A pedestrian passes the seal of the Coin Controller Office (OCC), displayed in front of the organization’s headquarters in Washington, DC, USA, on Wednesday, March 20, 2019.
Andrew Harrer | Bloomberg | Getty Images
The Office of the Currency Controller has announced that it has paused the publication of its Fair Access to Financial Services rule, a move it said will allow the next confirmed Currency Controller to review the final rule and public comments that the OCC has received.
The rule would subject the largest banks to scrutiny when denying services to any customer based on risk factors that cannot be quantified, such as some environmental, social and governance risks, as well as reputational risks.
Critics, from banking business groups to ESG investors and legal scholars, said at the time of finalizing the rule earlier this month that it was hurried, poorly reasoned, poorly written and could be subject to congressional and legal challenges.
Approximately 35,000 public comments in response to the rule arrived on the January 4 deadline. The rule was proposed in November and the timeline for the comment deadline was much shorter than the 60- to 90-day standard. The regulator, who must review all public comments before finalizing the rules, issued it eight working days after this deadline.
“The OCC’s long-standing supervisory guidance, stating that banks should avoid closing large categories of customers without assessing individual customer risk, remains in effect,” the agency said in a statement on Thursday. “The decision to stop publishing the rule was an independent decision by the OCC.”
Some conservative think tanks and industry segments that feel threatened by issues on which banks are increasingly denied services, including loans – such as energy, weapons manufacturing and agriculture – supported the rule. Critics referred to this as the “rule of arms manufacturers and oil drills”, although voices expressing support were more widespread, including, for example, agricultural interests concerned that animal rights activists might attack banks that lend. Cryptocurrency projects, marijuana businesses, sex workers and other niches also felt threatened and found support from groups such as the Electronic Frontier Foundation, which referred to the rule’s goal of ending “financial censorship”.
An OCC spokesman previously told CNBC that many critics confuse the rule as a ban on banks from discontinuing services and credit for risky businesses. “This is wrong. The proposal requires large banks to show their work and carry out objective risk assessments for individual customers in relation to the provision of services, in accordance with the previous guidance issued by the Currency Controller.”
The rule applies to the largest banks with more than $ 100 billion in assets that “can exercise significant pricing power or influence over sectors of the national economy”.
The rule requires covered banks to make products and services available to all customers in the communities they serve, based on quantitative, impartial and risk-based standards set by the bank.
Opposition from commercial bank groups has been consistent since the rule was first proposed and then finalized.
“We are disappointed that the acting controller has chosen to accelerate the final approval of this hastily conceived and poorly constructed rule on his last day in office. The rule lacks a logical and legal basis, ignores basic facts about how the banking system works, and will undermine the safety and soundness of the banks to which it applies, “said Bank Policy Institute President and CEO Greg Baer, who represents the largest banks, in a statement earlier this month. “Its substantive problems are only overcome by the blatant procedural failures of the regulatory process and, for these reasons, it is unlikely to withstand scrutiny.”
The American Bankers Association, which represents the banking industry in general, was concerned that a broader interpretation could be applied to all banks and called the rule “arbitrary and capricious” in a comment letter sent to the OCC last month , and said it lacked “clear statutory authority, its inconsistency and potential conflict with long-standing and widely accepted risk management and supervision practice.”
ESG investors were just as tough.
“This rule says that banks should not assess risk. This is what banks do every day,” said Steve Rothstein, head of Ceres Accelerator for Sustainable Capital Markets, a sustainability investment advocacy group. “Those who do well make healthy loans, and we are clearly seeing a trend towards greater awareness and involvement with ESG,” he told CNBC earlier this month. “You couldn’t just say that it’s not a line of business you want. It’s a last outrageous attempt. The broader question of how we measure risk, how we quantify climate risk is important, but this particular rule is a distraction.”