The House advanced a bill this week that requires federal banking agencies to provide banks or credit unions written justification of any request to terminate or restrict a customer’s account, except in instances of national security.
The Financial Institution Customer Protection Act of 2017 (H.R. 2706), sponsored by Rep. Blaine Luetkemeyer (R-MO), would effectively end an initiative instituted by the Department of Justice (DOJ) under the Obama Administration dubbed Operation Choke Point. This policy allowed the DOJ to investigate banks who do business with firearm dealers, payday lenders, and other companies believed to be at higher risk for fraud and money laundering.
Under the Luetkemeyer bill, banks cannot be asked to terminate relationships based on reputational risk, rather, it must be for a material reason. The bill also mandates that the Federal Deposit Insurance Corporation issue a report annually to Congress that outlines the number of customer accounts the agency closed along with the legal authority to do so.
“Over the past several years, I have led the effort to combat Operation Choke Point, the Department of Justice and Federal Deposit Insurance Corporation-led initiative that sought to cut off legal businesses from the financial services they need to survive,” Luetkemeyer said. “It is simple: the federal government should not be able to intimidate financial institutions into dropping entire sectors of the economy as customers, based not on risk or evidence of wrongdoing, but purely on personal and political motivations.”
The bill passed by voice vote, 395-2.
The House also passed the Investor Clarity and Bank Parity Act (H.R. 3093), sponsored by Rep. Mike Capuano (D-MA). This bill amends the Dodd-Frank Act’s Volcker rule so that a hedge fund or private equity fund can share a name with a bank-affiliated investment adviser that manages the fund.
“When the regulators issued the final rule to implement the Volcker rule, they imposed severe limitations on the ability of bank holding companies and their affiliates – including investment advisers – to sponsor hedge funds and private equity funds, also known as covered funds. As a result, a covered fund cannot use the name of a sponsor,” Luetkemeyer said. “Not only is such a restriction at odds with industry practice, it reduces transparency and confuses investors about who is managing a covered fund.”