The Office of the Comptroller of the Currency (OCC) has issued a proposed rule to ensure that banks and federal savings associations provide fair access to financial services and not make board-based decisions that affect classes or categories of customers.
This proposed rule would prohibit covered national banks and federal savings associations—generally, those with $100 billion or more in assets—from denying services in an effort to disadvantage or otherwise hinder the customer from competing in a market or business segment, or to benefit another person or business activity.
Consistent with the Dodd–Frank Act’s mandate of fair access to financial services and since at least 2014, the OCC has repeatedly stated that while banks are not obligated to offer any particular financial service to their customers, they must make the services they do offer available to all customers except to the extent that risk factors particular to an individual customer dictate otherwise. As the OCC’s then-Comptroller stated in a 2014 speech:
No matter what type of business you are dealing with, you have to exercise some sound judgment, conduct your due diligence, and evaluate customers individually. Even in areas that traditionally have been viewed as inherently risky, you should be able to appropriately manage the risk. This is basic risk management, and that’s a business that the institutions we at the OCC supervise excel at. You shouldn’t feel that you can’t bank a customer just because they fall into a category that on its face appears to carry an elevated level of risk. Higher-risk categories of customers call for stronger risk management and controls, not a strategy of total avoidance. Obviously, if the risk posed by a business or an individual is too great to be managed successfully, then you have to turn that customer away. But you should only make those decisions after appropriate due diligence.
This principle of individual, rather than category-based, customer risk evaluation has since been reinforced in numerous OCC reports, the testimony of OCC officials, and other agency releases.
On at least two occasions, the OCC has issued guidance to specifically address reports of banks refusing to provide access to financial services to entire industry categories engaged in lawful business activities without regard to the risk factors of the individual customers in these industry categories. In 2014, amid reports of banks refusing to provide financial services to the entire category of money services businesses (MSBs), the OCC issued a clarification of its supervisory expectations with regard to banks offering financial services to MSBs. The guidance emphasized that banks should not “engage in the termination of entire categories of customers” and stated that “banks are expected to assess the risks posed by an individual MSB customer on a case-by-case basis and to implement controls to manage the relationship commensurate with the risk associated with each customer.”
In 2016, the OCC addressed a similar issue in the context of foreign correspondent banking. In guidance issued that year, the OCC made clear that refusing to service the entire category of foreign correspondent banking was inconsistent with supervisory expectations and that banks must decide whether to serve individual firms “based on analysis of the risks presented by individual foreign financial institutions and the bank’s ability to manage those risks.”
Despite the OCC’s statements and guidance over the years about the importance of assessing and managing risk on an individual customer basis, some banks continue to employ category-based risk evaluations to deny customers access to financial services. This happens even when an individual customer would qualify for the financial service if evaluated under an objective, quantifiable risk-based analysis. These banks are often reacting to pressure from advocates from across the political spectrum whose policy objectives are served when banks deny certain categories of customers access to financial services.
The OCC is proposing a regulation to clarify (1) the obligation of large banks to provide fair access to financial services, consistent with the Dodd–Frank Act’s mandate and (2) the parameters of this requirement. Unlike prior articulations of the fair access principle, this OCC action would have the force and effect of law and enable the agency to take supervisory or enforcement action, when appropriate.
Comments on the proposed rule must be received by January 4, 2021.
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