WASHINGTON — President Donald Trump signed an executive order meant to combat so-called debanking in the financial system.
The order tells bank regulators to ensure that banks aren't cutting off consumer access to accounts for political reasons. It also tells the regulators to remove reputational risk from their supervision handbooks, a step that prudential regulators have already taken.
"President Trump's executive order on debanking is a mixed bag," said Cato policy analyst Nicholas Anthony. "While it's good that the administration is prioritizing an investigation over intervention, the order walks a strange line blaming the banks for debanking while simultaneously acknowledging that the banks were doing what the government ordered them to do."
The order directs bank regulators to look at financial institutions current policies that encourage debanking and to pursue fines or consent orders if they find any. Specifically, regulators should look for violations in the Federal Trade Commission Act, the law that grants the Consumer Financial Protection Bureau authority over "unfair, deceptive, or abusive acts or practices," and the Equal Credit Opportunity Act.
It also directs regulators to retroactively review supervisory or complaint data to look for instances of debanking based on religion, and to refer those cases to the Department of Justice.
"President Trump believes that no American should be denied access to financial services because of their political or religious beliefs, and that banking decisions must solely be made on the basis of individualized, objective, and risk-based analyses," the White House said.
Although the executive order takes
"Today's Executive Order helps ensure all consumers and businesses are treated fairly, a goal the nation's banks share with the Administration," said the Bank Policy Institute, Consumer Bankers Association, American Bankers Association, and Financial Services Forum in a statement. "It's in banks' best interest to take deposits, lend to and support as many customers as possible. Unfortunately, regulatory overreach, supervisory discretion, and a maze of obscure rules have stood in the way as the EO makes clear."
Trump earlier this week accused some of the country's largest banks of refusing to serve him because of his politics. He said that JPMorgan asked him to close accounts he's held there for decades, and that Bank of America declined his deposits.
The banks have said that they did not and do not consider ideology when it comes to account openings or closings.
The order also requires that banks that disburse funds via a Small Business Administration lending program make "reasonable efforts" to find and reinstate small-business customers who were previously denied services due to political debanking.
The debanking issue is also picking up steam in Congress. The most prominent bill is the Financial Integrity and Regulation Management Act, introduced by Senate Banking Committee Chairman Tim Scott, R-S.C., in the Senate and Rep. Andy Barr, R-Ky., in the House. It would eliminate the ability for regulators to use "reputational risk" as a component of supervision.
"Here in Congress, I've led my colleagues in fighting back against debanking, including passing legislation to end the subjective use of 'reputational risk' in bank supervision," Scott said in a statement. "I am glad to see today's E.O. which will ensure that no regulator, and no bank, is above the principles of fairness and market access."
