The OCC released the preliminary findings from its “Review of Large Banks’ Debanking Activities” undertaken pursuant to an Executive Order on debanking.

The findings are a nothing burger. The OCC did not adduce any examples of any individual or business being denied financial services because of viewpoint or line of business. Instead, all it found were that large banks required more complicated internal approval processes for lines of business that present reputation risk. That’s 100% legal. Let me repeat that again: the OCC did not find any evidence of denial of services, just of heightened review for certain lines of business that pose reputational risk. Moreover, the OCC did not adduce any evidence of banks discriminating against individuals on the basis of their politics or religion. Instead, all it found was evidence of prudent banking practices. Yawn.

The OCC found that the 9 large banks it reviewed¹:

maintained public and nonpublic policies restricting certain industry sectors’ access to banking services, including by requiring escalated reviews and approvals before providing access to financial services (collectively, “restrictions” or “restricted access”). The basis for these restrictions often extended beyond core financial risks and instead focused on the impacts to the banks’ reputation associated with engaging with certain industry sectors. Many industry sectors were restricted based primarily on how it might appear to the public if the bank provided access to financial services to these sectors, rather than for reasons related to the bank’s or the would-be customer’s ability to comply with applicable law or the ability for the bank to extend financial services in a safe and sound manner.

The affected industries were fossil fuels, firearms, private prisons, payday lending, debt collection, tobacco, porn, political action committees, and crypto.

OK, so what? That’s all 100% legal. Banks don’t have to serve porn sites or crypto companies or payday lenders if they don’t want to. For any reason. Banks are free to discriminate against vegetarians, oboists, philatelists, anti-vaxxers, flat-earthers, antifa, Proud Boys, proud girls, cat owners (childless or otherwise), Whigs, Democrats, and people who part their hair down the center. They are unlikely to do so based solely on viewpoint or association (actions are another matter), but they are free to do so.

Nevertheless, the OCC ominously states that “At the conclusion of its review, the OCC intends to hold these banks accountable for any unlawful debanking activities.” Here’s the thing: there is no such thing as “unlawful debanking activities” except debanking someone based on race (which would violate the Civil Rights Act of 1866). And no one has alleged racial debanking. So this is all a lot of chest puffing by the OCC.

Viewpoint Discrimination Is Legal

Banks are not common carriers or public utilities, nor should they be. They do not have a legal duty to serve all comers. Instead, they are allowed to discriminate among customers, whether for credit or for deposit services, other than on race, as noted above. (Deposit services actually entail significant credit risk–just ask Fire Festival’s acquirer banks. That’s also why banks use ChexSystems to screen potential customers for overdraft risk.) There is no general anti-discrimination law that applies to banks beyond the Civil Rights Act of 1866. ECOA only covers credit, not other services, and Fair Housing Act only covers mortgage transactions (as far as banks are concerned).

Readers might point out that the CFPB’s examination manual had for a short while some language saying that discrimination against customers in non-credit transactions could be a UDAAP violation. I think that was simply incorrect as a matter of law (and the UDAAP manual is NOT how a major legal change should be announced). UDAAP is not a civil rights law, and more importantly, even if it were, there is no list of protected classes. Protected classes vary quite a bit among civil rights laws: ECOA and the Fair Housing Act do not have exactly the same classes (e.g., ECOA doesn’t cover familial status or handicap, while the Fair Housing Act does). Likewise, recall that ECOA did not originally cover race (it was focused on sex discrimination). Without a list of protected classes, it isn’t clear what discrimination would be illegal.

Irrespective, there is no universe in which political viewpoint is ever a protected class. Whatever one thinks of ESG, for example, it’s legal, and it’s up to shareholders to discipline it, not the government. Viewpoints have consequences in the market for ideas, and the government shouldn’t be in the business of subsidizing them by forcing businesses to be viewpoint neutral, absent evidence of a market failure.

There Is No Evidence of Banks Engaging in Viewpoint Discrimination Against Individuals.

It would be extraordinary for a bank to discriminate against an individual based on politics or religion, in part because the bank is unlikely to know of the customer’s politics or religion–the customer isn’t asking for a wedding cake with two grooms on it–but for an account. The handful of examples that have been claimed don’t actually pan out on inspection:  the individual in question is always engaged in some high-risk activity, such as large foreign remittances or operating a high-risk business like debt collection. The fact that they are Christian or Muslim is beside the point.

Now before someone trots out the debanking of Mike Lindell and MyPillow, let’s remember that Lindell wasn’t debanked because of his political views, but because of his actions. His bank only sought to exit the relationship after he was subpoenaed by the January 6 Committee. Up until that point, his bank had no problem with his politics. When political views spill over into potentially criminal actions, however, it’s reasonable for a bank to decide it’s better not to be in a business relationship.

Of Course Banks Discriminate Based on Line of Business

The idea that a bank would discriminate against particular lines of business shouldn’t seem remarkable at all. A customer’s line of business is always part of a bank’s credit or account decisions. Indeed, some banks specialize in serving particular high-risk lines of business precisely because other banks don’t want the hassle. They don’t want to have file numerous SARs or to undertake more complicated Customer Due Diligence. The market segmentation is just the market working as it should.

Ultimately, banks are businesses, and like any business they have reputational concerns. It’s entirely appropriate for bank regulators to point out reputation risk concerns to banks, just as it is with any type of risk, but it’s ultimately the bank’s business how to manage its reputation risk, unless the government thinks the bank’s activities rise to the level requiring a cease-and-desist order.

The OCC Report Is a Nothing Burger: What’s NOT in the OCC Report

The OCC wants the headline to be about how they found misbehavior by banks, but that’s not at all what the report actually says. If you read it carefully, you realize that it’s basically an own-goal.

First, there is NO allegation of a denial of services based on a line of business. Instead, the allegation is of a requirement of “escalated reviews and approvals.” In other words, banks were being careful about customers that posed reputational risk. Isn’t that what we want them to do? Isn’t that just prudent business behavior?

Likewise, the OCC report says not a word about accounts being closed because of someone’s faith or politics. There just isn’t any evidence to support the supposed weaponization of banks to persecute conservatives.

So we have a report that finds that banks are doing what they ought to be doing. That’s the very definition of a Nothing Burger. Now it’s a preliminary report, so perhaps the OCC will adduce further evidence, but I’d be very surprised if anything comes of this. It’s a snipe hunt that is wasting OCC resources.

I’ve got a paper on all of this that will be up on SSRN soon–just have to incorporate some workshop feedback!

 

 

 

1. The number 9 is presumably so as not to run afoul of the Paperwork Reduction Act. ↩︎