/>iOn August 7, President Trump signed an Executive Order directing federal banking regulators to prevent financial institutions and financial service providers from denying or restricting financial services and products based on the recipients political or religious beliefs. The Order also requires regulators to remove the concept of “reputational risk” that the administration believes could lead to debanking from supervisory guidance, manuals, and related examination materials.
The order follows concerns that federal banking regulators used their supervisory authority to force financial institutions to monitor, and in some cases, exit certain customers because of their link to certain political or religious identifiers. The EO establishes a policy that no citizen should be denied access to financial services because of their constitutionally or statutorily protected beliefs, affiliations or political views. The Order is effectively immediately and will be implemented over the next 180 days.
Key provisions of the Executive Order include:
- Elimination of reputational risk concepts. Federal banking regulators must remove reputational risk and equivalent concepts from guidance, manuals, and examination materials within 180 days, and consider amending or rescinding regulations that could result in politicized or unlawful debanking.
- Review and remedial action requirements. Within 120 days, regulators must identify institutions with past or current policies supporting politicized or unlawful debanking and take remedial action, including fines, consent decrees, or other disciplinary measures.
- Complaint and data review for religion-based debanking. Regulators must analyze supervisory and complaint data for unlawful debanking on the basis of religion and refer noncompliant institutions to the Department of Justice.
- Small Business Administration client reinstatement. The SBA must notify all financial institutions with which partners with so they may identify and reinstate any prior customers or potential customers who were denied financial services and products through unlawful debanking and provide such customers with an option to engage in the previously denied service.
- Mandate for legislative and regulatory strategy development. The Treasury Secretary, in consultation with the Assistant to the President for Economic Policy, must develop a comprehensive strategy to eliminate politicized or unlawful debanking, including potential legislative or regulatory changes.
Putting It Into Practice: While the Executive Order’s focus appears to be on supervised financial institutions (banks, credit unions, etc.) it actually applies to all “financial service providers” and “financial institutions.” Accordingly, while the brunt of the initial activity will likely target entities regulated by members on the Financial Stability Oversight Council (the Federal Reserve Board, FDIC, OCC, CFPB, NCUA, etc.), non-bank financial providers are still at risk. Section 5(b) of the Order directs the Treasury Secretary to develop a comprehensive, nationwide strategy to combat debanking, which may expand the Order’s scope to non-bank lenders. In addition, given how important this issue is for the administration, regulators will be sure to find a way to bring an action against a non-bank lender who is violating the Order.
