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AmericasFebruary 15 2021

OCC pauses controversial ‘fair access rule’ pending further scrutiny

New US president Joe Biden has frozen implementation of new rules pending a review. 
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OCC pauses controversial ‘fair access rule’ pending further scrutiny

One of the last acts of the administration of former US president Donald Trump was to finalise the fair access rule requiring national banks to provide quantitative justifications for not supporting industries considered ‘unethical’.   

These industries could include armaments, tobacco through to oil and gas, where there are reputational risks and in the case of the latter financial risks given the emphasis on fighting climate change. 

The rule would require OCC-covered banks to make financial services available to all persons in their geographic market and not to deny them unless they fail to meet quantitative, impartial risk-based standards established in advance by the covered bank. That means such banks could not refuse financial services on the basis of an ethical policy, for example. 

On January 28, the Office of the Comptroller of the Currency (OCC) paused the fair access rule delaying its publication in the Federal Register. It will be left to the next OCC chair to review the rule, who will need Senate confirmation. The rule was due to take effect on April 1. 

On January 20, US president Joe Biden signed an executive order freezing the implementation of new rules pending their scrutiny by the administration’s appointees. 

Criticism from environmentalists 

The rule, thought to be designed to support the oil and gas industry, quickly ran into flak from environmentalists and bankers. The Bank Policy Institute lambasted it for being impractical and unfairly meddling with banks’ business decisions. “The egregious procedural failings of the OCC’s rulemaking process means the rule cannot possibly withstand scrutiny,” it wrote. 

Law firm DLA Piper explained that the OCC received around 35,700 comments when consulting on the rule with 4200 comments supporting it and 31,290 against, though some 28,000 of those comments were letters collected by a single organisation. The OCC noted that a significant proportion of those comments reflected concerns that banks would not be able to consider environmental and social factors in lending decisions.

If the rule comes into force, which seems unlikely given the new administration's environmental goals, it could spur a flurry of lawsuits against banks from organisations who feel they’ve been discriminated against. 

“It may additionally hamper the ability of regulated institutions to deny financial services to specific customers based on individualised risks that are not directly addressed by existing standards, creating both litigation and regulatory risk,” DLA Piper wrote in a note. 

This article first appeared in The Banker’s sister publication Global Risk Regulator.

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