ANALYSIS: By now, you’ve heard about President Trump’s recent executive order (EO) on “debanking.” The EO is intended to prevent financial institutions from denying services to anyone based on political or religious beliefs, lawful business activities, or other constitutionally and statutorily protected attributes. The EO contains several significant instructions to federal agencies and financial regulators.
Just what does the EO require? It instructs federal agencies and financial regulators to take several steps, and it means that your credit union should take action, too. This Courier will help summarize what’s needed for compliance with the EO.
Federal agencies & regulators
The EO imposes several requirements on federal agencies and regulatory bodies:
Treasury Department
Within 180 days, the Secretary of the Treasury must develop a comprehensive strategy to combat politicized or unlawful debanking. This plan may include recommendations for legislative action, new regulations, and other government-wide initiatives to address the actions of regulators and financial institutions.
Federal banking regulators
The NCUA and other federal banking regulators must take several steps:
- “Reputation risk.” Within 180 days, agencies must remove “reputation risk” or equivalent concepts from examination manuals, guidance, and supervisory materials if such concepts could enable politically motivated banking restrictions.
- Guidance to examiners. Agencies must formally instruct examiners on the elimination of reputation risk as a regulatory consideration.
- Reviews of regulations. Agencies must consider revising or rescinding any rules that could facilitate politicized or unlawful debanking.
- Targeted enforcement. Within 120 days, regulators must identify institutions that have policies or practices, past or present, which encourage or require politicized or unlawful debanking, and take “appropriate remedial action,” which may include fines, consent decrees, or other disciplinary measures.
- DOJ referral. If a regulator finds evidence of religious-based debanking that violates the Equal Credit Opportunity Act (ECOA) and compliance cannot be obtained, it must refer the matter to the Department of Justice for possible civil action.
Small Business Administration
Within 60 days, the Small Business Administration (SBA) must require all SBA lenders to:
- Review past denials of service for potential politicized or unlawful debanking violations, reinstate eligible clients, and notify them of reinstatement.
- Identify potential clients who may have been denied banking or payment processing services in violation of SBA requirements and inform them of the opportunity to reapply or reengage in services.
Action steps for credit unions
The Treasury Secretary’s strategy should include more details about what’s expected of credit unions and other financial institutions. You can expect some scrutiny, and even possible enforcement actions related to politically or ideologically motivated banking restrictions.
In the meantime, your credit union should consider these steps:
- Review and update policies to ensure they explicitly prohibit discrimination based on political or religious beliefs. Remove any political or subjective rules and focus solely on actual compliance and credit standards.
- Document risk-based decision-making processes for account denials or closures.
- Ensure that account decisions (including opening, managing, or closing accounts) are based on objective, measurable factors (e.g., credit scores, transaction histories, and BSA/AML/CFT indicators).
- Avoid any reference to political affiliations, religious beliefs, or vague “reputation” concerns in policies, procedures, or staff training materials.
- Start regular oversight and audit reviews to flag any unusual service denials or account actions, along with steps to remedy any impermissible actions.
- Monitor regulatory guidance and enforcement trends over the coming months.
- Be prepared to take appropriate remedial action, including possibly engaging with former members to determine whether services can be appropriately restored.
- Be prepared to check records for information about previous decisions to deny services or expel members. The EO includes a “look-back” requirement directing the NCUA and other regulators to retroactively review whether financial institutions, including credit unions, have in the past illegally closed accounts for political or religious reasons. America’s Credit Unions explained: “This lookback period contains no set start date. Examiners could therefore ask credit unions, on a relatively short timetable, to produce account-closure logs, legacy policies, and board records that show that membership, lending, and service decisions were grounded in objective, risk-based criteria. Credit unions with clear documentation should face only a reporting exercise, while those with vague ‘reputation-risk’ language may need to revise or explain old practices.”
If your credit union is a member of America’s Credit Unions, you can review their analysis of this EO, as well as other recent EOs, on the “Executive Orders and Impacts” page of their Advocacy Resource Library. (Login is required.)