State Fair Access and Debanking Laws Bring Country’s Political and Cultural Divisions to the Fore

Consumer Finance Monitor

Our podcast listeners are very familiar with federal fair lending and anti-discrimination laws that apply in the consumer lending area: the Equal Credit Opportunity Act (ECOA) and Fair Housing Act (FHA). Those statutes prohibit discriminating against certain protected classes of consumer credit applicants. For example, the ECOA makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); the applicant's use of a public assistance program to receive all or part of their income; or the applicant's previous good-faith exercise of any right under the Consumer Credit Protection Act. The FHA prohibits discrimination concerning the sale, rental, or financing of housing based on race, religion, national origin, sex, disability, pregnancy or having children. The FTC sometimes relies on the “unfairness” prong of its UDAP (Unfair or Deceptive Acts and Practices) authority to bring other types of discrimination claims against companies subject to the FTC’s jurisdiction. The CFPB has tried to use the unfairness prong of its UDAAP (Unfair, Deceptive, or Abusive Acts or Practices) authority in a similar manner with respect to companies and banks subject to its jurisdiction. A Federal District Court has invalidated the portion of the CFPB’s UDAAP Exam Manual provision upon which such authority was previously predicated and the case is now being considered by the Fifth Circuit.

Our focus during this podcast show is not on these Federal anti-discrimination statutes, but rather on the fact that an increasing number of states have either enacted or are considering enacting legislation requiring financial institutions to provide persons (both existing customers and prospective customers) who are not ordinarily protected by the federal anti-discrimination statutes with fair access to financial services. The first broad fair access requirements appeared in a Florida statute enacted in 2023, which generally prohibits financial institutions from denying or canceling services to a person or otherwise discriminating against a person in making available services on the basis of enumerated factors, commonly including factors such as political opinions, or any other factor that is not quantitative, impartial, and risk-based.

Because this topic is very controversial, I invited individuals who support and oppose these new types of state statutes: Brian Knight, Senior Research Fellow at Mercatus Center of George Mason University, Professor Peter Conti-Brown of the Wharton School of the University of Pennsylvania, and Peter Hardy who co-leads our Anti-Money Laundering (AML) team at Ballard Spahr. (Brain was previously a guest on our May 23, 2024 podcast which focused on the related topic of Operation Chokepoint.) Brian is generally supportive of these state fair access laws. Professor Conti-Brown and Peter Hardy generally oppose these types of laws.

We cover the following sub-topics, among others:

1. Why were these laws enacted?

2. What financial institutions are subject to these laws? Do they cover only depository institutions or do they also cover non-banks? Do they cover only consumer transactions or do they cover business transactions as well? Do they cover out-of-state financial institutions doing business with residents of the states that have enacted these statutes? Are there exemptions based on small size?

3. Since banks are not public utilities, and have shareholders and employees to whom they owe duties, why should they be forced to do business with people or companies who generate fossil fuel or who manufacture or sell firearms, to take just two examples of industries protected by these statutes?

4. What are the private and public remedies for violating these statutes?

5. Does the National Bank Act, the Home Owners’ Loan Act and the Federal Credit Union Act preempt these state laws?

6. Do these laws run afoul of AML laws as the Treasury suggests?

Brian believes that these state statutes don’t force any financial institution to do business with a particular person or company. The statutes simply say that you must give a good reason for a declination. A good reason would be one based on risk to the institution such as a lack of experience in evaluating the company’s business. Another good reason would be that the company is engaged in an unlawful business. A bad reason for a declination would be that the bank doesn’t like the political or cultural positions of the company.

Peter Conti-Brown believes that banks should be able to decide with whom they desire to do business as long as they don’t violate existing federal laws that prohibit discrimination, like ECOA and the FHA. Peter expresses skepticism that there was or is a need for these statutes. The “bottom line” is that the state statutes are bad public policy. Peter also believes that these state statutes are preempted by the National Bank Act.

Peter Hardy believes that these state statutes throw a monkey wrench into banks’ efforts to comply with AML requirements and the Bank Secrecy Act. He explains how these statutes could help bad actors evade the BSA.

We have previously blogged about these statutes.

Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.