On November 20, 2020, the Office of the Comptroller of the Currency (OCC) issued a proposed rule with the objective of ensuring banks offer fair access to financial services.
Certain banks have received significant political pressure from various for-profit and not-for-profit organizations to deny financial services to customers in certain industries, including, but not limited to: (1) family planning organizations; (2) privately owned correctional facilities; (3) makers of shotguns and hunting rifles; (4) oil exploration companies; and (5) other similar industries. With this proposed rule, the OCC has set out to address the issue of large banks engaging in category or industry-based risk evaluations to deny these type of industry customers access to financial services. In its proposal, the OCC noted that “personal beliefs and opinions” as well as “assessments ungrounded in quantitative, risk-based analysis” are inappropriate criteria for rejections of financial services. Notably, Brian P. Brooks, Acting Comptroller of the Currency, has stated: “Fair access to financial services, credit, and capital are essential to our economy.”
The OCC’s proposed rule will apply solely to “covered banks” as defined in the proposed rule. A “covered bank” is a bank that has more than $100 billion in total assets and also has the ability to: (1) raise the price a person has to pay to obtain an offered financial service from the bank or from a competitor; or (2) significantly impede a person, or a person’s business activities, in favor of or to the advantage of another person.
Under the proposed rule, in order for a “covered bank” to provide fair access to financial services or products the bank must: (1) make each offered service available to all persons in the geographic market on “proportionally equal terms,” ensuring that “pricing and denial decisions” are decided based on measurable risks; (2) only deny a financial service when “justified by such person’s quantified and documented failure to meet quantitative, impartial risk-based standards established in advance by the covered bank;” (3) “not deny any person a financial service the bank offers when the effect of the denial is to prevent, limit, or otherwise disadvantage the person from entering or competing in a market;” and (4) “not deny, in coordination with others, any person a financial service the bank offers.”
Requiring banks to have a quantifiable risk-framework will reinforce existing OCC guidance that banks should assess and manage risk on an individual customer basis, rather than on an individual’s “membership in a particular category of customers.”
Comments on the agency’s proposed rule are due by January 4, 2021.
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