On March 3, 2021, US Senator Kevin Cramer (R-ND) introduced Senate Bill 563(1) to amend the Federal Reserve Act to prohibit financial institutions who deny customers fair access to financial services from using the Fed’s taxpayer funded discount window lending program.
The legislation is the next phase in a fight for fairness in banking that was begun in 2020 by former Acting Comptroller of the Currency Brian Brooks at the OCC. On January 14, 2021, the day that he left office, Brooks approved the OCC’s Final Rule Requiring Large Banks to Provide Fair Access to Bank Services, Capital, and Credit.(2)
Originally crafted with teeth that would have imposed meaningful penalties on banks for engaging in discriminatory practices, the final OCC rule was significantly watered down. Specifically, the vital teeth of “section 55.1(b)(3) of the proposed rule, which would have required that a covered bank not deny any person a financial service the bank offers when the effect of the denial is to prevent, limit, or otherwise disadvantage the person: (1) from entering or competing in a market or business segment; or (2) in such a way that benefits another person or business activity in which the covered bank has a financial interest” was excluded from the rule.
Internet activism stemming from more than 35,000 comments and suggestions was the reason cited for elimination of the enforcement teeth from the rule. While the rule covered a variety of politically disfavored industries that would have benefited from fairer treatment, it was a battle over gun control activism that flooded the OCC’s comments pages. To better understand the internet flash mob effect that took place, normally, a bank regulation rule gets around 100 comments.
And then fourteen days later, on January 28, 2021, after the newly inaugurated Biden administration took office, the OCC halted the implementation of the Final Rule “pausing publication of the rule in the Federal Register will allow the next confirmed Comptroller of the Currency to review the final rule and the public comments the OCC received, as part of an orderly transition.”.(3)
One phase of battle within the D.C. Beltway ends, the next phase begins.
Now the agenda shifts to the US Senate and Kevin Cramer’s bill. It would create even more punitive penalties for banks that engage in discriminatory behavior by cutting misbehaving institutions from the vital Fed discount window they rely on for liquidity. Quite honestly, it is an existential threat to a bank to lose that access. It is a nuclear weapon class solution to something that the OCC and other bank regulators should have handled administratively with painful, but not necessarily life-threatening enforcement methods.
The industry groups that supported the OCC Rule initiative have now lined up behind Cramer’s bill. The Fair Access to Banking Coalition repeats the main industry complaints from 2020 that “The rise of “cancel culture” in America has become a slippery slope, leading to unfounded discrimination by financial institutions against many of our nation’s core industries and leading job creators. Specifically, America’s gun manufacturers, energy producers, animal agriculture, government contractors and several other law-abiding and heavily regulated industries are being denied access to standard financial services offered to other industries and customers — based solely on subjective social and political views.”
Those are strong complaints that the now abandoned language of what was section 55.1(b)(3) of the OCC’s originally drafted rule was meant to address.
It remains to be seen if the eventual Biden administration appointee to lead the OCC will move forward with the push to fairness that Mr. Brooks started. But with Sen. Cramer creating pressure for a legislative branch mandate, I am pretty sure we haven’t heard the last of this one.
- Link to March 3, 2021 Senate Bill 563, https://www.congress.gov/bill/117th-congress/senate-bill/563
- Link to January 14, 2021 OCC Press Release on Final Rule on Fair Access to Banking Services, https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-8.html
- Link to January 28, 2021 OCC Press Release OCC Puts Hold on Fair Access Rule, https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-14.html
- Link to Fair Access to Banking Coalition webpage, https://fairbanking.org/