The decades long discriminatory tension between the financial sector and the firearm industry underwent a positive shift with a final rule published on April 10 by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). This landmark effort in a long fought battle, which NRA-ILA has reported on extensively, codifies the removal of “reputation risk” as a basis of adverse action under oversight programs that apply to FDIC-supervised financial institutions.
Ultimately, this final rule eliminates reputation risk as a means of injecting politics into banking regulation by prohibiting examiners from using this subjective assessment to pressure or penalize banks. It also prohibits regulators from pushing banks to close accounts or deny services based on their ill-conceived aversion to the lawful firearms and ammunition industries, which are vital to supporting our constitutional rights.
This rule helps to mitigate unjustified biases against these business sectors left over from the Obama-Biden Administration and importantly helps to prevent future efforts in the same vein. In 2013, the U.S. Department of Justice (DOJ), in coordination with regulators such as the FDIC, began pressuring banks to cut ties and services to industries they considered to be “high risk,” which under the anti-gun Obama-Biden administration unsurprisingly included firearm and ammunition-related business.
The program, billed Operation Choke Point (OCP), encouraged broad financial “de-risking” and led to banks freezing or terminating services to lawful businesses based on “reputation risk,” instead of any proven misconduct or illegality. Guidance documents provided to banks at the time specifically listed firearm and ammunition sales as high-risk activity, although they are some of the most highly regulated industries in the country.
OCP’s circular reasoning held that even law-abiding businesses could generate ill-will among banking customers, merely because of the controversial nature of those businesses’ products or services. Thus, to prevent some customers from canceling their banking relationships out of protest or disgust that businesses they didn’t like were also being served, banks were supposed to sever ties with those businesses. Meanwhile, the administration did all it could to stoke this same ill-will by portraying these “suspect” industries in a relentlessly negative light.
In 2017, President Trump officially ended Operation Choke Point, with the DOJ issuing a missive characterizing it as a “misguided initiative” and conceding that “law abiding businesses should not be targeted simply for operating in an industry that a particular administration might not favor.” And while it was noted that the initiative would not be undertaken again, there was still work to be done to strengthen protections for the industry and prevent similar back-door discriminatory efforts in the future. Among these, for example, are various attempts to surveille firearm and ammunition-related purchases through credit card companies, supposedly to flag “suspicious” purchases to regulators.
Last year, in acknowledging the continued threats of financial discrimination, President Trump took more decisive steps by issuing an Executive Order, Guaranteeing Fair Banking for All Americans, emphasizing that lawful individuals and businesses should not be denied access to financial services due to ideological bias. The order also called for greater oversight and accountability to prevent discriminatory debanking practices.
In response to the Executive Order, the OCC was directed to conduct a supervisory review of nine of the largest national banks, and its published preliminary findings confirmed that the these nine banks made inappropriate distinctions among customers and identified instances where “at least one bank imposed restrictions on certain industry sectors because they engaged in “activities that, while not illegal, are contrary to [the bank’s] values.” The sectors subjected to restricted access included oil and gas exploration, coal mining, and firearms, among others.
When a new regulatory rule was proposed to deal with this situation late last year, NRA-ILA submitted supportive comments and now welcomes the finalized version, which includes the following highlights:
- Prohibits agencies from criticizing, formally or informally, or taking adverse action against a supervised institution or any employee of such an institution, based on reputation risk.
- Prohibits agencies from requiring, instructing, or encouraging an institution to close customer accounts or take other adverse actions based on a person’s or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely based on politically disfavored but lawful business activities perceived to present reputation risk.
- Defines “reputation risk” as any risk, regardless of how that risk is labeled, that an action or activity of an institution could negatively impact public perception of the institution for reasons not clearly and directly related to the financial or operational condition of the institution.
Together, these regulatory and executive actions aimed at both rolling back and now preventing financial discrimination against the firearms and ammunition industry represent a critical and concrete policy change in regulation of the banking sector. A watchful NRA-ILA will monitor implementation to ensure lawful firearm and ammunition business engaging in constitutionally protected activities are indeed protected from the insidious discrimination that once was official government policy under OCP.
More Like This From Around The NRA
