The Office of the Comptroller of the Currency (OCC) on Thursday finalized a controversial rule banning large banks from rejecting businesses based on their industry.
The move comes less than two months after the agency first proposed the regulations.
The rule makes it illegal for any bank regulated by the OCC with more than $100 billion in assets to reject a customer for reasons other than financial risk. Supporters and critics of the rule both say it is intended to prevent more banks from joining those who’ve stopped serving firearm companies and financing oil and gas drilling projects.
“As Comptrollers and staff in previous administrations have made clear in speeches, guidance, and testimony, banks should not terminate services to entire categories of customers without conducting individual risk assessments,” said Acting Comptroller Brian Brooks, who announced Wednesday he will leave the agency on Thursday.
“It is inconsistent with basic principles of prudent risk management to make decisions based solely on conclusory or categorical assertions of risk without actual analysis. Moreover, elected officials should determine what is legal and illegal in our country,” he said.
The OCC first proposed its fair access rule on Nov. 19 to praise from Republicans, who’ve fiercely criticized several major banks that dropped clients in the firearm industry or pledged to stop funding Arctic drilling projects. Those banks include Citibank, Morgan Stanley, Goldman Sachs, Bank of America, Wells Fargo and JPMorgan Chase.
“Fairness matters. Discrimination is not allowed in our society and big banks should not be an exception. No matter how important their services are, they do not have the right to create de-facto bans on legal businesses like energy producers and gun manufacturers,” said Sen. Kevin Cramer (R-N.D.), a member of the Senate Banking Committee whose state is one of the biggest U.S. producers of oil and natural gas.
The agency argued that the rule upholds the OCC’s obligation “to ensure fair access to financial services, and fair treatment of customers” by banks under the 2010 Dodd-Frank Wall Street reform law.
Democrats, however, argue that the Dodd-Frank fair access principles are meant to protect people of color and low income communities who’ve faced decades of banking discrimination — not powerful corporations with ample financial sector options.
Bank industry groups have also condemned the OCC rule as an unnecessary intrusion into decisions made by private businesses.
“The rule lacks both logic and legal basis, it ignores basic facts about how banking works, and it will undermine the safety and soundness of the banks to which it applies,” said Greg Baer, president and CEO of the Bank Policy Institute, a research and advocacy group for big U.S. banks.
Critics of the rule have also ripped the OCC for seeking to approve it quickly before President-elect Joe Biden takes office and appoints a new comptroller, who could have stopped the rule from being finalized. The OCC finalized the rule just ten days after the legally mandated comment period ended and less than two months after it was first proposed, a remarkably fast turnaround for a federal rule.
“Its substantive problems are outweighed only by the egregious procedural failings of the rulemaking process, and for these reasons it is unlikely to withstand scrutiny,” Baer said.
The only difference between the final rule and the proposal is the removal of a provision that would have made banks offer a service to a business if rejecting it would have prevented the firm from entering or competing in a market or would have helped another customer of the bank, the OCC said.
The fair access rule is set to take effect April 1, but the Biden administration likely has several options to prevent that from happening.
Biden is expected to appoint a new acting comptroller on Jan. 20 while his nominee to lead the OCC awaits Senate confirmation. A new acting comptroller can likely delay when the rule takes effect so the OCC can revise it or scrap it altogether.
Biden and Congress can also try to revoke the rule through the Congressional Review Act (CRA), which allows both chambers to pass a bill repealing a new regulation and preventing the agency from releasing a similar rule.
–Updated at 9:53 a.m.