On November 20, 2020, the Office of the Comptroller of the Currency (OCC) issued a Notice of Proposed Rulemaking (NPRM) that ensures that larger national banks and Federal savings associations offer and provide fair access to financial services. This is a most unusual proposal

  • Is a response to campaigns by political advocates who seek to achieve policy objectives by pressuring banks to stop providing financial services to customers (engaged in a lawful business) in certain industries or geographic regions.
  • Points to campaigns that have targeted bank lending to firearm manufacturers, family planning organizations, private correctional facilities, and energy companies.
  • Cites a June 2020 letter to federal financial regulators from the Alaskan congressional delegation on the decisions of several major financial institutions not to lend to new energy projects in the Arctic and the impact such refusal to lend could have on US national security, the US economy, and on Native Alaskan communities.

The new requirements apply to “covered banks,” which includes national banks, federal savings associations, and federal branches and agencies of foreign banks that has either:

  • The ability to raise the price a person has to pay to obtain an offered financial service from a bank or competitor, or
  • Significantly impede a person, or a person’s business activities, in favor of or to the advantage of another person.

A bank:

  • Is presumed to be a covered bank if it has $100 billion or more in total assets. A bank can rebut this presumption by demonstrating to the OCC that it does not satisfy either of the two criteria for being a covered bank.
  • With less than $100 billion in total assets is presumed not to be a covered bank.

A covered bank must:

  • Make each financial service it offers available to all persons in the geographic market its serves and on proportionally equally terms.
  • Provide a person a financial service it offers except to the extent justified by such person’s quantified and documented failure to meet quantitative, impartial risk-based standards established in advance.
  • Provide any person a financial service the bank offers if the effect of the denial is to prevent, limit, or otherwise disadvantage the person either:
  • From entering or competing in a market or business segment; or
  • In such a way that benefits another person or business activity in which the covered bank has a financial interest.
  • Not coordinate with others to deny any person a financial service the bank offers.

Comment Period
Comments must be received on or before January 4, 2021. The time frame for finalizing the NPRM is unusually compressed and appears to be designed to allow the rule to be finalized before President-elect Biden is sworn into office. The comment period is also shorter than the 60 days recommended for proposals.
The proposed rule is likely to raise questions about its impact on long-standing and well-established bank risk management practices. The NPRM:

  • Appears to prohibit a bank from capping lending to a particular geographic region or industry, and any denials of credit must be made solely on the creditworthiness of an individual client regardless of economic conditions in one regional market versus another.
  • Does not define the geographic market served by a covered bank, which could make compliance challenging for banks that offer different financial services in different markets (e.g., local deposit taking and national mortgage lending) or through different channels (e.g., consumer loans online and commercial loans from certain offices).
  • Prevents a bank from denying credit even to a customer who otherwise would be denied credit based on its individual risk profile if the denial of credit would hinder the customer’s ability to compete in a market (which presumably would occur with a customer who has a sufficiently high risk profile that no bank would otherwise lend to the customer).
  • Fuels the ongoing debate over the proper role of environmental, social, and corporate governance principles in corporate decision-making as it would likely restrict covered banks from using these principles and other corporate values as a basis for lending decisions.

If implemented as a final rule, the new rule would have the effect of law, meaning that institutions found not to be making lending and pricing decisions on “proportionately equal terms” could be subject to examination criticism and potential enforcement actions. Additionally, a rule might provide the basis of new litigation against banks by customers who believe they were improperly denied loans or other financial services. Furthermore, the proposed rule does not contemplate a transition period to allow institutions to modify risk management policies and procedures prior to the effective date.
Broader Industry Issues
Will other federal financial regulatory agencies apply a similar rule to state-charted institutions?
Will the asset threshold drop, at some point, down to the community bank level?