On November 20, the OCC issued a notice of proposed rulemaking for a rule that would prohibit national banks and federal savings associations (banks) from declining to provide financial services to controversial industries, such as fossil fuel companies, private prisons, gun manufacturers and others. The OCC asserts that some banks have taken such action with respect to a variety of controversial industries based on “criteria unrelated to safe and sound banking practices,” and the proposal specifically cites complaints by the Alaska Congressional delegation regarding the denial by large banks of financial services to new oil and gas projects in the Arctic.
According to the OCC’s proposal, banks are not “equipped to balance risks unrelated to financial exposures and the operations required to deliver financial services.” Among other things, the proposed rule would effectively override banks’ ability to make category-wide evaluations of nonfinancial impacts of servicing controversial industries, including potential loss of customer goodwill and other reputation damage to the bank, which can nonetheless have financial impacts on banks. The proposed rule would, however, allow banks to deny financial services to a specific customer if justified by a “quantified and documented failure to meet quantitative, impartial risk-based standards established in advance by the covered bank.” Characterizing this proposal designed to defend controversial industries as a “fair access” rule, the OCC cites as precedent measures historically designed to combat and remediate racial and other forms of discrimination against individuals, such as Equal Credit Opportunity Act, Fair Housing Act and Community Reinvestment Act. The proposed rule would apply to a “covered bank,” which is broadly defined as a bank having the ability to “raise the price a person has to pay to obtain an offered financial service…or significantly impede a person, or a person’s business activities, in favor of or to the advantage of another person.” Banks having total assets of $100 billion would be presumed to be covered banks, however, the proposal does not include an exemption for banks having total assets of less than $100 billion. For purposes of determining who is a “covered bank,” the OCC is also contemplating a separate, alternative threshold presumption linked to a bank’s market share for a given financial service, but it provided few details in the proposal. Comments on the proposed rule must be received on or before January 4, 2021.