Experts warn recently adopted banking laws will limit free markets

In response to the U.S. Treasury’s concerns that Florida’s HB 989 poses a “national security threat,” Attorney General Ashley Moody delivered a letter accusing the Treasury of “falsely suggesting” the law would “prohibit financial institutions from considering whether a consumer is associated with designated terrorist groups.”

Commenting on the Treasury letter and implementation of HB 989, Americans for Free Markets Executive Director John Wittman said, “HB 989 establishes an entirely new regulatory regime that could erode the safety, security and services Floridians expect from the national banking system — all in response to the false narrative that financial institutions deny customers access to financial services based on their personal beliefs. Lawmakers should instead promote free market principles and foster prosperity.”

The bill targets large and small banks alike, forcing institutions of all shapes and sizes to navigate a new state regulatory environment, which can be costly and could potentially directly conflict with the existing federal regulatory regime. Banks are already subject to regulations under the Office of the Comptroller of the Currency (OCC), Federal Reserve, Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission (SEC), and the Treasury Department. As economist and President of the Parkview Institute John Tamny put it, the law “will needlessly tie banks up in substantially more bureaucracy.”

Specifically, Tamny explains, “It inserts an entirely new regulatory regime on top of and in conflict with the existing federal laws governing national banks. A failure to comply comes with a steep price tag that could ultimately force a national bank to choose between which opposing laws to follow, those in Florida or the national laws under which national banks already operate.”

The law is the latest example of politicians fighting against perceived “woke-ism” in corporate America, and regulators and policy experts alike have raised concerns that this attempt to score political points will likely lead to negative impacts on people and businesses across the Sunshine State.

“The consequences from politicians’ zeal to attack financial institutions are real,” Hispanic Leadership Fund President and CEO Mario Lopez warned. The law “threaten(s) consumer protections and access and undermine(s) national banking standards that have been a cornerstone of our financial stability and economic prosperity since 1863.”

Further, it will be nearly impossible for banks to push back against accusations of political bias due to federal disclosure requirements that prohibit information sharing regarding account closures with state agencies. For any bank that is targeted by an allegation, the fines could be enormous, with penalties ranging from $2,500 to $500,000 per day.

Banks are already subject to safety and soundness requirements by federal regulators, in addition to laws prohibiting discrimination. They are already required by law to treat customers and clients fairly — regardless of political or religious beliefs — and make sound decisions based on factors such as legal, credit, market, reputational, and regulatory risks — not political agendas.

“Existing regulations protect consumers. Banks have a duty to make sound decisions based on legitimate factors such as risk assessment, legal considerations, credit evaluation and reputational integrity,” said former Sen. Garrett Richter and Florida Market President of First Foundation Bank when the law was first being considered in the House. Richter continued, “Banks are in the business of opening accounts, not closing them, and it is simply not in a bank’s vested interest to close an account without proper justification.”

POLITICO recently reported that while Florida was the first to pass such a measure, it is not the only state. Tennessee this year passed a law that requires banks to provide specific reasons for closing or denying an account. The Tennessee law includes a private right of action to sue banks, which will create a cottage industry for greedy trial lawyers anxious to cash in with shakedown lawsuits.

Arizona, Georgia, Iowa and Idaho, among others, are considering measures as well, raising the potential for further eroding of national bank policy and a confusing maze of different state laws.

“States imposing their own rules on national banks, no matter how well-intentioned, creates a patchwork of differing regulatory requirements across the country and undermines the longstanding efficiencies and economic benefits derived under the National Bank Act,” American Bankers Association President and CEO Rob Nichols said.

As a result, some financial institutions may not offer services in states like Florida with complex and contradictory regulatory environments. Potential decisions to leave the market will limit access and affordability of the products and services a national bank can provide and may even interfere with a bank’s ability to help keep Americans safe from crimes such as human trafficking, terrorism and more. Banks adherence to these regulations, such as not sharing information on account disclosures, can often play a valuable role in identifying and deterring individuals who are abusing the U.S. financial system.

“History has demonstrated that consumers benefit when national banks compete under uniform and consistent rules overseen by the federal government, while states oversee those institutions that choose to operate under a state charter,” Nichols added.