Banks pick apart OCC ‘fair access’ plan, but customers praise it

WASHINGTON — Trade associations representing the nation’s largest banks are calling on the Office of the Comptroller of the Currency to withdraw its so-called “fair access” to banking proposal, even as gun enthusiasts, the energy industry and others cheer the effort.

The proposal, issued in late November, would require big national banks to do business with assault-weapons makers, fossil fuels companies and other polarizing commercial businesses if they meet standard credit and other objective criteria. The plan echoed concerns raised by Senate Banking Committee Chairman Mike Crapo and other Republicans that some banks’ decisions to cease or limit business with certain sectors amounted to discrimination.

That banks would bristle at government direction on which clients to serve, or that members of industries that have had their banking services cut off would side with acting Comptroller Brian Brooks, isn’t completely surprising. And the fate of the proposal is uncertain given that the incoming Biden administration could seek to replace Brooks him with someone who halts the rulemaking or undoes it if it’s finalized quickly.

Still, comment letters filed in recent weeks highlight the raw nerves that the proposal touches, and the fundamental questions it raises — like the future of risk management, especially banks’ handling of reputational risk.

“The arbitrary and capricious nature of the proposal, the lack of clear statutory authority, its inconsistency and potential conflict with long-standing and widely accepted risk management and supervisory practices, and the significant compliance costs it would impose, make the proposed rule untenable,” the American Bankers Association wrote in an unsigned comment letter.

Gun owners submitted hundreds of comments in support of the OCC’s “fair access” proposal and the firearm industry’s right to financing. But the ABA says, “some institutions … have taken the position that they will not provide services to certain industries … because of the perceived ethics of the business within their communities, employees and shareholders.”


One of OCC’s key arguments is that banks lack the capacity to make service decisions that aren’t rooted firmly in finance. “Neither the OCC nor banks are well-equipped to balance risks unrelated to financial exposures and the operations required to deliver financial services,” the agency wrote in the proposal. “For example, climate change is a real risk, but so is the risk of foreign wars caused in part by U.S. energy dependence and the risk of blackouts caused by energy shortages.”

But according to the ABA, the proposed rule is “wholly inconsistent” with decades of guidance from the OCC on reputational risk, which instructs banks to consider not only the raw financials of prospective of clients but their public standing as well. Deaths associated with chronic gun violence in the U.S. have been a key rationale behind some banks’ decisions to stop doing business with certain firearm manufacturers, for instance.

“Some institutions … have taken the position that they will not provide services to certain industries for ethical or faith-based reasons, because of the perceived ethics of the business within their communities, employees and shareholders,” the ABA argued. “Their reputation in their communities would be at stake if they did not exercise such discretion. In the end, the qualitative risks are real, and banks are properly considering them.”

The Consumer Bankers Association acknowledged in its comment letter the historic shortcomings of reputational risk management but stressed it should still have a place in a bank’s strategic planning.

“Under the guise of reputational risk, we have seen the concept of banking unsavory entities taken too far,” wrote David Pommerehn, general counsel of the CBA. “At the same time, banks should be allowed to make decisions based on complex corporate strategies and risk management tools to address risks to their reputation. The proposal raises questions about its impact on these long-standing and well-established bank risk management practices.”

The uncertain role of reputational risk management would almost certainly reverberate across all core elements of a bank’s business, advocates said, severely limiting the discretion and strategic capacity of management. Having “an affirmative obligation to provide products and services to the public as prescribed by the OCC,” the ABA wrote, “seemingly puts covered banks into the role of a financial utility.”

Bank advocates also argued that in practice, the proposal’s requirement that no person be denied any kind of service whatsoever without “documented failure to meet quantitative, risk-based standards,” to quote the proposal, would be a massive compliance burden, particularly in heavily automated lending sectors such as credit cards.

“The requirement thatevery decision by a covered bank to deny credit or another product or service to a potential customer be based on aquantified and documented failure by the customer to meet quantitative, uniform risk-based standards creates costly and burdensome documentation requirements,” Greg Baer, CEO of the Bank Policy Institute, wrote in a comment letter.

Moreover, the ABA and BPI and other commenters said the proposal isn’t based on the statutory provisions of the National Bank Act, but the agency’s mission statement from the law’s preamble. The mission statement of the OCC was tweaked by Dodd-Frank in 2010, which introduced text stating that one component of the agency’s mission included “fair access to financial services.”

“It strains credulity and is likely arbitrary and capricious to promulgate a significant, burdensome and novel rule on the addition of two brief clauses to the prefatory mission statement for the OCC within the National Bank Act,” the ABA comment letter said. “There is no indication that Congress intended to expand the authority of the OCC to issue novel rules outside the scope of established consumer protection laws.”

The OCC’s proposal would apply only to national banks with assets greater than $100 billion. Those banks — there are 20, including JPMorgan Chase, Capital One Bank and BMO Harris Bank, according to Federal Deposit Insurance Corp. data — would be required to provide virtually any financial service offered in a given geographic market to all persons “on proportionally equal terms.”

It would also prohibit these banks from denying services to anyone unless “justified by such person’s quantified and documented failure to meet quantitative, risk-based standards established in advance by the covered bank,” according to the proposal.

The OCC claimed it had observed instances where large national banks had made certain business decisions based on “personal beliefs and opinions on matters of substantive policy that are more appropriately the purview of state and federal legislatures.”

Several trade groups from outside the banking sector — including the Independent Petroleum Association of America, the Association of Credit and Collection Professionals, National Association of Manufacturers, National Pawnbrokers Association and National Shooting Sports Foundation — lauded the OCC proposal for highlighting struggles with accessing financial services that their members have reported at times.

“If finalized, the proposed regulation will ensure that large national banks provide access to the services they offer based on objective risk management criteria,” Chris Netram, vice president of tax and domestic economic policy at the National Association of Manufacturers, wrote in a comment letter. “The NAM respectfully encourages the OCC to swiftly finalize the proposed regulation and continue its efforts to bolster the integrity of the U.S. financial system.”

Several groups said the problem dates back to Operation Choke Point, an Obama-era Justice Department initiative intended to sharpen banks’ attention to risks of fraud and money laundering. But critics claimed that regulators effectively compelled banks to cut ties with legal but high-risk industries, such as payday lenders.

“On numerous other occasions since the inception of Operation Choke Point, credit and collection professionals have had their banking relationships abruptly terminated,” Leah Dempsey, vice president and senior counsel of the Association of Credit and Collection Professionals, wrote in a comment letter. That phenomenon has “threatened the existence of their businesses and their employees’ jobs, since in certain states a license to operate is reliant on having a banking relationship.”

The “fair access” proposal also ignited substantial interest from gun owners, who submitted hundreds of comments in support of the proposal and the firearm industry’s right to financing. Their attention was likely piqued in part by an op-ed written by Brooks and published in Game & Fish magazine in November, which argued that without his proposed rule, “the powerful interests at work will restrict Second Amendment rights and availability of sporting arms by suffocating the industry from capital and financing that make them possible.”

Meanwhile, environmental groups are almost universally opposed the proposal, given that one of the clearest beneficiaries of the rule, if finalized, would be oil and gas companies some banks have decided represent too much reputational and climate-change risk.

“Under the guise of seeking to provide fair access to financial services, the proposed regulation seeks to dissuade large banks from ceasing to lend to new oil and gas projects, including in the Arctic,” wrote the Natural Resources Defense Council in a comment letter. “The proposed regulation treats the decision whether to lend to these activities as some sort of ‘political’ decision not rooted in sound banking principles. But climate risk, as informed by current consensus science, is very much a financial risk.”

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