Bill Would Ban Customer Termination by Federal Agencies

Financial Services Law

In an attack on heavily criticized practices from Operation Choke Point, the House of Representatives passed a bill that would place limits on federal bank regulators ordering account closures. The bill passed with broad bipartisan support.

What happened

Initiated in 2013, Operation Choke Point was an initiative created by the Department of Justice (DOJ) to investigate and target companies doing business with entities that were deemed at high risk for money laundering and fraud. During Choke Point, federal authorities often pressured banks to close bank accounts of targeted companies, or forced third-party processors to end their relationships with such companies. In August 2017, DOJ formally announced it was ending the program after criticism that the initiative was harming legitimate businesses, even if those entities were supporting businesses that were held in disfavor, such as payday lending (perhaps the most prominent target of the program).

Sponsored by Rep. Blaine Luetkemeyer (R-Mo.), the Financial Institution Customer Protection Act would specify that a federal banking agency “may not formally or informally request or order a depository institution to terminate a specific customer account or group of customer accounts or to otherwise restrict or discourage a depository institution from entering into or maintaining a banking relationship with a specific customer or group of customers.”

If it becomes law, the measure would ban most forced closures but permit an exception if the agency believes that the customer poses a threat to national security, is involved in terrorist financing or is an agency of governments listed on the State Sponsors of Terrorism list. In addition, a federal banking regulator could request termination if “the agency has a valid reason for such request or order and such reason is not based solely on reputation risk.”

If the agency does order termination of a customer account, it would be required to provide the request or order to the institution in writing, accompanied by a justification for why such termination is needed, “including any specific laws or regulations the agency believes are being violated by the customer or group of customers, if any.” The depository institution would then be required to inform the customer of the justification.

The notice requirements may be waived in cases of national security.

Reporting mandates were also included in the measure, with each federal banking agency required to issue an annual report to Congress with the aggregate number of specific customer accounts the agency requested or ordered depository institutions to terminate during the previous year, as well as the legal authority relied upon in making such requests and orders.

H.R. 2706 mirrors similar bills Rep. Luetkemeyer has introduced over the last several legislative sessions, all targeting one of the practices used as part of Operation Choke Point under the prior administration.

The bill overwhelmingly passed in the House by a vote of 395 to 2 and moved to the Senate, where it was referred to the Committee on Banking, Housing, and Urban Affairs.

To read H.R. 2706, click here.

Why it matters

If ultimately enacted, as we now expect, the bill would do away with one of the most criticized practices employed in Operation Choke Point, with federal banking agencies no longer able to request or order termination of customer accounts based solely upon reputational risk. The broad bipartisan support for the bill suggests that both sides of the aisle are deeply troubled by these tactics.



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