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Proposed federal rule for Fair Access to Financial Services without regard to politics


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2020 Dec 14, 7:25pm   219 views  0 comments

by Patrick   ➕follow (55)   💰tip   ignore  

https://www.regulations.gov/document?D=OCC-2020-0042-0001


Consistent with the Dodd-Frank Act's mandate of fair access to financial services and since at least 2014, the OCC has repeatedly stated that while banks are not obligated to offer any particular financial service to their customers, they must make the services they do offer available to all customers except to the extent that risk factors particular to an individual customer dictate otherwise. As the OCC's then-Comptroller stated in a 2014 speech:

No matter what type of business you are dealing with, you have to exercise some sound judgment, conduct your due diligence, and evaluate customers individually. Even in areas that traditionally have been viewed as inherently risky, you should be able to appropriately manage the risk. This is basic risk management, and that's a business that the institutions we at the OCC supervise excel at. You shouldn't feel that you can't bank a customer just because they fall into a category that on its face appears to carry an elevated level of risk. Higher-risk categories of customers call for stronger risk management and controls, not a strategy of total avoidance. Obviously, if the risk posed by a business or an individual is too great to be managed successfully, then you have to turn that customer away. But you should only make those decisions after appropriate due diligence. (3)

This principle of individual, rather than category-based, customer risk evaluation has since been reinforced in numerous OCC reports, the testimony of OCC officials, and other agency releases. (4)

On at least two occasions, the OCC has issued guidance to specifically address reports of banks refusing to provide access to financial services to entire industry categories engaged in lawful business activities without regard to the risk factors of the individual customers in these industry categories. In 2014, amid reports of banks refusing to provide financial services to the entire category of money services businesses (MSBs), the OCC issued a clarification of its supervisory expectations with regard to banks offering financial services to MSBs. (5) The guidance emphasized that banks should not “engage in the termination of entire categories of customers” and stated that “banks are expected to assess the risks posed by an individual MSB customer on a case-by-case basis and to implement controls to manage the relationship commensurate with the risk associated with each customer.”  (6)

In 2016, the OCC addressed a similar issue in the context of foreign correspondent banking. In guidance issued that year, the OCC made clear that refusing to service the entire category of foreign correspondent banking was inconsistent with supervisory expectations and that banks must decide whether to serve individual firms “based on analysis of the risks presented by individual foreign financial institutions and the bank's ability to manage those risks.”  (7)

Despite the OCC's statements and guidance over the years about the importance of assessing and managing risk on an individual customer basis, some banks continue to employ category-based risk evaluations to deny customers access to financial services. This happens even when an individual customer would qualify for the financial service if evaluated under an objective, quantifiable risk-based analysis. These banks are often reacting to pressure from advocates from across the political spectrum whose policy objectives are served when banks deny certain categories of customers access to financial services.

The pressure on banks has come from both the for-profit and nonprofit sectors of the economy and targeted a wide and varied range of individuals, companies, organizations, and industries. For example, there have been calls for boycotts of banks that support certain health care and social service providers, including family planning organizations, and some banks have reportedly denied financial services to customers in these industries. (8) Some banks have reportedly ceased to provide financial services to owners of privately owned correctional facilities that operate under contracts with the Federal Government and various state governments. (9) Makers of shotguns and hunting rifles have reportedly been debanked in recent years. (10) Independent, nonbank automated teller machine operators that provide access to cash settlement and other operational accounts, particularly in low-income communities and thinly-populated rural areas, have been affected. (11) Globally, there have been calls to de-bank large farming operations and other agricultural business. (12) And companies that operate in industries important to local economies and the national economy have been cut off from access to financial services, including those that operate in sectors of the nation's infrastructure “so vital to the United States that their incapacitation or destruction would have a debilitating effect on security, national economic security, national public health or safety, or any combination thereof.”  (13)

It is our understanding that some banks have taken these actions based on criteria unrelated to safe and sound banking practices, including (1) personal beliefs and opinions on matters of substantive policy that are more appropriately the purview of state and Federal legislatures; (2) assessments ungrounded in quantitative, risk-based analysis; and (3) assessments premised on assumptions about future legal or political changes. In some cases, banks appear to have denied persons access to financial services without even attempting to price the financial services to reflect the perceived risk.
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