The Office of the Comptroller of the Currency (OCC) finalized a rule Thursday that prohibits the nation's largest banks from denying services to gun manufacturers, energy firms, operators of private prisons and other controversial industries.
The rule, originally proposed in November and set to take effect April 1, has garnered pushback from bank trade groups and some Democratic lawmakers who said the OCC is overstepping, while some Republicans in Congress said the rule prevents unpopular sectors of the economy from being blackballed by the financial services industry.
The rule's detractors can try to derail the rule in a number of ways. Congressional Democrats could try to repeal it within 60 legislative days using the Congressional Review Act. President-elect Joe Biden's choice to lead the OCC could revamp it — or delay the effective date, if appointed in time. Or advocacy groups could sue to block the rule.
Once again, the OCC has finalized a controversial rule within days of a change in leadership.
The agency announced Wednesday that Acting Comptroller Brian Brooks' last day with the regulator would be Thursday, the day it issued its final ruling on fair access.
The Bank Policy Institute (BPI), one of more than 35,000 stakeholders that submitted comments, said the rule "would micromanage banks' business decisions in an unprecedented way."
"The OCC claims to be shielding customers from political bias, but it is just telling banks and their boards that they cannot be trusted to make sound business decisions," wrote the trade group, which represents large and midsize banks.
"The rule lacks both logic and legal basis, it ignores basic facts about how banking works," Greg Baer, BPI's president, added in a statement Thursday. "Its substantive problems are outweighed only by the egregious procedural failings of the rulemaking process, and for these reasons it is unlikely to withstand scrutiny."
Sen. Brian Schatz, D-HI, said the rule undermines the OCC's responsibility to ensure a safe and sound banking sector.
"It is extremely troubling that a federal regulator is using its supervisory authority to pressure banks to finance projects the banks themselves have deemed too risky," he told Bloomberg.
Consumer rights advocacy group Public Citizen took issue with the OCC's timing, claiming not enough time had passed between the Jan. 4 close of the comment period to the issuing of the final rule.
"There is no way that the OCC could have met its legal obligation to provide due and fair consideration to the more than 35,000 public comments it received," Yevgeny Shrago, policy counsel for Public Citizen's climate program, said in a statement. "This rule is nothing more than a parting gift from the Trump administration to fossil fuel companies and a few other favored industries."
The OCC noted that 4,200 of the comments it received supported the proposal, and 31,290 were opposed, according to American Banker. "This figure includes approximately 28,000 form letters collected by a single organization," the OCC wrote in a footnote.
Public Citizen and the American Bankers Association (ABA) both urged the incoming Biden administration to ensure te rule never takes effect.
“In addition to short-circuiting the traditional rulemaking process and failing to take into account thoughtful comments from thousands of stakeholders, we believe it is a mistake for the OCC to mandate which businesses banks must service," Hugh Carney, a senior vice president at the ABA, said in a statement. "Banks are in the best position to manage their risks and maintain their safety and soundness."
Brooks, in a Bloomberg interview last month, met advocacy groups' outrage with sarcasm. “Are they angry?” Brooks asked. “If there was some myth that the OCC or my political team are too cozy with big banks, you can put that to rest.”
Republicans lawmakers said the rule ensures all industries have equal access to financial services.
"These banks that get huge federal government support ... cannot collude together to essentially blackball entire sectors of the U.S. economy," Sen. Dan Sullivan, R-AK, told The Wall Street Journal, ahead of the proposal in November.
Sen. Mike Crapo, R-ID, who is set to step down as head of the Senate Banking Committee following the Democratic flip in the Senate, applauded Brooks's work on the fair access rule.
"Business lending decisions should be based on creditworthiness rather than politics or political pressure," he told Bloomberg.
Crapo has spoken out against Operation Choke Point, an Obama-era initiative he said denies services to entire industries "under the guise of 'derisking' their business."
"We are seeing a disturbing trend in the financial services industry — the intentional discrimination of entire industries by the largest banks in the United States," he said at the end of 2019, when a wave of major financial institutions cut ties with the private prison industry.
Brooks maintains the rule isn't aimed at protecting one particular industry. “This is just a nondiscrimination principle,” he told The Wall Street Journal.
"We're talking about independent ATM operators. We're talking about Muslim charities, we're talking services businesses. It's wild how widespread this is," Brooks told American Banker. “It's always easy to say this industry you don't like doesn't deserve banking services.
"And that's all fine until you can't get banking services, and that's the way these slippery slopes always go,” Brooks said.
Lawrence Kaplan, an attorney at Paul Hastings, noted the 10-day span from the close of comments to the issuing of the final rule, and the two-month journey from proposal.
"The rush from proposed to final will likely trigger review of the rule under the Congressional Review Act, especially given the Democratic control of both the House and Senate," he told American Banker.