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Debanked?
President Donald Trump on Aug. 7 signed an executive order tackling the so-called debanking of industries or customers based on political or religious beliefs or “lawful business activities.” Two days prior on CNBC, Trump said that he himself was a victim of such a practice.
The order directs federal regulators to remove reputation risk from examination materials and guidance, citing it as a contributor to the debanking of some accounts — particularly specific industries. The heads of the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. have confirmed their agencies have taken those steps. Further, supervisors will look for past “politicized or unlawful” debanking activity and take remedial action, which could include fines. Rep. Andy Barr (R-KY) announced on Aug. 8 that he would introduce legislation in Congress, which would apply more permanence to the order. Already, state-level legislation has targeted perceived debanking activity.
A bank can close an account for numerous reasons without providing a rationale, often citing federal law. Matthew Bisanz, a partner at Mayer Brown, says that under the Bank Secrecy Act, “you cannot tip someone off if you are reporting them for engaging in suspicious activity.” Banks also can’t disclose confidential supervisory information — say, if their regulator told them an industry was particularly risky, or they were concerned about the bank’s concentration in a particular area. That lack of disclosure has left banks open to sometimes dubious claims of debanking.
So far, those allegations have been difficult to prove. But the new marching orders from President Trump mean that banks will need to justify those decisions to supervisors. “You're going to have customers who file complaints with the regulators or express public complaints about not being able to obtain banking services, and I do think people are going to have to show their homework,” says Jeffrey Taft, partner and co-leader of the financial services practice at Mayer Brown. “Regulators are going to ask questions.”
• Emily McCormick, vice president of editorial & research for Bank Director
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