[House Report 115-414]
[From the U.S. Government Publishing Office]
115th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 115-414
======================================================================
FINANCIAL INSTITUTION CUSTOMER PROTECTION ACT OF 2017
_______
November 16, 2017.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 2706]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 2706) to provide requirements for the
appropriate Federal banking agencies when requesting or
ordering a depository institution to terminate a specific
customer account, to provide for additional requirements
related to subpoenas issued under the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, and for other
purposes, having considered the same, report favorably thereon
with an amendment and recommend that the bill as amended do
pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Financial Institution Customer
Protection Act of 2017''.
SEC. 2. REQUIREMENTS FOR DEPOSIT ACCOUNT TERMINATION REQUESTS AND
ORDERS.
(a) Termination Requests or Orders Must Be Valid.--
(1) In general.--An appropriate Federal banking agency may
not formally or informally request or order a depository
institution to terminate a specific customer account or group
of customer accounts or to otherwise restrict or discourage a
depository institution from entering into or maintaining a
banking relationship with a specific customer or group of
customers unless--
(A) the agency has a valid reason for such request or
order; and
(B) such reason is not based solely on reputation
risk.
(2) Treatment of national security threats.--If an
appropriate Federal banking agency believes a specific customer
or group of customers is, or is acting as a conduit for, an
entity which--
(A) poses a threat to national security;
(B) is involved in terrorist financing;
(C) is an agency of the Government of Iran, North
Korea, Syria, or any country listed from time to time
on the State Sponsors of Terrorism list;
(D) is located in, or is subject to the jurisdiction
of, any country specified in subparagraph (C); or
(E) does business with any entity described in
subparagraph (C) or (D), unless the appropriate Federal
banking agency determines that the customer or group of
customers has used due diligence to avoid doing
business with any entity described in subparagraph (C)
or (D),
such belief shall satisfy the requirement under paragraph (1).
(b) Notice Requirement.--
(1) In general.--If an appropriate Federal banking agency
formally or informally requests or orders a depository
institution to terminate a specific customer account or a group
of customer accounts, the agency shall--
(A) provide such request or order to the institution
in writing; and
(B) accompany such request or order with a written
justification for why such termination is needed,
including any specific laws or regulations the agency
believes are being violated by the customer or group of
customers, if any.
(2) Justification requirement.--A justification described
under paragraph (1)(B) may not be based solely on the
reputation risk to the depository institution.
(c) Customer Notice.--
(1) Notice required.--Except as provided under paragraph (2),
if an appropriate Federal banking agency orders a depository
institution to terminate a specific customer account or a group
of customer accounts, the depository institution shall inform
the customer or customers of the justification for the
customer's account termination described under subsection (b).
(2) Notice prohibited in cases of national security.--If an
appropriate Federal banking agency requests or orders a
depository institution to terminate a specific customer account
or a group of customer accounts based on a belief that the
customer or customers pose a threat to national security, or
are otherwise described under subsection (a)(2), neither the
depository institution nor the appropriate Federal banking
agency may inform the customer or customers of the
justification for the customer's account termination.
(d) Reporting Requirement.--Each appropriate Federal banking agency
shall issue an annual report to the Congress stating--
(1) the aggregate number of specific customer accounts that
the agency requested or ordered a depository institution to
terminate during the previous year; and
(2) the legal authority on which the agency relied in making
such requests and orders and the frequency on which the agency
relied on each such authority.
(e) Definitions.--For purposes of this section:
(1) Appropriate federal banking agency.--The term
``appropriate Federal banking agency'' means--
(A) the appropriate Federal banking agency, as
defined under section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813); and
(B) the National Credit Union Administration, in the
case of an insured credit union.
(2) Depository institution.--The term ``depository
institution'' means--
(A) a depository institution, as defined under
section 3 of the Federal Deposit Insurance Act (12
U.S.C. 1813); and
(B) an insured credit union.
PURPOSE AND SUMMARY
Introduced by Representative Blaine Luetkemeyer on May 25,
2017, H.R. 2706, the ``Financial Institution Customer
Protection Act of 2017'', prohibits a federal banking agency
from formally or informally suggesting, requesting, or ordering
a depository institution to terminate either a specific
customer account, or group of customer accounts, or otherwise
restrict or discourage it from entering into or maintaining a
banking relationship with a specific customer or group of
customers, unless: (1) the agency has a valid reason for doing
so, and (2) that reason is not based solely on reputation risk.
H.R. 2706 requires a federal banking agency to provide a
depository institution written justification of any request to
terminate or restrict a customer account, except in instances
of national security.
H.R. 2706 also requires appropriate federal banking
agencies to issue an annual report to Congress that describes
the number of customer accounts the agency requested or ordered
to be closed and the legal authority relied upon by the agency
to do so.
BACKGROUND AND NEED FOR LEGISLATION
Operation ``Choke Point'' is a law enforcement initiative
launched by the Department of Justice's Consumer Protection
Branch during President Obama's Administration to combat
consumer fraud by `choking off' businesses alleged to have
committed fraud from access to the financial system. Rather
than investigate and prosecute the merchants alleged to have
committed fraud, the Justice Department subpoenas the
institutions that provide financial services to these
merchants, which effectively coerces these financial
institutions to cease offering the services. The Justice
Department has partnered with the Federal Deposit Insurance
Corporation (FDIC) to identify merchants that pose a `high
risk' for consumer fraud, notwithstanding the fact that these
merchants may be operating their businesses legally. In doing
so, the FDIC equated legitimate and regulated activities such
as coin dealers and firearms and ammunition sales with
inherently pernicious or patently illegal activities such as
Ponzi schemes, debt consolidation scams, and drug
paraphernalia. The legal merchants identified as `high risk'
have seen their accounts terminated by banks seeking to avoid
civil and criminal liability as well as greater regulatory
scrutiny.
The Committee adopted an amendment offered by Rep. Denny
Heck that would prevent federal banking agencies from abusing
executive power when these regulators attempt to shut off law-
abiding businesses' access to depository institutions by
prohibiting appropriate banking agencies from ordering or
requesting a depository institution to terminate customer
accounts unless the agency has a valid reason for doing so, and
that reason is not based solely on reputational risk.
In a letter of support for H.R. 2706 dated June 5, 2017,
the Credit Union National Association wrote:
[H.R. 2706] would place certain limits on the Federal
government's Operation Choke Point. While we strongly
support the government's role in ensuring the integrity
of financial markets and eliminating fraud, the
program's broad enforcement tactics could create
unnecessary risks to consumers and to the economy.
The legislation would limit Federal banking
regulators' ability to discourage or restrict
depository institutions from entering into or
maintaining a financial services relationship with
specific customers unless certain criteria are met.
In a letter of support for H.R. 2706 dated October 10,
2017, the Consumer Bankers Association wrote:
[H.R. 2706] would require federal banking regulatory
agencies to establish requirements for the termination
of bank accounts and prohibit federal banking
regulators from formally or informally suggesting,
requesting, or ordering a depository institution to
terminate a customer account except in circumstances
affecting the security of our country or specific
illegal activity.
HEARINGS
The Committee on Financial Services' Subcommittee on
Financial Institutions held a hearing examining matters
relating to H.R. 2706 on July 12, 2017.
COMMITTEE CONSIDERATION
The Committee on Financial Services met in open session on
October 11 and 12, 2017 and ordered H.R. 2706 to be reported
favorably to the House as amended by a recorded vote of 59 yeas
to 1 nays (Record vote no. FC-78), a quorum being present.
Before the motion to report was offered, the Committee adopted
an amendment in the nature of a substitute offered by Mr.
Luetkemeyer, and an amendment to the amendment in the nature of
a substitute by Mr. Heck by voice vote.
COMMITTEE VOTES
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole recorded vote was on a motion by Chairman Hensarling to
report the bill favorably to the House as amended. The motion
was agreed to by a recorded vote of 59 yeas to 1 nays (Record
vote no. FC-78), a quorum being present.
COMMITTEE OVERSIGHT FINDINGS
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
PERFORMANCE GOALS AND OBJECTIVES
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee states that H.R. 2706
will restore the rule of law by requiring federal banking
agencies to justify requests to terminate customer bank
accounts maintained by depository institutions and requiring
civil subpoenas issued by the Department of Justice in
investigations affecting a federally insured financial
institution to be supported by facts.
NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
CONGRESSIONAL BUDGET OFFICE ESTIMATES
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 31, 2017.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2706, the
Financial Institution Customer Protection Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Sarah Puro.
Sincerely,
Keith Hall,
Director.
Enclosure.
H.R. 2706--Financial Institution Customer Protection Act of 2017
H.R. 2706 would prohibit federal banking regulators--the
Federal Deposit Insurance Corporation (FDIC), the National
Credit Union Administration (NCUA), the Office of the
Comptroller of the Currency (OCC), and the Federal Reserve--
from requesting or requiring that a depository institution
terminate certain customer accounts except in specific
circumstances affecting national security. The bill also would
require each federal banking regulator to report annually on
the number of requests to terminate customer accounts that any
of those agencies has made to a bank.
On the basis of information from the federal banking
regulators, CBO expects that the prohibitions in H.R. 2706
would not alter the actions those regulators take under current
law. However, the additional reporting requirement in the bill
would impose costs on those agencies. Administrative costs
incurred by the FDIC, the OCC, and the NCUA are recorded in the
budget as an increase in direct spending. CBO estimates that
the cost to complete the annual reports would not be
significant. Moreover, those agencies are authorized to collect
premiums and fees from insured depository institutions to cover
administrative expenses. Thus, CBO expects that the net effect
on the federal budget would be negligible. Administrative costs
to the Federal Reserve are reflected in the federal budget as a
reduction in remittances to the Treasury (which are recorded in
the budget as revenues). CBO expects that any additional
administrative costs to the Federal Reserve under the bill also
would be insignificant.
Because enacting H.R. 2706 would affect direct spending and
revenues, pay-as-you-go procedures apply.
CBO estimates that enacting H.R. 2706 would not
significantly affect net direct spending or on-budget deficits
in any of the four consecutive 10-year periods beginning in
2028.
H.R. 2706 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Sarah Puro. The
estimate was approved by H. Samuel Papenfuss, Deputy Director
for Budget Analysis.
FEDERAL MANDATES STATEMENT
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995.
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
ADVISORY COMMITTEE STATEMENT
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
APPLICABILITY TO LEGISLATIVE BRANCH
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
EARMARK IDENTIFICATION
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
DUPLICATION OF FEDERAL PROGRAMS
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
DISCLOSURE OF DIRECTED RULEMAKING
Pursuant to section 3(i) of H. Res. 5, (115th Congress),
the following statement is made concerning directed
rulemakings: The Committee estimates that the bill requires no
directed rulemakings within the meaning of such section.
SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION
Section 1. Short title
This Section cites H.R. 2706 as the ``Financial Institution
Customer Protection Act of 2017''.
Section 2. Requirements for deposit account termination requests and
orders
This Section prohibits a federal banking agency from
formally or informally suggesting, requesting, or ordering a
depository institution to terminate either a specific customer
account, or group of customer accounts, or otherwise restrict
or discourage it from entering into or maintaining a banking
relationship with a specific customer or group of customers,
unless: (1) the agency has a valid reason to do so, and (2) the
reason is not based solely on reputation risk. The validity
requirement is satisfied if a federal banking agency believes
that a specific customer or group of customers poses a threat
to national security, including any belief that they are
involved in terrorist financing.
This section also requires a federal banking agency that
requests or orders a depository institution to terminate an
account or group of accounts to provide the request or order to
the institution in writing and accompany the request or order
with a written justification for why such termination is
needed, including any specific laws or regulations the agency
believes are being violated. Such justification may not be
based solely on the reputation risk of the depository
institution. Neither the agency nor the institution is required
to inform a customer of the justification accompanying the
agency's request for the customer's account termination. Notice
is to a customer is prohibited if the federal banking agency
requests or orders a depository institution to terminate a
customer account (or a group of customer accounts) based upon a
belief that customer or those customers pose a threat to
national security.
Each appropriate federal banking agency must issue an
annual report to Congress stating the aggregate number of
specific customer accounts that the agency requested or ordered
a depository institution to terminate during the previous year
and the legal authority on which the agency relied in making
such requests or orders.
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
H.R. 2706 does not repeal or amend any section of a
statute. Therefore, the Office of Legislative Counsel did not
prepare the report contemplated by Clause 3(e)(1)(B) of rule
XIII of the House of Representatives.
[all]