Trump issues Executive Order prohibiting ‘debanking’
President Trump has issued an Executive Order directing banking agencies to adopt policies to ensure that financial institutions do not use reputational risk as a basis for restricting access to banking services—a process known as “debanking.”
“Individuals, their businesses, and their families have been subjected to debanking on the basis of their political affiliations, religious beliefs or lawful business activities, and have suffered frozen payrolls, debt and crushing interest, and other significant harms to their livelihoods, reputations, and financial well-being,” Trump said, in the order. “Such practices are incompatible with a free society and the principle that the provision of banking services should be based on material, measurable, and justifiable risks.”
He continued, “It is the policy of the United States that no American should be denied access to financial services because of their constitutionally or statutorily protected beliefs, affiliations, or political views, and to ensure that politicized or unlawful debanking is not used as a tool to inhibit such beliefs, affiliations, or political views. Banking decisions must instead be made on the basis of individualized, objective, and risk-based analyses.”
The Executive Order stated that the term “federal banking regulators” refers to the Small Business Administration and federal member agencies of the Financial Stability Oversight Council with supervisory and regulatory authority over banks, savings associations and credit unions.
Trump, in the order, stated that financial institutions have engaged in unacceptable practices to restrict law-abiding individuals and businesses from access to financial services on the basis of their political beliefs or lawful business activities. He said some financial institutions targeted conservatives and those on the political right following the events at the U.S. Capitol on January 6, 2021.
He accused the federal government of flagging individuals who made purchases at stores, such as Cabela’s and Bass Pro Shops. He added that people who made peer-to-peer payments that included such terms as “Trump” and “MAGA” also were targeted.
In addition, he referred to “Operation Chokepoint,” “a well-documented and systemic means by which Federal regulators pushed banks to minimize their involvement with individuals and companies engaged in lawful activities and industries disfavored by regulators based on factors other than individualized, objective, risk-based standards.”
The Executive Order sets several deadlines for financial institutions. The order stated that within:
- 180 days the Secretary of the Treasury and the Assistant to the President for Economic Policy must develop a comprehensive strategy for further combatting debanking.
- 120 days the banking regulators must identify financial institutions that currently or in the past have engaged in debanking and take “remedial action,” including fines, consent decrees or other disciplinary measures.
- 180 days the federal banking regulators must review their current supervisory and complaint data to identify institutions that have engaged in debanking.
- 180 days each federal banking regulator must remove the use of reputational risk from their guidance documents, manuals and other materials—except for those that require notice-and-comment rulemaking. The federal banking regulators also must consider rescinding or amending existing regulations that could result in politicized or unlawful debanking.
The Executive Order also sets deadlines for the Small Business Administration to ensure that the agency identifies any previous clients that were denied financial services as a result of debanking.
Banking regulators expressed support for the Executive Order.
Acting FDIC Chairman Travis Hill said his agency soon will issue a rulemaking that would prohibit examiners from criticizing institutions based on reputational risk. Hill said the rulemaking also would prohibit examiners from encouraging the closing of accounts based on political, social, religious or other views. He said the FDIC also plans to review whether supervised institutions have engaged in politicized or unlawful debanking.
Comptroller of the Currency Jonathan V. Gould said the OCC has already removed references to reputational risk from its handbooks and guidance documents. He said his agency will soon propose removing those references from regulations and will begin a review to assess the extent to which its supervised institutions have or are engaged in debanking and take remedial action, if appropriate.
Surprisingly, Gould did not mention that toward the end of President Trump’s first term, then-Acting Comptroller of the Currency, Brian Brooks, issued a full-blown regulation about debanking and fair access which never became effective because it did not get published in the Federal Register after Joe Biden became President.
The Federal Reserve announced in June that reputational risk no longer would be a component of its examinations.
On Capitol Hill, Rep. Andy Barr, R-Ky., chairman of the House Financial Institutions Subcommittee, said he will introduce legislation to make Trump’s Executive Order permanent.
Although there are serious questions about the legality of this Executive Order (which we will explore in another blog) we are counseling our banking clients to review, and if necessary, modify their policies and procedures applicable to all banking products, not just loans, to make sure they are fully compliant with the Executive Order.
Employee training manuals should also be reviewed for compliance with the Executive Order. Banks should also review their records which reflect adverse actions and refusals to open accounts and to provide banking services to make sure that those actions were compliant with the Executive Order. It should be noted that the Executive Order applies to all depository institutions, regardless of size.
We have been following the debanking issues for many years on our blog and podcast show. Click this link to listen to a podcast show consisting of a debate about the wisdom of a few state debanking statutes. Click this link to listen to a podcast about “Operation Chokepoint,” a former government initiative to discourage banks from doing business with payday lenders. We expect to soon produce a webinar about Trump’s debanking Executive Order.
