On November 20, 2020, the Office of the Comptroller of the Currency (“OCC”) proposed a rule to require large national banks and federal savings associations to offer and provide “fair access” to financial services (Access Proposal just).1 The fair access proposal can be seen as a possible preemptive strike against regulatory stimulus measures to “unseat” certain bank clients, such as the fossil fuel industry and agribusiness. This Customer Alert contains a summary of the Fair Access Proposal, the OCC’s justifications for it, and the OCC’s stated legal authority to enact it. The deadline for comments on the fair access proposal is January 4, 2021, suggesting that the OCC may be trying to finalize it before a new Comptroller of the Currency is appointed and confirmed.
I. Scope of the fair access proposal
The fair access proposal applies to a subset of national banks and federal savings associations, those that have the ability to (A) increase the price that a person has to pay to obtain a financial service offered by the bank or by a competitor or (B) significantly hinder a person, or a person’s business activities, for or for the benefit of another person (Covered Bank). A bank or savings association. with $ 100 billion or more in total assets it will be presumed to be a Covered Bank; Such a bank could rebut this presumption by submitting written materials to the OCC that demonstrate that the bank does not meet the definition of a Covered Bank. The OCC justified a focus on large banks on the grounds that such banks have the greatest potential to affect customers if they withdraw services. He noted that national banks and federal savings associations with $ 100 billion or more in total assets controlled approximately 55 percent of the nation’s bank assets and deposits.
The OCC also invited the public to comment on whether a threshold linked to the national market share of any financial service should be included and, if so, what percentage of participation would be appropriate.
II. Substantive provisions
Under the fair access proposal, a covered bank would be required:
- Make each financial service offered available to all people in the geographic market served by the Covered Bank in proportionally equal terms;
- Not deny any person a financial service offered by the covered Bank, except to the extent justified by the quantitative and documented failure of such person to comply with the quantitative and impartial risk-based standards established in advance by the bank. covered;
- Not deny any person a financial service offered by the covered Bank when the effect of the denial is to prevent, limit or put the person at a disadvantage (i) from entering or competing in a market or commercial segment or (ii) in such a way that benefits another person or business in which the covered Bank has a financial interest; and
- Not deny, in coordination with others, to any person a financial service offered by the Covered Bank.
The provision of financial services “on proportionally equal terms” would include ensuring that pricing and denial decisions are commensurate with measurable risks based on quantitative and qualitative characteristics. This provision would also prohibit a Covered Bank from participating in the geography-based red line, for example by refusing to provide financial services to clients solely based on where the client is located or the client’s business activity when the client or activity commercial is within the geographic area. market served by the Covered Bank.
A covered bank’s decision to deny services shall not be allowed to include consideration of the covered bank’s views of a client or the client’s legal activities. Rather, a covered bank must consider factors such as safety and soundness and compliance with applicable laws, such as the Bank Secrecy Act and consumer protection laws, when deciding to serve a customer. You should also consider whether you have the knowledge or experience to offer a service in a particular market.
Because the fair access proposal, if finalized, would be a regulation that had been subject to notification and comment, it would have the force of law. The OCC would review the Covered Banks’ compliance, and non-compliance could lead to enforcement actions.
III. Justifications for the fair access proposal
In justifying the fair access proposal, the OCC claimed that some banks have been using category-based, rather than individualized, risk assessments to deny access to financial services. The OCC argued that those banks had reacted to pressure from advocates of policies whose goals are met when banks deny financial services to certain categories of customers. He cited calls to boycott banks that support family planning organizations, reports that some banks have stopped providing financial services to owners of private correctional facilities, and the alleged unbanking of firearms manufacturers, as evidence. of such practices.
In particular, the OCC mentioned Operation Choke Point, dating back to the Obama Administration, in which it was alleged that certain regulators, not including the OCC, had lobbied banks to end their business relationships with daytime lenders. of payment. It also took note of a letter it had received from the Alaska congressional delegation discussing the decisions of various banks to stop lending to new oil and gas projects in the Arctic. Upon receiving that letter, the OCC requested information from several large banks in order to evaluate their criteria for denying access to financial services. The OCC further stated that certain banks had stopped providing advisory services and loans to clients in coal mining, coal-fired electricity generation, and oil exploration, and that those banks intended to make exceptions only when certain non-financial criteria were met, such as whether the country in which a project is located has committed to international climate agreements and whether the project adequately controls carbon emissions. The OCC criticized such actions, stating that neither it nor the banks themselves are capable of assessing risks other than credit and operational risk.
IV. Legal authority
The Fair Access Proposal would be a significant development in the scope of the OCC regulation and, as noted above, would have the force of law, which would subject the Covered Banks to possible enforcement actions for non-compliance. The OCC based the proposal on statutory changes to the National Banks Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).
In particular, Title III of the Dodd-Frank Act revised the OCC mission statement established in the National Banking Act by tasking the OCC, among other purposes, “to ensure … fair access to financial services.” .2 The OCC stated that the concept of “fair access”, as used in Title III, includes the right of individual bank customers to have access to financial services based on their individual characteristics and not on their membership in a category. of clients in particular. It further stated that, as the body charged by Congress to implement the National Bank Law, its interpretation of “fair access” was entitled to judicial deference. The OCC also indicated that during the Obama Administration, it had previously focused on individualized risk assessments of clients in banking-related precedents and unbanking of money service companies and correspondent banks, so the fair lending proposal was not a novel approach.
The fair loan proposal has a relatively short 45-day comment period that expires on January 4, 2021. This may reflect the fact that a president may remove the currency’s comptrollers for no reason and therefore the Acting Comptroller Brooks’ remaining position at the OCC may take shortly after President-elect Biden takes office, despite Brooks recently being nominated by President Trump for a full term as Comptroller. Therefore, it is reasonable to consider that the fair loan proposal seeks to avoid, or at least restrict, certain actions of the incoming Biden administration. Before the election, for example, Democratic policy documents advocated a greater focus on climate change by banking regulators, and there are other industries where a change in administrations will mean increased scrutiny. For this reason, it is worth looking at whether the OCC’s interpretation of “fair access” in the Dodd-Frank Act eventually becomes law.
Notice of proposed rulemaking: access to financial services (November 20, 2020), available in https://www.occ.gov/news-issuances/federal-register/2020/nr-occ-2020-156a.pdf.
2. 12 USC § 1.
The content of this article is intended to provide general guidance on the subject. The advice of specialists should be sought according to your specific circumstances.