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The Federal Deposit Insurance Corp. issued a letter Wednesday emphasizing that financial institutions should take a measured approach to banking relationships rather than cutting ties with entire lines of businesses.
January 28
WASHINGTON Rep. Blaine Luetkemeyer, R-Mo., reintroduced legislation Thursday that would block regulators from ordering banks to end relationships with customers without cause, in response to a controversial law enforcement effort.
The Financial Institution Consumer Protection Act is designed to make it harder for the financial agencies to stop bank activity with certain industries, including gun dealers and payday lenders, based on concerns about "reputational risk." Critics have argued that the Department of Justice's initiative to examine bank relationships with potentially risky industries, known as Operation Choke Point, has had a chilling effect on business.
In a win for the banking industry, the Federal Deposit Insurance Corp. issued new guidance last week clarifying that banks should evaluate business risk on a case-by-case basis, rather than shutting out whole industries.
"I am reintroducing the Financial Institution Customer Protection Act because this legislation needs to be codified into law so that other agencies don't ever fall into this illegal and abusive practice," Luetkemeyer said in a press release.
The bill would forbid financial agencies from pressuring banks to cancel accounts unless there is a "material" reason and would mandate a formal rule defining reputational risk. The bill would also tweak language under the Financial Institutions Reform, Recovery, and Enforcement Act, narrowing violations covered under the law from those "affecting" financial institutions to those "by" or "against."
