Banks and federal policymakers in Washington face significant challenges in limiting the reach of recent “fair access” laws in states like Florida and Tennessee. These laws mandate that lenders must provide services equitably to all customers and disallow the denial of services based on political or religious beliefs. However, the path to preemption is notably narrow, in large part due to the May U.S. Supreme Court ruling in Cantero v. Bank of America NA. The decision complicated the Office of the Comptroller of the Currency’s (OCC) ability to preempt state laws under the National Bank Act, now requiring them to prove that such laws “significantly interfere” with a bank’s operations.
The Supreme Court’s stance implies that federal regulators and banks face a tougher challenge. The Cantero decision now necessitates a detailed analysis to determine interference, rather than a broad-brush preemption of state laws. This standard presents hurdles in addressing laws like those in Florida and Tennessee, which are framed to prevent banks from engaging in potentially discriminatory practices based on non-quantifiable factors.
Florida’s law, signed by Governor Ron DeSantis, mandates that banks can only deny services for “quantitative, impartial, and risk-based” reasons. It empowers customers to report any potential violations to the state’s Office of Financial Regulation and calls for financial institutions to provide a report detailing the reasoning behind service denials. Governor Bill Lee of Tennessee has enacted similar legislation, with the added provision that allows customers to sue banks directly if they feel unfairly treated.
Federal policymakers, notably concerned about anti-money laundering (AML) and counter-terrorism financing (CTF), argue that these state laws might hinder compliance with national regulations. A bipartisan letter from members of the House Financial Services Committee stressed that the reporting requirements would complicate efforts to manage risky customers and potentially force banks to disclose confidential suspicion of illicit activities.
Acting Comptroller of the Currency Michael Hsu has indicated his intention to strengthen the OCC’s preemption powers, but the Supreme Court’s ruling sets an arduous path. Options for federal intervention range from broad rulemaking to direct lawsuits against the states, yet financial regulatory scholars highlight that any such preemption efforts could face significant resistance.
Challenges to blocking the anti-discrimination components of these laws under preemption seem likely to fail, while areas pertaining to AML and CTF compliance may provide more promising grounds for federal action. Nonetheless, even these claims must meet the stringent standards laid out in Cantero and the preemption limitations set by the 2010 Dodd-Frank Act.
The OCC may indeed be up for a tough legal fight if they elect to challenge these state-level “fair access” laws outright.
For further details, refer to the extensive coverage on Bloomberg Law.