On Wyoming’s New Anti-Financial Discrimination Law

Corporations appear to be increasingly wading into politics, so it isn’t surprising to see politics wading right back. A recent example is…

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Corporations appear to be increasingly wading into politics, so it isn’t surprising to see politics wading right back. A recent example is Wyoming’s new law that prohibits “financial institutions” including payment processors and state and nationally chartered banks from refusing to do business with certain businesses and trade groups because their business involves firearms. Recall that banks have been pressured/encouraged to use their critical role in the economy to effectively impose de facto regulation beyond what Congress was willing to accept. Several large banks in fact did restrict their business dealings with firearms firms with a motive of trying to bring about changes to the availability of certain otherwise legal products. Unsurprisingly, this move was controversial, not least of which because banks enjoy significant government privilege, and has led to people and politicians who would generally be expected to give the private sector wide latitude to call for restricting banks discretion.

This brings us to Wyoming, which is one of at least two states (Georgia being the other I know of) that prohibits discrimination by banks and other financial institutions against firearms businesses. This doesn’t mean that financial institutions have an affirmative duty to serve firearms businesses however. A financial institution can still refuse to do business with a firearms business for “business or financial reasons,” or if it was directed to do so by its regulator. However, business or financial reasons cannot include a blanket policy to refuse to serve firearms businesses. The prohibition also doesn’t apply to institutions that have their own written policy prohibiting them from discriminating against firearms businesses.

In the event of a violation the injured party can sue and, if successful, receive damages (including treble, punitive, and exemplary damages) and injunctive relief. The Wyoming Attorney General may also bring an action seeking declaratory judgments, injunctions, and in some cases civil fines. If a firm is found to have discriminated the Wyoming Attorney General will also notify the Governor and request that the state of Wyoming cut any business ties with the financial institution, though the Governor can presumably decline to do so. (Confusingly, there is also a provision that the remedies and actions available will not be applicable if the institution has a written non-discrimination policy, even though violations of the firms’ policy can give rise to civil penalties.)

The law’s framing as an anti-discrimination measure has some interesting implications. First, this law does not represent an effort to make financial institutions public utilities. As is typical for anti-discrimination law, the intent of the law is not to create an affirmative obligation to provide services but rather to restrict a firm’s discretion to prevent them using a prohibited characteristic in their decision making. Covered firms can refuse to do business with a firearms business, but not because they are a firearms business. This may present some close questions for juries to sort out, but that is consistent with other anti-discrimination laws.

Secondly, in making the law an anti-discrimination law it makes it more likely that Wyoming will be able to bind national banks. The OCC has taken the position that state laws prohibiting discrimination in lending are generally not preempted. Relatedly, the Supreme Court has held that state officials may bring enforcement actions against national banks for non-preempted state antidiscrimination laws. While firearms business is not a traditional protected class, states frequently have protected classes in their anti-discrimination law that do not exist at the federal level. For example, in a 2004 letter to Rep. Barney Frank the OCC acknowledged sexual orientation as a valid protected class in state law even though at the time it was not recognized as one in comparable federal laws. It is possible that the OCC could try to preempt Wyoming’s law on the grounds it interferes with the power of a national bank, but doing so could be politically and legally challenging.

Another interesting aspect to the law is that is provides a private right of action. This is common in antidiscrimination law and has the effect of providing a private enforcement mechanism, rather than just relying on the Attorney General. This may be to spread the costs of enforcement but it also provides a means for continued enforcement of the law even if the Attorney General is disinclined to do so. While I don’t know if that is likely in Wyoming anytime soon, one could imagine a scenario where the Attorney General opposes the law on policy grounds, using prosecutorial discretion to deprioritize enforcement, and the private right of action could prevent the law from becoming effectively dead letter.

How effective this law will be remains to be seen. Wyoming is a sparsely populated state with one of the smallest economies (though quite impressive when measured per capita). As such, it is possible that some banks and other financial providers will simply exit the market. However, if other states adopt similar provisions, especially large states like Texas and Florida, there may be a tipping point where the economics drive financial institutions to comply with the law.

Whether laws like this are a good idea is debatable. An argument can be made that they unduly intrude on the freedom of association enjoyed by corporations. A counter-argument can be made that state efforts to prevent financial firms from using their critical position in the economy to try to frustrate lawful but controversial commerce is valid and may in certain instances be overall freedom enhancing. Even if one accepts the general premise, the question then becomes whether specific lines of business should be singled out for protection or should there be a more general antidiscrimination law. What does seem clear is that the more commerce is seen as a tool to de facto regulate, there will be a corresponding increased interest in de jure regulation to check it. After all, you can’t take an interest in politics and not expect it to return the favor.