Four Arguments that Might Justify “Fair-Access” Laws (Pt. 1)
Fair-access laws are controversial among conservatives for good reason, and yet there are reasonable arguments in support of the laws.
This is the first in a three-part series discussing arguments that could justify the use of fair-access laws, or at least address concerns raised against them. This post will discuss the argument that such laws may be a legitimate use of state power to protect the ability of citizens to meaningfully exercise their rights and ability to self-govern.
The second post will discuss the argument that some financial firms, especially banks, are granted powers and protections by law and fair-access laws are a valid tool to ensure those powers and protections are not abused. It will also discuss a response to a claim that fair-access laws infringe the rights of firms by considering whose rights within the firm need to be vindicated and whether fair-access laws can address an agent-principal problem if firm management or some other constituency uses the firm’s power for their own benefit at the expense of the firm’s owners. It will be published tomorrow.
The final post will discuss a response to the claim that fair-access laws are unnecessary because the market can address any harm. It will be published Wednesday.
Fair-Access laws are laws that seek to prevent banks (or other financial services providers) from discriminating against customers because of the customer’s legal but controversial activities, lines of business, or political beliefs. Under the Trump administration the OCC attempted to promulgate a regulation that would have prevented large national banks from considering certain criteria when deciding whether to provide services, but it was never published and was eventually put on hold indefinitely. Recently, Florida and Tennessee have passed laws seeking to accomplish a similar objective, with other states expected to consider them in the near future.
Unsurprisingly, such laws, and the idea behind them, are controversial. While opposition from the left might be expected given who has pushed the effort, there has also been significant opposition on the right. Some conservatives worry that government seeking to restrict the discretion of private companies will only increase the scope and power of a government that is inherently hostile to conservative beliefs. Likewise, the OCC’s proposal was opposed by libertarians who worried it would increase the control of government over banking and lead to banks becoming public utilities.
These concerns are not frivolous. And yet, there are reasons that conservatives have become more comfortable with the use of government power to prevent what they consider to be a misuse of the financial system that poses a significant threat to important values and constituencies.
Those supporting fair-access laws are not wrong in their belief that access to financial services is essential to be able to function in a modern economy, or as the Supreme Court recently said, quoting the Seventh Circuit, cutting off someone’s access to financial services is akin to “killing a person by cutting off his oxygen supply rather than by shooting him.”
Nor are they hallucinating when they say that there have been efforts to use financial services and financial regulation as a tool to de-facto regulate all sorts of industries and behaviors, or as an end-run around the legislative process with its constitutional checks and safeguards. In fact, the proponents of such efforts view financial services as a valuable tool because of its power and scope. It is important to keep in mind therefore that the push for fair-access laws is in opposition to these efforts to use financial services as a tool to control others.
This series will discuss four arguments that might justify fair-access laws, or at least respond to critiques of such laws. It will not get into the specifics of any particular fair-access law or the arguments around whether the state laws currently in effect conflict with things like anti-money laundering requirements or national bank federal regulatory supremacy. Instead, it will simply discuss four conceptual arguments that could justify the state intervening to protect customers and the public from being de facto regulated by being cut off from financial services.
These arguments are not mutually exclusive, nor are they equally applicable in all cases. They also aren’t necessarily dispositive; counterarguments can be made. Finally, these arguments are not necessarily all the possible arguments available, but they strike me as the most salient and justifiable for someone who begins with a presumption against increased regulation of at least nominally private actors.
Argument 1 – The Protection of Rights
One of the core purposes of government is to protect the rights of its citizens from the acts of others. Defining what is a “right” is one of the perennial challenges of political philosophy, but in the United States we have at least some rights that are generally agreed upon, even if the exact scope of the right is disputed. Federal and State Bills of Rights are one place where rights tend to be enumerated, though they are not meant to be treated as an exhaustive list.
Other rights are implicit in our form of government. While the First Amendment protects political speech and assembly from government action, there needs to be protection from certain types of private coercion as well to ensure citizens are able to fully exercise their rights. This insight explains why even in the early republic laws existed to prevent legal and economic pressure from being applied to someone in an effort to change their vote or punish them for how they voted.
Further, implicit in our system is the idea that to the extent people will have their choices curtailed by public policy, it will be done through the proper process, rather than by subversion or exploitation of the process. If a legal but controversial actor’s ability to function is curtailed or eliminated because they cannot access financial services not only is the actor harmed, but those who want what the actor is providing, be it political activity or goods and services are also harmed.
If one cannot meaningfully join a political movement they agree with, or buy a good they are legally entitled to, or execute on a duly enacted and constitutional public policy because doing so has been intentionally rendered financially impossible, it is akin as a practical matter to a legal prohibition.
Of course, the protection of one person’s right to speak, vote, worship etc. could conflict with the right of another to freely associate (or disassociate) with others or use their property as they see fit. One right will need to be prioritized over another.
The political process is one of the major ways societies make that determination. Of course, politics is deeply imperfect, and legislatures are by no means infallible. Elected officials may be wrong, they may be malicious, they may be subject to pressures or incentives that distort right thinking. All these factors counsel caution. Government power is, to borrow from someone who likely wasn’t George Washington, a dangerous servant and a fearful master.
And yet, there are also advantages to the political process on matters of public policy. The political process requires the involvement of many different interests, provides formal political equality regardless of wealth or status, is generally transparent, and is subject to constitutional limitation and checks and balances, including the ability of individuals to seek redress in court.
Conversely, while market processes can be great for certain tasks, they also have disadvantages. They tend to be more opaque, less accountable, and are also subject to abuse. For example, managers of private corporations may use a firm’s power, including that provided to the firm by public policy, for their own benefit, or to placate powerful constituencies, or out of a misplaced sense of importance. On matters of public policy there is no reason to believe such decisions are somehow better than what would be derived from the political process.
To the extent these fair-access laws seek to protect core rights, from such attacks, or protect people from being rules outside of the appropriate Constitutional process, they may be legitimate exercises of power.
Legal intervention in fact be necessary if other possible checks do not exist or would not adequately or justly redress the problem, or if the source of the problem is itself government action, since you need a law to repeal a law. Legal intervention may also be necessary if regulators or other government actors misuse or exceed their legally granted authority to impose their preferences on others, something that is sadly not unheard of in financial services. A law that clearly prevents certain behavior can take precedent over vague appeals to poorly defined regulatory authority, or at a minimum force a reckoning before a court where the exact scope of regulatory authority can be determined.
Future arguments
Of course, one of the strongest arguments against legal intervention is that such a law would impinge on the rights of the financial firm to make its own decisions about how and with whom to do business. However, in the case of financial firms, especially banks, that right may be weaker than expected.
This is due to the reality that public policy provides banks, and to a lesser extent other financial firms, with significant power but societies give that power for specific financial reasons that do not include the ability to restrict or affect unrelated conduct of others. Further, when talking about the right of a firm to do X or Y, modern corporate structures and governance may make it hard to assess just whose right needs to be protected. What may look like, on the surface, a fair-access law violating a firm’s rights may in fact be the law addressing an agent-principal problem.
These arguments will be discussed in more detail in subsequent posts. The next post will discuss the argument that financial firms, particularly banks, receive significant power and protection from the government for certain purposes, and that fair-access laws can be complimentary to the purpose and help ensure the power is not misused. It will then discuss the problem of identifying just whose right to association is relevant when determining whether fair-access laws unduly burden free association. The final post will discuss the concern that the market may not provide an adequate solution to the problem that fair-access laws seek to address.