In a world of cancel culture and deplatforming from tech and financial services, a new regulation was recently set up to address it. However, it could be short-lived and set to be repealed under President Biden’s administration.
The Office of the Comptroller of the Currency finalized a rule that would prohibit banks from refusing to do business with companies based on their industry and politics. When the rule comes into effect, banks will no longer have the choice to refuse to deal with businesses in the oil and firearms industry, for example.
The OCC proposed the rule less than two months ago. The regulator seems to have rushed to pass it since the incoming Biden administration would probably block it.
The rule announced on Wednesday, the same day Biden was inaugurated, makes it illegal for banks regulated by the OCC and have more than $100 billion in assets to refuse a customer for any other reason aside from financial risk. The rule seems to target banks that refuse to deal with oil drilling and firearms companies, for “ethical reasons,” but also has wider implications in today’s cancel culture world.
Acting Comptroller Brian Brooks, defended the rule saying that banks “should not terminate services to entire categories of customers without conducting individual risk assessments.”
He also argued that it is not upon banks to determine “what is legal and illegal in our country” as that is the work of elected officials.
The fair access rule was first proposed on November 19. It was lauded by Republicans who have previously blasted financial institutions for refusing to serve oil grilling and firearms companies. Some of the banks that have dropped clients in these industries include JP Morgan Chase, Goldman Sachs, Bank of America, Morgan Stanley, Wells Fargo, and Citibank.
“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 North Dakota Sen. Kevin Cramer, also a member of the Senate Banking Committee. His support for the rule could stem from the fact that North Dakota is one of the largest oil and gas producers in the US.
The regulator also justified the rule because it has an obligation “to ensure fair access to financial services, and fair treatment of customers” by financial institutions under the 2010 Dodd-Frank Wall Street reform law.
However, critics argue that the fair access principles laid out in the reform law were meant to protect minorities and low-income earners, who have been discriminated against by banks for years — a point likely to be raised by the Biden administration.
Critics have also blasted the OCC for rushing to pass the rule. The regulator finalized the rule less than two months after proposing it and only ten days after the mandatory comment period ended, surprisingly quick 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,” said Greg Baer, the CEO of the advocacy group for big banks, Bank Policy Institute.
Baer also argued that the rule infringes on the banks’ freedom to make independent decisions, considering they are 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,” Baer explained.
The Biden administration, which is likely going to oppose it, has many options to prevent it from taking effect.