WASHINGTON — The general consensus is that the Office of the Comptroller of the Currency will expunge a Trump-era bank regulation seen by many as protecting the interests of firearms and fossil-fuel companies.
But the choice facing a Democratic-appointed comptroller over the so-called fair-access rule issued by former acting Comptroller Brian Brooks isn't as clear-cut as it seems.
While a new comptroller will likely move on from the rule, which would prohibit banks from withholding service to disfavored industries for non-quantitative reasons, some legal experts note the agency's chief could instead seek to replace it with a version that appeals to progressives or strikes a nonpartisan tone.
“It really goes back to who’s in charge,” said Chris Odinet, a law professor at the University of Iowa. “Someone with a progressive ideology with respect to the banking system might be willing to see how far this concept can go and take it in the opposite direction.”
In writing the rule lauded by conservatives, Brooks referred to a Dodd-Frank Act clause revising the OCC's mission to add the statement that the agency ensures “fair access to financial services, and fair treatment of customers” by banks.
The regulation followed sharp criticism from GOP lawmakers over some large banks' decisions to curtail lending to clients in the firearms and oil and gas sectors, citing reputational risks. The rule would bar banks with over $100 billion of assets from using politicial considerations in deciding whether to restrict services. Brooks argued his rule was bipartisan, ensuring banking access to liberal-backed customers, too.
But a revised rule from the Biden administration could define "fair access" differently, such as reaffirming banks' obligations to invest in low- and moderate-income communities within their markets as required by the Community Reinvestment Act. An alternative rule could also reinforce fair-lending principles, or compel banks to cease product offerings like overdraft protection that consumer advocates say hurt the poor.
“In that way, a Democratic rule would be the mark — they’d be planting their flag on their interpretation of that,” said Jacques Schillaci, an attorney at Linklaters.
The OCC announced last month, following Brooks' departure, that it would halt publishing the rule — widely unpopular among banks and Democrats — in the Federal Register to allow the next comptroller to “
Schillaci and others say the likely outcome is the Biden administration's nominee for the job, whoever that is, will kill the rule either by issuing a formal policy nullifying it or letting it die through attrition.
“That rule, as written and structured, saying banks can only look at quantitative data points when onboarding particular customers — I think that’s dead,” Schillaci said. “We might just never hear about this again.”
But some analysts say that without a replacement, the GOP version of the rule would simply lie dormant and could be dusted off by a future comptroller appointed by a GOP president.
“A future Republican administration would want to come back to this, absolutely,” said Scott Pearson, a partner at Manatt, Phelps & Phillips. “There are lots of industries worried about losing access to banking services, and Republicans traditionally have wanted to protect those industries.”
Schillaci said a Democratic comptroller likely would face loud criticism from GOP lawmakers who had supported Brooks's rule if the OCC released an official statement invalidating the policy.
“It might be easier to say nothing, so you can just say that you’re still thinking about it to Congress without perjuring yourself," he said. "But if you say it’s done, you’ll have to explain why.”
But an entirely different rule using an alternative interpretation of the "fair access" language in Dodd-Frank would be more sustainable and difficult for future comptrollers to overturn, he added.
In that case, it would be "harder to bend towards the interpretation that Brooks was going for," Schillaci said. "It doesn’t mean it won’t happen, but it does become harder.”
Of course, before any decision is made about the fair-access rule, the Biden administration must announce its nominee for comptroller. Two possible names that have been floated are former Treasury Department official Michael Barr and Mehrsa Baradaran, a law professor at the University of California, Irvine. The current acting comptroller is Blake Paulson.
Though Brooks issued the final rule on Jan. 14, his last day at the agency, the fact that the rule was not yet published in the Federal Register when Paulson took the reins meant the OCC could still withdraw it.
“There is no rule — it’s just a final draft that may or may not be published,” Schillaci said.
A subsequent rule written by a Democratic comptroller and published in the Federal Register would reflect "the agency’s official interpretation of the statute," he added. Should a later Republican administration seek to unwind the revised rule already on the books, it could risk a court challenge under the Administrative Procedure Act.
Some legal scholars believe a new comptroller would have wide latitude to interpret the "fair access" clause in Dodd-Frank, which provided an update of the National Bank Act. The clause has been untested in court.
“Just the words ‘fair access’ and ‘fair treatment’ — that’s really broad and not really hemmed in by other factors,” Odinet said. “It could have a much wider range of circumstances that fit into the phrase, as opposed to other statutes that are more limited."
At the same time, Odinet said it was doubtful that a Democratic comptroller would wield that authority in such a broad way. “This is a lot of uncharted territory, and from that perspective, it could be a really useful tool for a progressive comptroller,” he said. “But I don’t think it will be used.”
That is partly a consequence of the OCC’s existing power. Analysts point out that the OCC already has considerable authority to compel banks to treat customers fairly and provide equal access to the financial system in consumer protection law, meaning an entirely new rule may be unnecessary.
“We certainly do think that the [Dodd-Frank language] supports the agency’s authority to ensure national banks are engaging in practices that ensure fair treatment and fair access for consumers,” said Rebecca Borné, senior policy counsel at the Center for Responsible Lending. “We don’t think the agency’s authority to do that rides on that language.”
There would also be substantial political blowback from Congress should a Democratic comptroller attempt to issue a new “fair access” rule. While banks, consumer groups and some free-market advocates sharply opposed the original rule, it was cheered by a significant number of Republicans.
“The argument behind the rule was, banking services shouldn’t be withheld based on politics, whether it’s gun control, reproductive rights, or any other issue,” Pearson said. “The question is — should you have 'fair access' or not? A lot of banks didn’t like the rule because they wanted to choose who they do business with, but the proponents of the rule really were customers worried about losing access to banking.”
