Washington Should Ease Debanking Rules and Reject Price Controls

Banking regulation rarely attracts the attention given to taxes, health care, or other pocketbook issues. But millions of Americans rely on the nation’s largest banks for checking accounts, credit cards, payments, savings, and other financial services. Changes to federal banking rules can have consequences well beyond Wall Street.

Nearly three-quarters of Americans have an account with a large national bank, including JPMorgan Chase, Bank of America, Wells Fargo, and Citibank. Federal policies governing these institutions can directly affect how Americans use everyday financial services.

Congress is considering legislation aimed at debanking and outdated financial reporting requirements. Federal regulators are also reconsidering rules governing how banks provide customer financial data to financial technology companies.

The policy questions are different, and they should be considered on their own merits.

Federal Rules Put Banks in a Debanking Bind

Big banks face competing demands from Washington. Policymakers want banks to serve lawful customers and avoid unnecessary debanking. At the same time, federal regulations encourage banks to be extremely cautious about which customers they accept and punish them when regulators conclude that they failed to identify a potential problem.

That can leave banks with a difficult choice. Taking on a customer who later draws regulatory scrutiny can expose a bank to investigations, penalties, and accusations that it failed to properly manage risk. Turning away the customer can lead to accusations of debanking.

The safer decision for a bank can therefore be to avoid a customer in the first place.

Federal policy should give banks more confidence to serve lawful customers without leaving them exposed to a government crackdown if regulators later second-guess a reasonable decision.

Congress is beginning to address the problem.

One concern is the use of “reputational risk” in bank supervision. Regulators have historically been able to consider the perceived reputational consequences of serving certain customers or industries, even when the underlying activity is legal. That can give banks another reason to avoid customers who might attract regulatory attention.

The U.S. House recently approved H.R. 6955, the “Main Street Capital Access Act,” which includes provisions based on the Financial Integrity and Regulation Management Act, or FIRM Act. Those provisions would restrict federal banking regulators from using reputational risk as a supervisory factor.

Sen. Tim Scott (R-S.C.) has introduced S. 875, the “Financial Integrity and Regulation Management Act,” to address the issue in the Senate.

Congress is considering another reform aimed at the compliance burdens banks face when monitoring customers. S. 3017, the “Streamlining Transaction Reporting and Ensuring Anti-Money Laundering Improvements for a New Era Act,” or STREAMLINE Act, would modernize requirements under the Bank Secrecy Act, including thresholds for currency transaction reports and suspicious activity reports that have failed to keep pace with decades of economic change.

Debanking has gained attention outside Congress as well. The American Legislative Exchange Council has adopted a model resolution urging Congress to address politically motivated debanking. Louisiana lawmakers have approved a resolution supporting federal action.

Banks have an obligation to guard against fraud, money laundering, and other illegal activity. They should not have to treat every unconventional customer as a potential regulatory liability. Clearer rules and more reasonable compliance requirements would give banks greater freedom to serve lawful customers while keeping appropriate safeguards against genuine financial crime.

Fintechs Should Not Get a Government-Mandated Price of Zero

A separate fight over Section 1033 of the Dodd-Frank law centers on something much more familiar: what one business should be allowed to charge another for a service.

When a customer chooses to connect a bank account to a payment service or financial app through a fintech company, the fintech needs access to information held by the customer’s bank. Banks and fintech companies can negotiate fees for the infrastructure and services involved in providing that access.

Some fintech companies want federal regulators to take a different approach. Rather than negotiating those costs with banks, they want the government to require banks to provide the access for free.

The Consumer Financial Protection Bureau’s 2024 rule implementing Section 1033 did exactly that for access covered by the rule. It prohibited banks and other covered financial institutions from charging consumers or authorized third parties fees for providing required financial data.

The Trump administration is now reconsidering the rule and has an opportunity to reverse course.

Consumers should have the right to access their financial information and authorize legitimate third parties to use it. But that consumer right does not entitle one private company to use another company’s systems at a government-mandated price of zero.

Banks spend money building, maintaining, and securing the systems used to transmit sensitive customer information. Fintech companies use access to those systems to offer their own products, attract customers, and earn revenue. How much one business pays another for that service is a commercial question that the businesses should negotiate.

Fintech companies are effectively asking federal regulators to intervene in that negotiation on their behalf. A government mandate setting the fee at zero would transfer the cost from fintech companies to banks while improving the fintech companies’ own economics.

That is a price control, and Washington should reject it.

Section 1033 can protect consumers’ control over their own financial information without giving fintech companies a government-created right to free services from their business partners. Banks and fintech companies should compete for customers and negotiate the terms of doing business with each other without federal regulators fixing the price.

CFE Takeaway

Banking regulation affects the everyday financial lives of millions of Americans. Current debates over debanking and Section 1033 involve different policies, but both warrant attention because of the number of consumers who rely on the financial institutions subject to these rules.

Congress should make it easier for banks to serve lawful customers without exposing them to unreasonable regulatory risk. Limiting the use of subjective reputational standards and modernizing outdated financial reporting requirements would move policy in that direction.

The Trump administration should also protect consumers’ ability to access their financial information while rejecting federal price controls on the services banks provide to fintech companies.

Banks should be able to serve more customers, and private companies should be able to negotiate with one another without unnecessary government interference.