South Carolina Senator Tim Scott, who chairs the US Senate Banking Committee, is spearheading an effort to eliminate regulatory oversight of customer reputational risks in banking.
Scott has introduced a bill designed to put an end to debanking, a controversial practice that has been used to deny financial services to certain businesses and individuals based on subjective risk assessments.
We obtained a copy of the bill for you here.
Debanking allows banks to cut off clients deemed to pose “reputational risks.” The Federal Reserve defines this term as “the potential that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.”
The broad and vague nature of this definition has led to concerns that financial institutions wield too much discretionary power over who can access essential banking services.
Scott’s legislative push has garnered significant Republican backing, with at least 11 GOP lawmakers co-sponsoring the measure. Major banking industry groups are also lining up in support, including the Bank Policy Institute, which represents many of the country’s largest financial institutions.
“As Chairman of the Senate Banking Committee, I have made addressing debanking a top priority.
“This discriminatory and un-American practice should concern everyone, which is why I’ve led my colleagues in working to find tangible solutions. It’s clear that federal regulators have abused reputational risk by carrying out a political agenda against federally legal businesses. This legislation, which eliminates all references to reputational risk in regulatory supervision, is the first step in ending debanking once and for all,” said Senator Scott.
Hellbound and Down 