OCC issues proposed rule on fair access to financial services

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The OCC has issued a proposed rule that would establish standards that a bank must follow in fulfilling its obligation to provide fair access to financial services.  Comments on the proposal are due by January 4, 2021.

The rule would apply to national banks and federal savings associations with a market position that allows them to (1) raise the price a person has to pay to obtain a financial service offered by the bank from the bank or a competitor, or (2) significantly impede a person, or a person’s business activities, in favor of or to the advantage of another person.  A bank with $100 million or more in total assets would be presumed to hold such a market position but could attempt to rebut the presumption by submitting written materials to the OCC demonstrating it does not hold either market position.

In its background discussion explaining its rationale for the proposal, the OCC takes aim at denials of financial services by banks to categories of customers “even when an individual customer would qualify for the financial service if evaluated under an objective, quantifiable risk-based analysis.”  The OCC observes that, in denying services, 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.”  As examples, the OCC references denials or terminations of financial services to various industries such as certain health care and social service providers (including family planning organizations), owners of privately owned correctional facilities, gun makers, large farming operations, and energy industries such as coal mining, coal-fired electricity generation, and Artic oil exploration.  The OCC notes that, in the case of energy industries, the terminated services were not limited to lending “where risk factors might justify not serving a particular client,” but also included advisory and other services unconnected to credit or operational risk.  The OCC also comments that “it is one thing for a bank not to lend to oil companies because it lacks the expertise to value or manage the associated collateral rights; it is another for a bank to make that decision because it believes the United States should abide by the standards in an international climate treaty.”

According to the OCC, the criteria on which banks have based such improper denials or terminations were “unrelated to safety and soundness.”  Such criteria included: “(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.”

The proposal is intended to implement the principle that “a bank’s decision not to serve a particular customer must be based on an individual risk management decision about that individual customer, not on the fact that the customer operates in an industry subject to a broad categorical exclusion created by the bank.”  Banks are instructed that they must provide fair access to “organizations involved in politically controversial but lawful businesses” and that they must offer financial services that are offered to some customers “on proportionally equal terms to all customers engaged in lawful activities.”  Banks are also advised that they should consider whether they have the expertise or knowledge to offer a service in a given market and that while not required to offer a particular service, a bank cannot provide a service to some customers but categorically deny the service to firms in a particular industry unless the associated risks change based on the industry in which a company operates.

The proposal’s background discussion references “Operation Choke Point, ” a federal initiative launched in 2012 involving the FDIC and other federal agencies.   In Operation Choke Point, banks were pressured by regulators to deny access to financial services to online payday lenders and other companies that raised “reputational” concerns or were otherwise disfavored.  The proposal seeks to stop banks from using similar criteria on their own initiative as the basis for a decision not to serve particular companies.

Under the proposal, to provide fair access to financial services, a bank must:

  • Make each financial service it offers available to all persons in the geographic market it serves on proportionally equal terms
  • Not deny any person a financial service offered by the bank except to the extent justified by such person’s quantified and documented failure to meet quantitative, impartial risk-based standards established in advance by the bank
  • Not deny any person a financial service offered by the bank when the effect of the denial is to prevent, limit, or otherwise disadvantage the person:
    • From entering or competing in a market or business segment; or
    • In such a way that benefits another person or business activity in which the bank has a financial interest
  • Not deny, in coordination with others, any person a financial service the bank offers.

The OCC cautions banks in its background discussion that “unlike [OCC] prior articulations” of the fair access principle, the proposal, if finalized, “would have the force and effect of law and enable the agency to take supervisory or enforcement action, when appropriate.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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