The Trump administration on Thursday said big banks can't deny loans to entire industries including fossil fuel companies and private prisons, ignoring criticism from lenders, investors, consumer groups, Democrats and some conservatives.
The rule, issued by acting Comptroller of the Currency Brian Brooks on his last day in office, was finalized at lightning speed as the Trump administration winds down, and its critics widely expect the Biden administration or congressional Democrats to render it void.
The agency received nearly 37,000 comments on the rule, many dense with technical material, yet finalized it only 10 days after the comment period closed on Jan. 4.
“The rule lacks both logic and legal basis, it ignores basic facts about how banking works, and it will undermine the safety and soundness of the banks to which it applies,” Bank Policy Institute head Greg Baer said in a statement. “Its substantive problems are outweighed only by the egregious procedural failings of the rulemaking process, and for these reasons it is unlikely to withstand scrutiny.” BPI represents large banks.
Democrats have several routes to stop the rule. A Biden-appointed comptroller could simply refuse to enforce it or delay its effective date while it's repurposed or rescinded.
A more dramatic step is available to the Democratically controlled Congress, which could pass a resolution under the Congressional Review Act to overturn it. Some environmental groups are pushing Democrats to take that step, which would force a public debate and vote.
“The CRA is obviously a very powerful tool that should not be used carelessly,” said Lukas Ross, program manager at Friends of the Earth. ”But in reversing the corruption and pollution of the Trump years, no tool can be dismissed out of hand.”
Republicans should be forced to justify their support of the measure, he said.
"We're not just talking about oil. We're talking about payday lenders. We're talking about gun manufacturers. We're talking about for-profit prisons,” Ross said. “These are the people that they're rising to the defense of during their last days of power."
Senate Banking Chair Mike Crapo (R-Idaho) applauded the rule on Thursday, saying business lending decisions should be based on creditworthiness, not politics.
The office of Sen. Sherrod Brown, who will take over chairmanship of the committee later this month, said the panel “will use every legislative tool available” to undo the rules.
The rule lands as banks retreat from oil and gas companies and other politically unpopular industries. Lenders increasingly are weighing the prudential and economic risks of climate change and are under pressure from activists, the public, and shareholders to adopt business practices that are environmentally and socially responsible.
“This is an outlier,” said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, a sustainability nonprofit. “The substance is outdated and not reflecting today’s reality.”
Some of the country's largest banks, including Citigroup and JPMorgan Chase, have said they will end funding for new drilling and oil and gas exploration in the Arctic.
The shift by banks is one reason the Trump administration's auction of oil leases in the Arctic National Wildlife Refuge failed to draw interest earlier this month. When the OCC initially proposed the rule in November, it cited a letter from Alaska's congressional delegation that said banks were refusing to lend to oil and gas projects in the Arctic. Lawmakers complained that banks were citing reputational risk to justify political decisions.
"It's no coincidence that this happened at the same time the Arctic drilling auction was a complete bust," said Yevgeny Shrago, policy counsel at consumer watchdog Public Citizen. "This is Brian Brooks’ last day. That’s not a coincidence. He’s looking for a new job. So if he’s out there doing favors for certain companies, watch where he goes after this."
Brooks has said the rule allows banks to turn away clients that are a bad investment or have reputations that could cost the bank business. But those decisions must be made on an individual, rather than categorical, basis, he said.
The departing regulator took up a long-time crusade by GOP lawmakers, who were outraged by Obama administration efforts to discourage banks from serving businesses such as payday lenders. Brooks has said the rule similarly would protect industries that have Democratic support, such as abortion clinics.
Brooks said he is optimistic about the rule’s future.
“I do think it is more likely than not that the rule will survive,” he said in an interview with POLITICO on Thursday.
“Under the Congressional Review Act, it’d be a hard vote for a number of Democrats in a number of different kinds of districts to explain why it is that either the major employer in their district, or the major source of tax revenue in their district, or the major source of recreation in their district, ought to be de-banked,” he said. Voting against the rule might pose political problems for “a Democrat in an energy district in Pennsylvania” or “a senator in a hunting and fishing state like West Virginia.”
He also defended the speed at which the rule was released, saying that many of the comments were identical form letters that didn’t require individual consideration. He cited thousands of letters from “actual regular Americans” who supported the rule.
“We went through every single category of comment, one by one, and we articulated the comment in a clear and objective way whether it was in support of us or against us, and then we explained the reasons why we agreed with the comment or disagreed,” he said.
Banking groups have called the rule, which applies to banks with more than $100 billion in assets, unworkable. They and others said the office had no authority to even issue the regulation, which was put forward under a provision in the Dodd-Frank Act that charged the agency with ensuring “fair access” to financial services. Conservative groups blasted the regulator for getting too involved in lending decisions.
Former Comptroller of the Currency Tom Curry said the rule also isn’t consistent with how bank examiners supervise banks’ risk management. Lenders, he said, are required to consider “qualitative as well as quantitative risks.”
The American Petroleum Institute, an industry trade association with 600 members, had endorsed the rule, saying the industry should not be “discriminated against.”
“This entire rulemaking is a bit of performance art for Brooks,” said Gregg Gelzinis, a senior policy analyst at the Center for American Progress, a liberal think tank. "The short-term impact of the rule is very small. It will be rendered a moot point.”
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