Bill Barr criticizes Florida debanking law

Attorney General William Barr speaks to reporters at the Justice Department in Washington, Monday, Jan. 13, 2020, to announce results of an investigation of the shootings at the Pensacola Naval Air Station in Florida. On Dec. 6, 2019, 21-year-old Saudi Air Force officer, 2nd Lt. Mohammed Alshamrani, opened fire at the naval base in Pensacola, killing three U.S. sailors and injuring eight other people. (AP Photo/J. Scott Applewhite)

Earlier this month, former U.S. Attorney General Bill Barr weighed in on the growing debate over debanking during an event in Washington.

“Debanking” — which refers to a financial institution denying or terminating services to individuals or businesses based on certain risk factors — has become a main point in debates over free markets and regulatory overreach. Barr explored the challenges state-level debanking laws pose to consumers, businesses and regulators, using Florida’s HB 989 as an example.

Barr, who served as the head of the U.S. Department of Justice under Presidents George H.W. Bush and Donald Trump, oversaw part of the legal and regulatory landscape that shapes financial practices, providing him a unique view of the interplay between federal and state regulations, particularly with regard to law enforcement.

HB 989, which restricts financial institutions from denying services or “debanking” customers based on political, social, or religious factors, has sparked debate over its implications for the banking industry and the broader economy. While Barr acknowledged Republican lawmakers’ motivations behind such laws and the need for unbiased banking, Barr said, “I have a feeling that a lot of these (debanking) stories, there may be truth in some of these stories, but a lot of these stories are, are not the complete set of facts as, as we know.”

Further, these state-level measures undermine the uniformity needed for effective regulation and increase costs for businesses and consumers alike.

“I just don’t think that that’s a viable response,” Barr said. “That means every separate state conducts its investigation of these things. And I think a clear set of rules has to be adopted centrally. … Our object is to have a common market, an efficient common market, and when states get into the act in ways that impede that, it’s very costly.”

Critics of HB 989 share Barr’s concerns. Americans for Free Markets Executive Director John Wittman shared, “State-level laws like HB 989 may be well-intentioned, but they contribute to disjointed regulations across states, making it harder for businesses to operate and ultimately driving up costs for everyday Americans. A national standard where all Americans share the same level of protection is the only way to ensure fairness and efficiency in the market while protecting individual freedoms.”

At the same time, there are government pressures that impact access to financial services.

“Banks have a big regulatory burden in reporting to the government and knowing their customer and calling attention to certain kinds of irregularities, potential money laundering or terrorist financing or so forth, and they have to pay big penalties if they don’t comply with these things,” Barr explained. “Some of these things are circumstances where there’s been activity that puts the bank at risk and the bank responds but they’re not allowed under law to disclose what the basis of their action was.”

Those federal laws are at the heart of a debate in the nation’s capital. The Competitive Enterprise Institute (CEI), a Washington-based think tank focused on free markets, has long warned about the risks of politicizing financial decisions. In a recent blog post, CEI emphasized that “while due diligence is to be expected from banks, criminal investigative duties are not. Shifting the costs onto supervised bodies is not an acceptable principle of governance. Businesses need to be allowed to make their own business decisions without the threat of being required by their regulators to do their job for them.”

Similarly, the Bank Policy Institute (BPI) pointed to how regulatory requirements create burdens for banks, ultimately harming law-abiding customers. BPI noted, “Banks are heavily incentivized to file Suspicious Activity Reports and, in some cases, designate customers as ‘high risk’ even if their actual likelihood of criminal activity is low. This raises the costs to the bank and increases the risk of regulatory penalties, leading to reduced services even for law-abiding customers.”

“Those regulators are pretty aggressive,” Barr said, arguing we should be focused on fixing the issue across all states to protect consumers and businesses and support a consistent and efficient financial system. As the incoming Trump administration considers regulatory priorities, Barr and others call for solutions that strike a balance between oversight and economic freedom.