaningful Checks on the Supervisory Process

Bank regulators can use the examination and supervision process to threaten and punish banks. More transparency and external appeals are needed. The Trump FDIC adopted a policy governing appeals along these lines that was reversed under Biden, that policy should be reimplemented and similar policies should be adopted by the other banking regulators. This can help mitigate the risk that banks suffer informal pressure to debank customers the regulator dislikes.

5.      Prohibit FinCEN from Sharing Information or “Typologies” that Stigmatize Legal Organizations and Activities

As the House Judiciary Committee’s Subcommittee on the Weaponization of Government discovered, in the wake of the January 6^th riots FinCEN shared a report drafted by the Institute for Strategic Dialogue with banks in connection with a identifying potential violent extremists. The report purported to identify various “hate groups,” and while it did include groups like the KKK, it also included groups with no history of violence or the advocacy of violence and who adopted controversial but entirely legal opinions.

FinCEN sharing this information gave it the agency’s imprimatur and likely influenced banks to be more skeptical of customers who transacted with those groups. It also risked chilling those groups’ speech and activities and may have violated the First Amendment.

FinCEN should adopt internal regulations prohibiting the dissemination of any material that could stigmatize groups or customers who interact with those groups simply based on a group’s legal speech or activities.

6.      Clarify the Definition of “Suspicious” in the Bank Secrecy Act to Exclude or at least limit Constitutionally Protected Activity

FinCEN could also clarify by rule that a bank should not flag an activity as “suspicious” because it engages in constitutionally protected activity, such as sending money to a legal advocacy organization or potentially purchasing a firearm. Such criteria were used post January 6^th to identify “suspicious” activities.

This isn’t to say transactions involving constitutionally protected activities could never be suspicious, but FinCEN should clarify that much more than donating to a legal but controversial group or buying something at a vendor who sells firearms will be required to count as suspicious.

7.      Consider Whether Dodd-Frank’s Prohibition on Unfair, Deceptive, and Abusive Acts and Practices Apply to Debanking

Dodd-Frank prohibits “unfair, deceptive, or abusive acts or practices” by financial firms, including banks.  As discussed in more detail here, debanking, especially if done pursuant to vague terms of service that grant the financial firm broad discretion could be viewed as unfair, deceptive, or abusive. Trump will be able to appoint a new CFPB head, whose agency would be responsible for enforcing this provision.