Frozen Out: Debanking Practice and Policy in the New Administration

Episode Transcript
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Speaker 1 (00:03):
Welcome to today's Federalist Society virtual event. Today is Monday,
January twenty seventh, and we are here to talk about
d banking. I'm Alita Cass, Vice President for Strategic Initiatives
at the Federalist Society and director of the Freedom of
Thought Project and Initiative addressing new challenges and questions involving
freedoms of thought, conscience, and expression. President Trump denounced the

(00:28):
practice of de banking last week in a video address
to the Davos crowd. Spokesman from Bank of America and
JP Morgan quickly denied that it was a thing. On
the other hand, many of us have friends who have
inexplicably lost access to routine financial services. Some of us
even work at institutions that have inexplicably encountered such difficulties.

(00:50):
So is political d banking a thing? Should financial institutions
have discretion to d bank for political or cultural reasons?
Is there a rule, or even a need for law,
regulation or executive order to protect citizens' rights to fully
participate both in the public discourse and in the modern economy.

(01:12):
I am really glad to have Megan mccardal with us
to guide our Conversation Today. Megan is a columnist for
the Washington Post. She previously has written for The Economist,
The Atlantic, and Newsweek. Her columns are a lovely respite
from hardened team, dynamic discourse, and I think she consistently

(01:32):
offers an unexpected angle that's not easily pigeonholed, and especially
relevant for today's discussion. I think really insightful on incentives.
So if you are not reading her, you should. As always,
please note that all expressions of opinion offered today are
those of the experts on today's program. We encourage our

(01:54):
audience to submit questions for our panelists through the Q
and a feature at the bottom of your screen. Thanks
everyone for being with us today. We have a good
crowd joining us for this webinar. Megan, the floor is yours.

Speaker 2 (02:09):
Thank you for having me, Alita, and after that incredible introduction,
I'm not even sure what to say.

Speaker 3 (02:15):
The check is in the mail.

Speaker 2 (02:17):
I am really excited about this topic because it's something
I've been thinking about for a while, actually since twenty seventeen,
when a little Catholic focused nonprofit traditional Catholic focused nonprofit
got cut off by one of its payment processors because
the Southern Poverty Law Center had put it on a
list of hate groups with some criteria that I think

(02:41):
we're let's say somewhat over inclusive. And obviously a lot
of us have followed this through the Canadian truckers protests
and what Justin Trudeau did to their bank accounts, and
through today where we're seeing more and more people talking
about getting cut off from financial services. So we have

(03:01):
an absolutely all star group to talk about whether this
is happening, how much this is happening, should it be happening,
and how to fix it if not. Starting with Todd's Wiki.
George Mason University Foundation, Professor of Law at the Ninskalia
Law School, I am talking to professors Wiki about bankruptcy

(03:23):
since way back in two thousand and five. I think
is the first time I interviewed him, and he is
always a delight a fountain of information. I can't wait
to hear what he has to say. We also have
the honorable Rohit Chopra, who is the Director of the
Consumer Financial Protection Bureau. Before he was the director, he

(03:47):
has also he was also at the Federal Trade Commission
and as a member of the board. As the director
of the CFPP. He is a member of the Board
of Directors of the FDIC and the Financial Still the
Oversight Council as well as his main job. We have
Nicholas Anthony of the Cato Institute. He does his work

(04:09):
focuses on so many things. I'm just going to give
you a little taste monetary and financial economics, central bank,
digital currency, financial privacy, crypto currency, and the use of
money in society. And finally we have will Hild, Executive
director of Consumers Research, the oldest consumer group in the country.

(04:30):
He has a decade of nonprofit legal and public policy experience,
and prior to joining Consumers Research, he was the deputy
director of the Regulatory Transparency Project and worked at the
Philanthroary round Table. So I'm just going to ask Todd
to start us off by talking about the problem.

Speaker 3 (04:50):
What is the problem and how big is it?

Speaker 4 (04:53):
Great?

Speaker 5 (04:53):
Thanks, Thanks Megan, and thanks Alida for hosting this important,
timely discussion, this kind of a I was gratified to
see that this issue has kind of burst into the
mainstream because I've been beaten this really, I think in
large part because of the Rogan interview with market in
Treason and things that have come out since then, and

(05:13):
obviously President Trump I was glad to hear that he
had raised the temperature on this because this is something
I started beating the drum on this way back in
twenty twenty one, most recently after President Trump himself was
debanked after the January sixth events, and then soon on
the heels of that is Megan mentioned was the Canadian

(05:34):
truckers issue, which events which showed how that could be exploited.
But the heretory really goes back further. It goes back,
I think really to the Obama administration and the initiative
known as Operation Choke Point, which was named because they
targeted the banking system and to use the banking system

(05:56):
as a leverage point to what they called the choke
point to cut off the air that certain industries need
to breathe. And at the time what was really focused
on was the targeting of payday lenders, which was obviously
a completely legal business but one that was politically disfavored
at the time, and subsequent records indicated that the FDIC

(06:19):
had targeted banks that were providing bank accounts to pay
day lenders. But more important and sort of more ominous,
was also on the list of groups to be targeted.
Industries to be targeted were so called purveyors, a so
called racist materials, firearms dealers. Why is that particularly concerning
because those are industries that are constitutionally protected and the

(06:43):
ability if you can choke off the air they need
to breathe, that essentially deprives those industries of constitutional protection.
We all understood back in the day that the Soviet
Union had a great bill of rights, protective freedom of
speech and freedom the press. But if the government owned
all the printing presses and ink, then it wasn't any
good if you want to try to sell books, if

(07:05):
you want to try to sell material, if you want
to try to make your voice, or you can't get
a bank account to pay for anything, you're essentially unrunning
the protections the First Amendment, the Second Amendment, and the
and the like, and eventually that was settled, it receded.
But I think the other thing that was interesting is
they weren't targeting all controversial groups. That was during Operation

(07:25):
Chow Point they were targeting. They did not target controversial industries,
say like abortion clinics or planned parenthoid or something like that.
They targeted particular industries and use the leverage point of
the financial system to shut those industries, try to shut
those industries down. So they said this re emerged with
the buying administration and re emerged in somewhat I think,

(07:48):
more nefarious way, where now it seems that they've been
targeting individuals and organizations that they that they that they
don't love, like as as you know, as I mentioned
Donald Trump after January sixth, but the real template kind
of became the Canadian truckers, I think, and that was

(08:09):
kind of a real flashpoint for a lot of a
lot of people. And what seems to be and is
was mentioned in the introduction. It's hard to figure out
what's going on because the way in which this seems
to be done is through what's called the supervisory process
or examination, which is designed purposely to be confidential. And

(08:31):
what we see here both of Operation Choke Point in
the latest round is a big leaf of some legitimate purpose,
which is Operation Choke Point was publicly justified on the
idea that they wanted to prevent fraud, money laundering, things
like that, but it soon expanded to use this vague

(08:51):
concept of reputation risk to target any industries they didn't
like including constitutionally protected industries. We see now is a
similar sort of thing. The rationale that's being given is, oh,
we need to keep the confidential for anti money laundering,
anti terrorism, and of.

Speaker 4 (09:11):
Course we do.

Speaker 5 (09:12):
Right, if you're going to shut off a money launder
or a terrorism group, you don't want to tell them
why that we're not allowed to use bank accounts to
facilitate their industry.

Speaker 4 (09:21):
But it's got to be. But that doesn't apply.

Speaker 5 (09:25):
But once you take that principle, it's being expanded, and
what we see is reputation risk now, as Mark Andreason
correctly noted, has re emerged under the labeled politically exposed persons,
for example, which is not intended to target conservative groups.
It's not intended to target former Trump officials. Dana Rohorbacker

(09:51):
Michael Flynn both responded to Bank of America's claim that
they were not debanking people by saying they had been debanked.
The other thing we se they started seeing payment providers
get in on this. So Donald Trump Junior had a
speech canceled in the fall of twenty twenty one to
a Missouri group who basically said that Donald Trump Junior

(10:13):
was violating their policies on hate speech. It was we
pay the JP Morgan subsidiary. You may remember that PayPal
actually announced a terms and conditions of service where they
said they had a right to find people up to
twenty five hundred dollars for misinformation for example. And I

(10:35):
ad met my Twitter he is not a random group.
But I put up a poll. PayPal said it was
just accidental, it was a mistake that they had that
included in their terms of conditions, and unsurprisingly, ninety nine
percent of the respondence to my poll did not believe
that it was just a mistake that PayPal said they

(10:56):
could find people for misinformation. And so we see this
as going on. Because it's confidential, it's hard to figure
out what's going on. As a leader said, I know people.
I've had people because I've been interested in speaking out
on this issue for so long. I've had people friends
who've told me, yes, this is.

Speaker 4 (11:16):
Really happening, and happened to me.

Speaker 5 (11:18):
I lost my bank account, or they told me I
was going to lose my bank account and I had
to appeal.

Speaker 4 (11:24):
I would urge you.

Speaker 5 (11:25):
You can find on the internet the conversation that Mike
Lindell's comptroller had with his bank when he was debanked
and all his charities were debanked, where they said you
can quote voluntarily close your bank account or close it
for you, and well, you're going to have to put
you on the bad boy list, which will make it
likely you won't be able to get any other bank.

(11:45):
And here's where I think the rubber hits the road
on this, and then I'll turn it over to my
co panelists, which is obviously banking services are really important
just for people to have a life. You can't really
have a life in the modern world. You can't mortgage,
can't get a credit card if you.

Speaker 4 (12:02):
Can't do this.

Speaker 5 (12:03):
But I think the banking hits on and the real
threshold issue here is the spillover effect, the way in
which this is an end run where what the government
can't do it directly, but they can do it indirectly
by basically putting pressure on businesses to do it. And
so d banking was the template that was used for

(12:23):
the social media censorship that we saw, that we've heard
and now that even Mark Zuckerberg admitted has been going on.
That started with this use of the regulatory state and
the power of the banking and the effect is the
spillover effect that it kills people's opportunities to speak in

(12:44):
public if they know they can lose access to an
essential financial service. There's a bank account, there's access to
payment providers and the like. But I don't think it
just ends there, and I don't think that just as
I had I was censored by YouTube for speaking out

(13:04):
on COVID policy, I did not feel any freer when
I learned the Spring Court told me that the private
businesses were censoring me, not the government. I still felt
like I, you know, in a monopolistic market, I felt
like I didn't have a chance to speak. And to
say these are private businesses doing it, I don't think
really makes that much of a difference. And an industry

(13:27):
is heavily regulated as banking, where there are where it's
regulated in such a shadowy fashion, where there are clear
barriers to entry in the industry, yes, if they're clear
barriers to entry or clear entry and exit, it might
not be a problem. But in this market, if a
private bank does it, or private banks conspired to do it,

(13:48):
that in my view, is a problem, and it is
not freedom for people to be able to speak. I'll
leave it the last thought. We use the Canadian truckers
as an example the Southern The Canadian Trucker's got in
trouble for two things, which was trespassing and creating a
public nuisance. If you look back at the history of
the civil rights movement, Martin Luther King and the Southern

(14:09):
Christian Leadership Conference got in trouble for trespassing and creating
a public nuisance. If we took the logic of the
modern D banking movement, the Southern Christian Leadership Conference could
have been called a criminal conspiracy. They could have been
targeted for D banking, and Martin Luther King and the
SELC could have lost their access to financial services to

(14:30):
get financial support to engage in they what they are doing.
That's the threat that I think D banking raises to
civil rights, and I think it's important to do something
about it.

Speaker 3 (14:43):
Wow.

Speaker 2 (14:44):
Okay, that was a lot. I'm gonna now house Director
Chopra to talk a little bit about you know, we
talked so much about the problems of the unbanked, and
it seems odd the government has kind of committed to
creating more of the unbanked.

Speaker 3 (15:00):
In some of these situations.

Speaker 2 (15:03):
But I mean, like The argument that I hear from
the left is, look, this is not your customer. You've
got to not you know, be even tangentially connected to
potential wrongdoing because it can cause problems for the bank.
And then the flip side is maybe this should just
be a common carrier. Maybe you shouldn't be able to
take away anyone's bank account. Are either of those two

(15:26):
positions tenable or do we need to find some sort
of a middle ground.

Speaker 6 (15:30):
Well, let me first start thank you Meghan, and thank
you Alita and everyone for organizing this. This is my
third Freedom of Thought project, and each time we have
one of these events, I think we build a little
bit more about why there is some increasing agreement about

(15:50):
this problem, although we may come to it with slightly
different logic. Let me just pose the question, Megan, rhetorically,
do we think it's appropriate to cut off the electricity
at someone's house or where they do business because the

(16:12):
electric company feels that they don't really like it that
what's going on there, or the electric utility feels that
maybe there's just something that they don't feel like doing
business with that, and that speaks to your common carrier point.
What about if there is a private toll road where

(16:34):
you know there is a concession from the government for
a private company to operate that road, and that toll
road decides that they are going to ban certain individuals
or businesses from traveling on the toll road without any recourse,
without any due process, and without any meaningful business justification.

Speaker 7 (16:58):
Now, those two.

Speaker 6 (16:59):
Examples are really ones that we have a history in
our country of transportation and utilities where we believe that
universal access is appropriate, that we have common carrier like regulation.
And I want us to really think about the role
of banking and payments, and I want to put lending

(17:19):
and credit to the side for a bit because it
has some different issues. But when it comes to the
acceptance of a deposit, part of the reason I love
banking is that in many ways it really is kind
of an ultimate public private partnership. We know that a
deposit account won't really work in society if all of

(17:43):
a sudden people take their money out at the same time.
So we created a system through the course of our history,
a national banking system, as well as deposit insurance and
federal reserve discount window lending to make sure that people
can have accounts. Those deposits can be transformed into loans,

(18:04):
but really it was supposed to be for everyone to
be able to move their money that way. So we
now have a situation where lots of people are losing
their accounts, they experience closures, and in some cases those
closures put them on an industry wide blacklist where they

(18:26):
can no longer get an account almost anywhere else. So
there's a few things that we have observed where there
are large numbers of closures. One relates to, you know,
something that may appear to have a business justification, which
is overdraft and overdrawing your account. So what we find

(18:48):
is that many people lose their account completely if they
have overdrafted andy and they haven't paid it off, and
in some ways they then get put on a list.
So many banks share to a kind of alternative credit
reporting agency who's on that list, and they then essentially

(19:12):
can no longer get an account wherever they go. Now,
many people who have been concerned you raise the issue
of unbanked, ask well, why can't a bank simply not
offer an account that can overdraw, or maybe they would
change their funds availability policy. That's sort of what we
have seen for many many years. But to build on

(19:35):
what Todd has said, what Professor Zwicki talks about is
people losing access to their account and sometimes suddenly with
very very opaque rationale, so they don't know what they
did or they don't know what it has anything to
do with the risk that they pose to the bank.

(19:57):
You know, when, in I believe it was October of
twenty twenty two, when PayPal announced its policy that they
were going to actually find people or maybe close their
account based on the customer's speech. We publicly asked them,

(20:22):
what on earth does that have to do with your
PayPal account? Why is what you are saying or speaking?
What does that have to do with whether or not
you should be able to transfer money when you're splitting
a check for lunch. And this is part of an issue.

(20:43):
This is also related to what professors Wicky said. You
have these network effects or almost monopolistic type market structures
where either there's one individual company that has so much
of a network effect and think of company needs like Google,
pay Apple, pay Venmo, PayPal cash app, where they essentially

(21:06):
are operating that network, and then they get to impose
their own regulations on who they admit and allow and
I think that raises some questions about what criteria are
they using. There's also the issue of while there are many,
many banks, many credit unions, to the extent that they
are all using a very similar algorithm or using a

(21:32):
similar specialty credit reporting agency, that the algorithm or the
credit reporting agency is a blacklist. That is a big
problem when there is no real transparency as to what
went on. So you know, when people say are people
losing their accounts because of their political views or speech,

(21:56):
or is their social media speech? Is its suppressed or
not because of their political views? In some ways, it's
not a question of how widespread is it happening? The
question is do the firms have the ability to suppress
or close based on the criteria? And I think the

(22:17):
answer for banking is that they should not have that
ability to do it. They should only have the ability
to do it when there is some reasonable business justification
or a very clear law or regulation that they are following.
And I really worry that some of these large banks
who have been closing accounts at scale are pointing the

(22:40):
finger at certain regulations and then when we take a look,
we don't really understand what is going on, and why
they can claim it's part of a regulation. Now, look,
do we need banks and others to make sure that
they're playing their role that federal law says when it
comes to protecting national security or deterring fraud. Yes, But

(23:04):
I think the answer some question can be, well, what
is the recourse for somebody when they are debanked or
when they are denied? And that's really I want to
raise a couple of those issues. I think in the
past Freedom of Thought Project I have raised whether we
should be having a right as a consumer when it

(23:26):
comes to a bank account of an adverse action notice.
Some of our federal laws include adverse action notices for
credit determinations. So, for example, the Fair Credit Reporting Act
the Equal Credit Opportunity Act require banks and others to

(23:47):
give a list of reasons of why they made an
adverse determination, such as a denial or a closure. So
I think that right now that is not currently in
the policy framework, and we should be thinking about that now.
People say, well, what if it is part of suspicious activity,

(24:09):
won't you be tipping the person off? Well, certainly we
should be thinking through that. But the account holder is
already tipped off when their account is closed. So I
think we need to really explore what might be the
way in which people can be told and what their
appeal rights might be. One of the things the CFPB

(24:31):
has done is when it comes to the use of
data brokers or these you know, specialty credit reporting companies.
You know, there should be some sense that when a
bank is using that kind of data broker and is
relying on that information or algorithm to debank someone, the

(24:53):
consumer should have some rights to be able to know
of what the source of that in they're relying on.
So we have proposed some policy to advance that, but
we've also proposed more specifically to ban account closures or

(25:14):
other types of similar actions based on political speech or
other similar constitute expressions of your constitutional rights or assertions
of your constitutional rights. Our proposed rule would give the
power to federal regulators and to state attorneys general to

(25:36):
be able to enforce that those provisions, including against the
largest banks. Now, in addition, the CFPB also has tried
to make advanced policy. We were challenged by the bank
lobby on this to prohibit certain types of discrimination based

(26:00):
on religion other characteristics, and the bank lobby sued to
stop that. The bank lobby has also not supported the
CFPB's proposed rule when it comes to preventing debanking on
political speech. So I would really ask if the banks
are not doing this, why would they not support some

(26:23):
common sense prohibitions that really can ensure that this is
not occurring. Let me also add, Megan, that we have
other tools that I think we can be considering in
the broader policy ecosystem. One is state laws. We have
a number of states who have tried to enact legislation

(26:44):
to prohibit certain types of debanking practices. We also have
and this is really interesting. In twenty twenty, the Office
of the Controller of the Currency proposed a rule rule
with respect to the federal requirement on national banks to

(27:05):
provide fair access. Now that twenty twenty fair Access rule
was not finalized and there was some problems with it,
but I think the concept and this seeks to answer
your question, Megan, is that that proposed rule outlined how
the largest banks have an incredible amount of power and

(27:29):
should there be some affirmative rights that customers have to
get fair access and when it's more challenging when you're
talking about credit underwriting and lending, but when it comes
to a bank account, the denial of that essential service,

(27:50):
which is really kind of plumbing for our entire, your
entire economic life. I do think that there is a
role for advancing fair access rule making that would make
clear that you could not dbank you know, you know,
based on whatever you wanted, if you are a national

(28:12):
bank chartered as a national bank. So I think there's
really a lot of issues that we could think through
to prevent this. But I do agree that there is
a dimension of this that we could look to some
of our common carrier of legislator rules and legislation that

(28:35):
have been passed over the past one hundred and fifty
years and see where they might apply to banking and payments.
I don't think it is appropriate for bank account opening
and closures to be considering some of the types of
information that people are worried are being incorporated into algorithms

(28:58):
and decisions right now.

Speaker 3 (29:00):
Thank you.

Speaker 2 (29:02):
I actually want to throw this to Nick because as
a libertarian, I have a certain instinct, which is, you know,
banks should be able to do what they want.

Speaker 3 (29:11):
As long as the government isn't making them do it.

Speaker 2 (29:14):
And one thing that I see a lot of uncertainty
about here is is.

Speaker 3 (29:18):
The government making them do this?

Speaker 1 (29:19):
Right?

Speaker 2 (29:20):
There is a sense among a lot of people that
the government, on a number of issues. I mean, Professor
Zuwiki obviously walked us through a lot of them on
things like guns, has been using the banking system as
backdoor or regulation. We've certainly seen this on climate right,
where everyone's trying to get the Fed into the business
of because they're frustrated they can't do climate regulations. So

(29:41):
what if we meet the Fed do it instead? And
how much is that true, in which case something like
common carrier might be appropriate, but maybe just telling the
government to stop. How much of this is unintended consequences
of things like know your customer, and how much of

(30:01):
it is something else entirely just a private citizen who
does not want to deal with a gun manufacturer, or
a private corporate citizen, a private corporate person.

Speaker 3 (30:11):
Let's not get into sassinate anyway.

Speaker 7 (30:14):
That's such a good question, because you're absolutely right that
there's this split between what is On one hand, organizations
are changing. They're saying that they want to do business
differently than what they did in the past. So that
might be an example of Bank of America. If I'm
not mistaken announced that it was going to stop serving

(30:35):
gun manufacturers, and then Wells Fargo stepped in to scoop
up the accounts. On the other hand, though, there is
an element of government pressure which is very different from this,
and I think Rohit and Todd nailed this by saying
that there's an opaque layer to what's going on. Everybody

(30:57):
is saying, wait, I can't have account, Well, why what
did I do wrong? Just tell me that so I
don't do this again, which is a very fair question.
And time and time again we've had banks and other
financial institutions say, well, I can't tell you. I can't
tell you why this account was closed, but our relationship

(31:19):
ends here, and so they go and hopefully find another
institution to bank with. But ultimately that's kind of hanging
over you. That's a shadow of what did I did wrong.
It's like being in high school again and you break
up and you find out, wait, I thought things were
going good. And the problem that we have with this

(31:39):
is right now in this country and elsewhere as well.
We have what's commonly referred to as the Bank Secrecy
Act regime, which has charged financial institutions with being essentially
de facto law enforcement investigators. They're charged with monitoring transactions
for money laundering, tears, drug dealing, and everything else you

(32:02):
can think of. And I think the financial industry in
the US right now spends upwards of fifty billion dollars
a year in complying with this. Just last year they
reported I think twenty seven million different transactions saying that
either Americans were spending too much money or spending money

(32:25):
in a weird way, and specifically when it's in a
weird way, what we call suspicious activity reports. Those are
confidential by law, and not just confidential in the sense
of I can't tell you what I said about you,
it's I can't tell you I said anything about you.
Americans cannot even know that their bank told the government

(32:47):
that they did something weird. Now, sure, as as Roe
had mentioned, this is meant to be, well, we don't
want to tell drug dealers that this is going on,
or we don't want to tell terrorists that we're on
to them. Now, setting aside, I think he's absolutely correct

(33:08):
that closing the account is a bit of a red
flag that they might know something's going on. There's also
the problem of well, what are these what are these
reports actually doing with the limited data that's available, we're
lucky enough to be able to see they're not catching
drug dealers and terrorists at scale. One of the most

(33:29):
common reasons for filing a suspicious activity report, the confidential report,
is that someone made a transaction near ten thousand dollars,
because if they had crossed ten thousand dollars, then the
bank would file was called a currency transaction report. So
something as mundane as spending near ten thousand dollars, or

(33:51):
maybe you do something that is out of the ordinary,
those are things that can trip up these reports. And
oftentimes banks do not have a very risky appetite for
this type of behavior being associated with this because it
only takes a few for them to say, Okay, this

(34:12):
is getting a little weird, this is getting a little
too suspicious for what we want, and we don't want
to accidentally turn out that this was something wrong and
we're held liable for it, and so they end up
cutting off the account. And this is something that we've
seen for really as long as this has been around,

(34:34):
and yet it's so hard to get our hands on
because of that confidentiality. And again it's why I think
Rohit's exactly right that we need to rethink this because
the confidentiality here acts as a shroud that keeps all
of us in the dark. And especially where when he
said that as regulators, you would look into this and

(34:54):
see that it might not be what the banks are saying. Well,
if we get rid of this confidentiality, there's no longer
that curtain to hide behind. Another area that Todd brought
up that follows in a similar line is the idea
of confidential supervisory reports. And these are letters and instructions
that regulators are giving to the banks and they say

(35:16):
are confidential as well. One example that we saw with
this happened just earlier this year, or rather was revealed
just earlier this year through Freedom Freedom of Information Act
requests by Coinbase, and that was that the Federal Deposit
Insurance Corporation or the FDIC was writing letters to banks
and specifically telling them to stop all activity with cryptocurrency,

(35:42):
stay away from this. We're trying to figure it out
as regulators, and we do not want you moving ahead
with this. And at the bottom of some of these
letters you can see them saying, as a reminder, this
is a confidential item. This belongs to the f I
see this notice. It is our intellectual property effectively, and

(36:04):
you cannot share it with the public. So what is
the bank left to do but to cut off anyone
involved in this cryptocurrency project, and they can't tell them anything.
They leave them in the dark for this. Now, I
don't think this explains everything under the sun. This is

(36:24):
not a magic whistle that can identify everywhere things have
gone awry. But this is a problem that's been happening
for just far too long. We're talking about decades of
activity and decades of activity that has broadly been financial
surveillance that just hasn't been justified. There are cases here

(36:47):
and there of truly heinous crimes being stopped, but what
we don't see is that it is matching up in numbers.
When you have twenty seven million reports on Americans for
using their money, that we see something anywhere near that.
Just to give one quick example, I think the IRS
criminal investigations report that about thirteen percent of their cases

(37:12):
start with a BSA report at Bank Secrecy Act report.
So if we're thinking about that in context, that's almost
sixty billion dollars is being spent on complying with this regime,
financial institutions are filing about twenty seven million reports, and
then thirteen percent of investigations are started through that, so

(37:37):
that ends up being like three hundred and seventy investigations.
That's to say nothing of who's actually brought into court,
who's actually convicted. So I think fundamentally we need to
rethink a lot of what's happening in the financial system today.
I think the debanking moment, whether it's by corporations making

(38:01):
private choices about their business or the government pressuring them
to do something against what they'd otherwise do. I think
either way, we need to rethink a lot of what's
going on, a lot of the way that we treat
this overall financial regulatory system and specifically within the Bank
Secrecy Act regime.

Speaker 2 (38:21):
So let me just press down on that for a
minute before we move on, because what would that look like, right?
What would if we if we rethought that, are we
still are they still going to file a report if
you you know, have more than ten thousand dollars in cash,
which by the way, hasn't been indexed for inflation and
is a lot less money than it was when they

(38:43):
created that. You know, like that when when I forget
what was the date on when that was brought in.

Speaker 7 (38:48):
It gets a little tricky. But it's nineteen seventy or
nineteen seventy two.

Speaker 2 (38:54):
In nineteen seventy when my father was making nine thousand
dollars a year working for the City of New York.

Speaker 3 (39:02):
So it's like you're.

Speaker 2 (39:03):
Taking an entire salary of a government bureaucrat out of
your bank account at once.

Speaker 3 (39:08):
It's a little different from.

Speaker 2 (39:09):
Like taking the price of a nice vacation to Kankun
out of your bank account in cash and somehow like
we have not updated, we're just filing more and more
reports without it sounds like getting more investigations. But does
that mean do we just take down the whole system?
Do we allow drug dealers to move right? Because there

(39:31):
is there's the scene of the stuff we're investigating, but
then there is the unseen of the drug dealers who
are like, maybe I will just not put my money
in the banking system. And surely if we just took
down all those regulations, there would be a lot more
drug dealers with safe, secure bank accounts that they could
use to fund their gang wars and all the rest.
Although perhaps then they would just go into mergers and

(39:52):
acquisitions and it would be better for everyone.

Speaker 7 (39:54):
But well, there's a few points in there. One, you're
absolutely right it has not been indexper inflation that would
take it from what was ten thousand dollars in nineteen
seventy nineteen seventy two up boards of eighty thousand today.
And there's even an argument to be made that this
technically started in nineteen forty five, which takes us closer

(40:14):
to if I'm not mistaken, one hundred and seventy two thousand.
But the point being exactly what you just said, Aaron
Klein at the Brookings Institution is pointing out a bunch
of times you used to be able to make an
entire salary without tripping that now you can barely make
it to Saint Patrick's day. But I don't think that
removing the system means that we're going to go into

(40:37):
this lawless chaos, because I'm not talking about shutting down
every regulator, every law enforcement agency, at least not today.
And what ends up happening is banks still have these records,
and they can still call the police or call their
regulators if they see something that is troubling. Just as

(40:59):
I would call the police if I thought I saw
someone breaking into my neighbor's house. You can still have
that action take place and still have those actionable records
just the same you can have police and regulators use
warrants to step in and say, Okay, we do need
to figure out what's going on here because of our investigation.

(41:19):
And that's a really important distinction to make with what
the IRS revealed with how it uses these reports. These
reports do not initiate investigations in mass That was that
thirteen percent number I mentioned. Thirteen percent are tipped off
essentially by these reports, but the vast majority of investigations

(41:40):
that they do, that's just because it came up and
then financial information was helpful to that end. So I
caution anyone who would see amending the Bank Secrecy Act
as a payday for their drug dealing business. I'm sorry
to say for you, you're still to have a pretty

(42:00):
tough time.

Speaker 3 (42:02):
We have some for a second, yes, absolutely, Yeah.

Speaker 6 (42:06):
I just wanted to share that I am not sold
at all when it comes to deposit accounts. That the
issue of Bank Secrecy Act and the ten thousand dollars
threshold is really dispositive in it. I'm not necessarily disagreeing

(42:28):
with what we heard. I do think though illicit finance,
especially countering the financing of terrorism, is very very important.
But when we're talking about individuals and losing account access
or in the PayPal PayPal policy about being fined for

(42:50):
their speech, I think actually we want to really pressure
test the multitude of ways in which businesses are using
advanced analytics and algorithms, and I think in many ways
we have seen sometimes the positive parts of that. Many
of you are probably familiar that when you make an

(43:12):
unusual charge on your credit card, you might actually get
a push notification from your app saying did you make this?
Or you might get an automated call. I think some
of that is really good because it can reduce some
of the illicit finance and fraud. The question, though, is

(43:33):
is to what extent have some of these algorithms become
so opaque that the bank may not even know the
real reason that they are shutting off the account. You know,
there are companies out there that they are responsible for
what is known as creating negative news reports, So data

(43:58):
brokers and others who might be powering some of these
algorithms that make determinations on whether an account is frozen
or closed. To what extent is that negative news incorporating
types of data that have nothing to do with fraud

(44:19):
or money laundering or even business risk, And I think that,
to me is part of why there has to be
much more transparency about this. I've really continue to ask
the CFPB staff when it comes to account access and
account closures, to be looking at some of the reason

(44:42):
codes that are being given to the extent that they
may violate consumer protection law, and to work with the
other regulators to understand this, because I think sometimes the
bank itself can't even fully explain why it is that
their algorithm triggered a closure. So I just wanted to

(45:04):
underscore that because I'm not totally convinced that that ten
thousand dollars threshold is really the big ticket item here.
There may be something that is much more complex and
much much more opaque that needs transparency.

Speaker 2 (45:23):
I just keep thinking that the point of you know,
the keeping it secret, well, you know, closing the bank
account was a red flag. They're not unaware that something
that you think something's wrong, and they probably if they
are indeed, drug dealers or terrorists have a pretty good
suspicion what that thing is. I just want to read

(45:43):
a couple of the comments here because they are extremely good.
We have one person who points out that ten thousand
dollars was half of the FDIC insurance limit and that
we could, like profitably without much difficulty, just tie it
to half for or of that limit, rather than just
leaving it where it was. We also have TJ. Harker

(46:06):
who says I spent more than ten years prosecuting financial
crimes at the national level. I reviewed thousands of SAARs.
Rarely did they do anything useful. Instead, the grand jury
subpoena was a far more powerful tool. In other words,
an existing criminal investigation led to a request for bank records,
not the way around. For Nicholas Anthony's point. Separately, if

(46:26):
you've ever seen a bank's compliance department, it saar compliance department.
It basically consists of twenty somethings speculating about the meeting
of transactions through their bank. They search Google and come
up with some narratives subject to their imaginations. Who is
advocating for the tension of the I'm just going to
add this because I have a long standing warren with
Elizabeth Warren, who is advocating for the retention of this

(46:48):
wasteful and nearly useless system.

Speaker 3 (46:50):
Is it still Elizabeth Warren?

Speaker 4 (46:52):
Why?

Speaker 2 (46:54):
And I want to say, we've got a couple of
big questions, but we're going to save those for the
Q and A because I want to bring in the
incredible patient will and I want to talk about, you know,
the role of the plaintiff's bar here, because part of
you talk to bankers and they will say, but I
will get sued. I need to I need to not

(47:16):
be connected to industries that could get me sued for
doing something wrong, because in today's legal environment, every person
who has any nexus to the plaintiff is likely to
get dragged into the lawsuit. Is that a fair charge?
And beyond that, could you you know, sort of talk

(47:38):
about why is this happening if it is not you know,
government pressure, if it is not plaintiff suits.

Speaker 8 (47:47):
I think I think that's a fantastic question. I'll just
note something that's very interesting about this panel, given I'm
going last, so I got to see what everyone else
is gonna said. Is it despite having a pretty I
think lead to bed talk put together pretty of diverse,
least political if not ideological panel here. Every single person
on here started with the axiom or the precept that

(48:07):
this is a problem. We're just talking about how to
solve it. And I think if you would gone back
five or ten years, there was a whole disagreement as
to whether this was even happening. So I think it
says a lot that going on here, from the most
free market to the I would put myself in the
Populis camp, to somebody who came nominated of the Democratic
president thinks that this isn't an issue. It's just a

(48:27):
matter of how we go about it. The first thing
I'd like say in terms of how this is why
this is happening, I think one of the things I
would just dispute. Known As has said this explicitly, but
I think it's implicit in a lot of people's descriptions
of this is that as we saw with the censorship
regimes between Twitter and Meta and some of the Homeland
Security agencies and FBI and CIA, is that the whole

(48:50):
private public delineation basically broke down completely. Not only did
you have regulators regulating through raised eyebrow sending emails to
Twitter and Meta, but I know both because it's been
reported in the media, but also because I have friends
in those agencies who told me this was happening, that

(49:10):
if you were the kind of person who was pushing
those kinds of censorship resimes on those, uh, supposedly private corporations,
you actually increase the likelihood that you would get or
could get a nice gig there being on the receiving
end of those requests. And so basically these agencies were
pushing their own personnel of colonizing, I would say, themselves

(49:33):
onto these groups. And I think you're seeing the same
thing in the banking agency area as well. And this
is something we've seen across corporate America. So in terms
of why it's happening, it's not just that these regulators are,
you know, regulating through raised eyebrow. I'm sympathetic to some
extent that that's true. The KYC requirements and some of
the bank audit requirements allow for so much discretion amongst regulators,

(49:57):
and it's all secretive. They can probably do a lot
of things that they the kind of things that they
were doing to get people kicked off social media. That said,
the banks themselves are now complicit in this because they've
hired a number of these people to work at these agencies,
and a number of their DEI departments in that kind
of thing have been receptive to this kind of thing.
We started off this discussion with an example where the
Southern Poverty Law Center was able to get someone d banked.

(50:19):
That's the kind of thing that a DEI department response to.
I also just say that I'm not really sympathetic to
the idea that they're not doing this willingly. I think
they're using the KYC issue as an excuse to go
after people for ideological reasons. Here's a perfect example of that.
Up until a few weeks ago, every major bank in

(50:41):
the United States was member of something called the Net
Zero Banking Alliance. This was a banking cartel that was
aimed at pushing net zero targets across the entire economy.
The guidelines that they pointed to with what they were
going to push with their loan portfolios set stific reduction
requirements in the production of coal, the production of red
and eat the use of energy. It pushed public utilities

(51:04):
to put early retirement dates on coal and natural gas plants.
This is a very specific regime that these banks had
not only signed up to do themselves, they had signed
up to collude with each other to push it across
the whole market. So there wasn't a place for these
companies to go that could service the kind of loans
that they were talking about. And even worse, part of
the agreement was to have UNEF, the United Nations Environmental Program,

(51:27):
audit their loan portfolios for compliance with the cartel that
they had agreed to join. So you had and you've
had investigations into situations like credit Swiss asking certain junior
oil executives to tweet out specific statements in support of
a climate ideology right in order to maintain or expand
their their line of credit. This was uncovered in a

(51:49):
State Affairs committee hearing in Texas and has been reported widely.
So the idea that this is something that they have,
you know, at the very least, if they if the
regulators forced this on them, that was ten or twenty
years ago, and those regulators in that ideology has more
than colonized these companies. And you've just seen in Davos
this past weekend the head of one of the largest

(52:10):
banks in America, Jamie Diamond, when asked if he was
what his response was to some of the pushback on
DEI and anti white, anti male, anti Asian, and anti
Christian discrimination within his company, he said, bring them on.
So the idea that this is somehow that they're being
drugg this exclusively by regulators who are meeting with him

(52:31):
in shadowy rooms and demanding things and they're crying, begging, oh,
I would love to protect the rights of the citizens
of this fair country, is just ludicrous. They clearly are
willing participants at this point. Whether it started that way
or not, that's where we are today.

Speaker 2 (52:43):
Well so, but let me ask you, I take all
of those points. Certainly, I think we have seen in
the last ten years how a kind of monoculture among
leadership in various industries can lead to quasi monopolistic like results.

Speaker 3 (53:04):
But look banking.

Speaker 2 (53:08):
If there is something that I now it's been twenty
five years since I got my MBA, but if there
is something that I believed about bankers then and that
has served that, I believe that has served me well
observing their behavior going forward, it is that bankers really
like money a lot, and that they will do almost

(53:29):
anything to get it that will not get them sent
to jail and that while some may have qualms. Look,
you're Jamie Diamond. You have reached the apex of the
banking industry, of your firm. You are just hanging out
there and now you are thinking about legacy. But for
your average banker at a third tier regional bank, why

(53:53):
was no one willing to say, yeah, no, zero, whatever,
I'm just gonna go you guys do that. I'm going
to go lend money to all the people who want
to sink oil wells because oil wells seem pretty profitable
to me. Why why is this a monopoly? Why is
no one bucking the trend? Why is you know, why

(54:14):
is this a problem? I guess is really what I'm asking.
Why can't we rely on the market to say, Okay, well,
these four banks.

Speaker 3 (54:21):
Don't want to serve firearms and oil or.

Speaker 2 (54:23):
Whatever, but you know, these other twenty banks would love
to get their hands on some of that filthy oil money.

Speaker 3 (54:29):
So go bank with one of them.

Speaker 8 (54:33):
Well, in theory that that would work. One of the
problems that we've had is that the at post Dodd
Frank there has been a drastic reduction and new entest
into the market because of the regulatory requirements. I think
I don't know the exact numbers, but there's been something
like a seventy five or ninety percent drop in the
creation of new banks per year after that regulation. So

(54:54):
it's absolutely the regulations play a role here. But what
it's allowed is for people to lock up a market.
In terms of oil investing, you're talking about extremely capital
intensive projects. A local or regional bank is going to
have a very hard time putting together a loan portfolio
large enough that wouldn't then become too heavy weighted in
that specific asia, even maybe a single project, depending on

(55:16):
how big it is. So you've got one of the
things that was important about the Net zero Banking Alliance
wasn't so much that they had locked up the entirety
of the market. If the top five banks are about
forty percent of the United States banking industry, but they're
the ones you would need in order to do the
big projects that they were trying to block and put
and put requirements on, and that was done. This is

(55:36):
a little bit farther afield than what we probably want
to cover here, but this feeds into our work pushing
back against black Rock and some of the asset managers
and a lot of the cajoling that was done through
those that industry to basically force these companies to engage
in this. But again that's not really much of an excuse.
I mean, one of these banks literally has America in

(55:58):
the name Bank of America. I just don't really if
someone came to me and said, hey, even if it
was a regulator, we pass a law and you need
to betray the values of your countrymen, you need to
engage in an illegal cartel, you need to lock them
out of their freedom of speech. Well, I'm going to
jail because I'm not going to do that. And we
wouldn't have a country if the original founding fathers had
felt that way. They were certainly violating the letter of

(56:20):
the law they when they formed our country. There has
to be some level of the backbone required in business,
and I think it's a little embarrassing for them to
always be pointing to the regulators and say they were
cojrolled in this or controlled by Larry Fink at Blackrock.
At the end of the day, they have a moral
obligation to push back on that, even if it gets
them in trouble. And frankly, had they done that, I
don't think they would be in the trouble that the end,

(56:41):
they made a series of cowardly decisions that got them
into the position that they're in now to the extent
they are under the thumb of the regulators.

Speaker 3 (56:49):
So I'm going to.

Speaker 2 (56:51):
Ask a final question, and I'm going to throw we
have some great questions coming in from the audience, But
I keep hearing rumors about a vibe shift. I don't
know if anyone else has heard about this. How does
that change this? Because this a lot of this debanking,
and especially the stuff that we're most worried about, which
is the political debanking with it, I mean, with obviously

(57:14):
respect to other concerns about things like oil industry, about
things like people who overdraft and whether there should be
better options for them than just losing a bank account entirely,
but political speech, right, that's protected speech. There's not really
a good justification for pulling someone's bank account for political speech.

(57:37):
And again, like if you're a small town bank and
you personally it's your personal money and you don't want
to put your personal money with some terrible opinion, I
am sympathetic. If you are city bank, I become much
less sympathetic to your desire to eradicate political speech you
disagree with. But how like is this to persist in

(58:01):
the face of the vibe shift? Or is it, you
know likely? Is it starting to change just because people
seem suddenly much less interested in using their corporate power
to advance liberal political goals than they did two or
three years ago?

Speaker 3 (58:19):
Is that fair?

Speaker 2 (58:20):
Or am I just being naive and and h starry
eye and trusting in human nature in a way that
I should not?

Speaker 4 (58:29):
Shall I jump in first?

Speaker 3 (58:31):
Yes?

Speaker 4 (58:32):
Yes?

Speaker 5 (58:33):
Yeah, Well, what I would say is there's a larger
principle here in my view, which is whatever system we
live in, a system of democratic capitalism. And you know,
Milton Frieden once said, the beauty of American free enterprise
is we don't care whether a Christian, Muslim or Jew
grew our grain. We care about whether it's quality grain

(58:53):
at a low price.

Speaker 4 (58:55):
Right.

Speaker 5 (58:55):
And we've had more and more of this politicization of
our economic relations.

Speaker 4 (59:00):
And I just think it's bad. And a system.

Speaker 5 (59:02):
Whereby we basically engage in economic warfare with our fellow
citizens is not good for this country. I'll boycott you,
you boycott me, will boycott each other and we'll see
you can boycott each other the most right. That's not
the world that we should be, that we should be
aiming for. And I think it's appropriate you used to

(59:24):
use government regulation to Accordanov and allow people to speak publicly,
to exercise their rights as democratic citizens without being basically
they have economic con sanctions opposed on them, like there's
some terrorist state or Iran or something like that, depending
on whoever the administration is that that's in power. I

(59:46):
think the post Office, it's a private company. The post
Office was work perfectly well, being required to deliver both
copies of the Communist Manifesto and Mindcome for its entire existence.
It's a private business, but it's better off if the
post Office has to do. We have a system now
where the banks are at the center of our entire life.

(01:00:08):
You can't access the payment system without having a bank account.
And this idea that we'll just reciprocally boycott each other
until somebody shuts up or cries uncle, I think is
just not a very good system. Yes, we should do
things around the margin. I think we should allow more
access to the banking system. We should consider allowing non
banks access to the to the to the payment system. Obviously,

(01:00:31):
I think we should be respectful of crypto currency and
opportunities like that, right, which is, we haven't even really
gotten into about the crackdown and operation you know, tip
point two point zero against crypto, which is also very
suspicious when they're not just the bank of crypto companies,
but they're billionaire owners. You haven't done you haven't done

(01:00:53):
anything wrong, right, and so I think, you know, I
think what we have learned is we can't trust the
government because the government will use a legitimate rationale preventing
fraud or money laundering, and then they'll use the powers
of the supervisory system to go too far. And I
don't think we can trust private the private banks for

(01:01:14):
the reasons of the will said, which is that in
a system now where they are basically a legal cartel,
there's no reason for them to be able to do this,
to be able to debank people on their political beliefs.
There's no reason why they can't just give people bank
accounts regardless of their political views, and if somebody doesn't

(01:01:36):
like it, they can just say I'm required to do
it by the law.

Speaker 4 (01:01:40):
Just like the post office does.

Speaker 5 (01:01:42):
What we have as a system now where if you
look at the payment system, We've got California requiring payment
providers to put special marks on a gun.

Speaker 4 (01:01:51):
You know, MPC codes for guns.

Speaker 5 (01:01:53):
We've got Kansas prohibiting them from putting special marks on
MPC codes for guns.

Speaker 4 (01:01:58):
We just need to get banking.

Speaker 5 (01:02:00):
We need to get politics, this kind of politics out
of the financial system and just allow people to use
it in a way to make their lives better, in
a way to exercise their constitutional rights, rather than a
vehicle for economic work and economic sanctions on our fellow citizens.

Speaker 2 (01:02:16):
So I certainly agree about the dueling boycotts. I think
my favorite was during the after the Trump election, the
bill If anyone knows mail order spices, Bill Penzi's famous
mail order of spice company that sends out a missive
basically telling his customers are voted for Trump that he
doesn't want to have them as customers, And so a

(01:02:38):
rival firm known as Spice House, which hilariously turns out
to be owned by Bill Penzi's sister, sends out a
message saying we love everyone, we want to sell you
great spices no matter who you voted for. But of course,
like that is perceived as selecting on Trump voters. So
suddenly America has red state and Blue state mail order

(01:03:02):
and spice company. And I will say, actually this led
me to try spice House and totally gratuitous recommendation. I
like their spices better than Penzies. It's not an idy
logical thing, but I now use their mail order. Spices
has since been sold by the sister, so you're not
even really embroiling yourself in that dispute anymore. But that
writ large, I agree, it's completely corrosive. The last question

(01:03:26):
I'm going to ask, though, is how easy is it
to define rules around some of this stuff? So to
go back to oil and gas, right, I can I
can imagine being a banker who says, I think climate
change is terrible. I'm not gonna I'm not gonna write
loans for this. But I can also imagine being a
banker who says, I am not going to write oil
and gas business.

Speaker 3 (01:03:47):
I don't know how to value these deals.

Speaker 2 (01:03:48):
I'm really more of a tech and retail banker, and ilk,
you tell me this oil well looks great, How the heck?

Speaker 4 (01:03:56):
What I know?

Speaker 2 (01:03:57):
I don't know what your costs are likely to be.
I've not seen it before, so I'm just staying out
of that business. And like I tell those two stories,
and you say those are very easy to distinguish, and
that it's true, but the law often has difficulty drawing clean, hard,
consistent distinctions between stuff that we, as intuitive human beings

(01:04:19):
on a case by case basis, find very easy to make.
But when you start making rules about it, it does
it gets harder. So how easy is it with politics
with some of this?

Speaker 4 (01:04:30):
Right?

Speaker 2 (01:04:30):
You know, some of it is easy, are you are
we arguing about mind Camphor or the Communist manifesto. Some
of it's not so easy, because again, these are physical.

Speaker 3 (01:04:39):
Some of these things in all physical.

Speaker 2 (01:04:41):
Products like firearms, like oil and gas, like other things
that I might just not want to be in those
businesses for non political, completely non political reasons. And I
think I should say this goes a little bit against debanking.

Speaker 3 (01:04:57):
You already have the account, but.

Speaker 2 (01:04:59):
I just want to ask how easy is it to
make those rules in ways that they can be enforced
and protect people without creating all sorts of weird, unintended consequences.

Speaker 6 (01:05:10):
Megan, if I could jump in, I do think that,
and this ties to your previous question. There really is
broad concerns about abuse of corporate power or whether it's
a natural oligopoly or network effects consolidation, and many of

(01:05:32):
the ways that people experience their commercial life, including in
the financial system, are not necessarily based on government rules.
They're actually based on private rules and regulations. A lot
of the ways money actually moves in the retail context

(01:05:53):
is governed by visa and MasterCards rules. So I think
we should if we're if you're asking about really what's
the way to solve it? And I want to build
on something that we heard earlier about Blackrock. You know,
there's certain things that Blackrock has said that I might

(01:06:16):
be sympathetic to, but we should ask ourselves, why does
Blackrock get to decide that Blackrock is essentially a natural
oligopoly or monopoly because of the nature of index investing,
And therefore every CEO needs to listen to them as
if it's almost an edict. And it's part of the

(01:06:37):
reason why you know, myself and Jonathan McKernin have on
a bypartisan basis, put forth some reasonable changes so that
Blackrock has to follow certain guidelines when they're exerting control
and not just you know, enjoy some exemptions when they
are engaged in policymaking, So I would say this when

(01:06:59):
it comes to rule, I'll just say I continue to
think that some degree of adverse action notice that we
have in other laws, could we apply that in the
bank account context, you know, giving giving a set of
reasons as to why there was a denial. I think

(01:07:20):
that that is simple. But I have seen how in
the Fair Credit Reporting Act, how that really plays a
lot of value and it allows consumers and individuals to
be able to get some answers so that they might
be able to dispute it or rectify the situation. I
also do think there could be and this is what

(01:07:41):
the CFPB has proposed, a bright line prohibition on using
certain characteristics like political or religious views when it comes
to making those determinations. And and Megan, you raised this.
You know what, if I don't want to do a
certain type of business for me, that really seems to

(01:08:04):
be more of a reasonable point of view in the
context of extending credit. I'm not sure when it comes
to taking deposits in a bank account. Just because you
may be in an urban neighborhood that doesn't really know agriculture,

(01:08:25):
you should still be willing to take a deposit from
someone engaged in farming, and just like a rural bank,
you know, may not have significant experience in I don't know,
call it coastal resorts and hospitality. I'm not sure that
they shouldn't take deposits from that person. So I think

(01:08:47):
we should make sure we have that distinction, and inasmuch
that we do have rules, we should try to make
sure they are as bright line as possible and ideally
advance individual liberty and knowledge about how someone can rectify
the situation on their own.

Speaker 2 (01:09:05):
Okay, I am now going to go to some of
our great questions, starting with Ted Frank. JP Morgan Chase
had to settle for two hundred and ninety million when
they got sued for failing to debank Jeffrey Epstein. Aren't
lawsuits like that going to encourage false positives in futurity banking?

Speaker 3 (01:09:21):
Does anyone want to take that one?

Speaker 8 (01:09:24):
Someone probably has a better argument, better detailed in terms
of like the minutia of what that'll do to the
internals of the bank. But I would just say that
I think Ted Frank's point is good there, except that
really what you're seeing there is a spillover from a
frustration with a different failure of elites, which is that
both Jeffrey Epstein and Julie Maxwell were both convicted for

(01:09:47):
trafficking and minors to clients, and none of the clients
were named. And so I think that's a very specific,
one off exception or example where there was so much
populist I are about clearly some very very high up
people that we protected that JP Morgan had to sort
of pay the pound of flesh for those people. I
don't think that that is a good example of why

(01:10:10):
we shouldn't, you know, have some sort of fair access rule,
and it's certainly a fair access will protect them from
those kinds of lawsuits. Ostensibly, I am just to be
clear literally for overturning Kennedy b Louisiana and executing pedophiles.
But I don't think the banking system is how we
want to go after those people. I think the criminal
justice system needs to take care of that.

Speaker 2 (01:10:30):
Yeah, it seems weird to punish pedophiles by like taking
their cell phone, right, I mean, other than in the
context of sending them to prison where they're presumably not
allowed to have cell phones, or taking away their bank
account or you know, I don't know, I guess cutting
off their electricity or their cable. So next question, what
should a law to prevent political banking say, and how

(01:10:52):
can you prevent such laws from allowing the government to
have even more influence over the private financial system. Is
Tennessee's law against political debanate a good template.

Speaker 7 (01:11:02):
Well, one thing that I'd really like to see there
is really changing this confidentiality system that we have, and
that's about making it so that people can have the
opportunity to know what went wrong. And that also creates
a feedback loop for future amendments as well, because if
we know exactly where the problem is, if it turns

(01:11:25):
out I think earlier I don't want to misquote, but
I think earlier Roh had mentioned that sometimes when regulators
look at some of these claims, they don't line up
with the law. Well, if we didn't have the confidentiality there,
we could see that, and we could see where banks
are either telling the truth or lying about that. And
that's a major step forward to get from where we

(01:11:48):
are now, where we have these spotted anecdotes of either
religious groups, cannabis dispensaries, cryptocurrency companies and the like having
this experience, then we can actually have some hard data
and consistent data to show us what exactly is going on.
That alone would make a big difference.

Speaker 2 (01:12:12):
Anyone else taught it looks like you are.

Speaker 4 (01:12:14):
Yeah.

Speaker 5 (01:12:15):
I'll just add first, I want to acknowledge some Director
Chopra said earlier, which is we disagree on a lot
of things, but this is one thing on which I
think we see ie the importance of this issue. And
I just want to make sure the record is clear
because you know, it's been floated out there that CFPB

(01:12:36):
was the one behind a lot of this this de
banking activity, and I think Director Chropra's comments on this
have certainly been admirable, and I think it was the
crudential regulators who've been problematic on this rather than the CFPB.
So I just thought this an opportunity to to to
clear the record on that.

Speaker 2 (01:12:57):
Do you see that people here there is healing happening
in this webinar right now, and I just want us
to acknowledge that.

Speaker 5 (01:13:06):
And and and as well said, we we all have
everybody here agrees this is the problem. And I think
it's it's important that people are finally recognizing this. And
I think to your earlier question, Megan, I think hopefully
people recognize the danger of how this could be used
the other way around, with a that the.

Speaker 4 (01:13:22):
Old rules don't apply anymore.

Speaker 5 (01:13:24):
And I'll just cite for example, when the Canadian truckers
were debanked, a public opinion poll here in the United
States found that sixty five percent of Democrats agreed with
the action Trudeau took against the truckers, right, And I
think hopefully people think through the principle.

Speaker 4 (01:13:42):
There and where that where that leads.

Speaker 5 (01:13:44):
As I was trying to say earlier, I think one
thing that's important is I think we an idea of
of an executive or you know, President Trump signed an
executive order banning central bank digital currency uh the other day,
which I think is something I haven't talked about, which
is really importance, perhaps even more important than the the
banking thing. I think that's a potential model for something

(01:14:06):
involving the banking years, potentially executive order. I think you
asked the question of Megan about Tennessee's anti d banking law.
I think one of the things we're seeing is the
longer the federal government goes about doing something about this,
the more the states are going to get involved, and
that is I think a second best solution. There is

(01:14:27):
a real benefit to a smooth functioning national bank system
with a with a integrated you know, payment processing system,
whether for payment processors, banks and the like, and I
think it's important for the federal government to take leadership
on this. I thought it was really, frankly, pretty hypocritical

(01:14:48):
when the Control of the Currency criticized Florida's anti de
banking law and all of a sudden was the longer,
all of a sudden rediscovered federal bank preemption by the
federal system. So I think having the federal government step
in there with a rule, with guidance, something that creates

(01:15:09):
a template going forward that says this is unacceptable, regardless
of who is in power. I fear that the Supreme
Court they did the right thing and on our adversus Bulo,
and then I did not like what they did at
Murphy versus Missouri, which is basically saying unless there's real
coersion here, nobody can do anything about that. I think
there's a big hole there that should be filled here

(01:15:31):
with some sort of affirmative federal rules, ideally legislation. Whether
it looks like the Fair Access to Financial Services rule,
whether it looks like what Director Chopra was proposing in
terms of adverse action notices. I think these are discussions
we should be having. But I think it's important for
the federal government to resolve this once and for all

(01:15:53):
so that we stop looking at this as a system
for infringing on people's constitutional rights.

Speaker 2 (01:16:00):
Going to actually pair two questions here, because we're closing
out on time. Everyone has been too fascinating. Wasn't the
debanking a defense mechanism against plaintiffs who would sue financing
entities facilitating the gun industry or the opioid industry, et cetera.
And while I take a Director Chopra's point on you know,

(01:16:21):
credit is different from bank accounts, the lawsuits might not
have treated them that way. And if I'm a bank again,
you know, there's the bank who's saying I don't want
to touch the gun industry. But there might just be
the bank saying I don't want to hassle with lawsuits
over this bank account. It's not worth this bank account
doesn't make any money anyway. Right, Bank accounts are not

(01:16:41):
themselves a significant profit center for banks. They're the margins
are so low that they will. They spend all of
their time trying to get you to sign up for
paperless statements because they can make meaningful savings in their
on their bottom line by saving the price of twelve stamps,
And so you know it is that just is there

(01:17:01):
a kind of hassle factor legitimacy to some of this?
I would ask the second question, to what extent is
debanking We're able to succeed because of the way that
your client rules insist essentially on references. Being fired by
one bank is fairly or unfairly a black mark. The
person saying no to a smallish client won't gain financially

(01:17:23):
by signing off on someone potentially controversial, since the fees
go to another department. But the naysayer is rewarded financially
for not making mistakes incentivizing caution. So let's talk about
bad incentives and how to fix them my favorite topic
in the entire world.

Speaker 6 (01:17:42):
Well, Megan, we want people to compete across different financial
institutions on their capabilities and know how on how to
provide you know, loans other types of financial instruments based
on their own own analysis and business acumen. So I

(01:18:03):
think what you're raising here is to the extent that
there is some sort of way that they can coordinate
or where there is a convergence across the industry on
certain types of databases or algorithms that are used throughout
the system or through a very dominant payment network, and

(01:18:29):
how they implement rules. That's really where you get concerned,
because in theory, being able to it sounds nice. I
can I lose I can't get a loan someplace and I,
you know, go to another another lender to find one,
and that often happens. But when it comes to a

(01:18:50):
bank account and you lose that and then all of
a sudden you are marked across the entire system, through
the data brokers, through all of the fraud analytics without recourse,
I think that really becomes core to the issue. So

(01:19:11):
I would hope, And I'll say also for the record,
I totally disagree with some of the things Todd said,
but I think where we do come at this at
the same way is how are some of these entities
flexing their power and their muscle to be able to
drive outcomes that That's where it's not even really their

(01:19:34):
provenance or it's not even related to any meaningful business
risk or justification. So I would hope that when it
comes to various blacklists that occur, we have some real
attention on them as well, because sometimes you have a
situation where you ask why did this outcome occur and

(01:19:56):
they'll say, well, this database told me that I that
I can't do it. But there's really no texture to
that and there's no due process around that. And that's
why I'm hoping, you know, a mixture of adverse action, notice,
a different approach on fair access to financial services, and
real clear, bright line prohibitions on using some of this.

(01:20:20):
I think together that might address that issue that you've
raised more healing.

Speaker 2 (01:20:27):
I love it. So anyone else want to talk about
incentives and how this is this is shaping the bank
behavior kind of beyond.

Speaker 8 (01:20:36):
The yeah, I would just note that in personal experience,
you know, uh Todd talked about you know, if if
the federal government doesn't do anything, the states are gonna
going to step in and defend the rights of their
citizens because of how obnoxious this activity is. I play
a role in that we have a we have a
C four side that pushes two model pieces of legislation.

Speaker 6 (01:20:54):
UH.

Speaker 8 (01:20:54):
One that deals with the definition of fiduciary and UH
and their their obligations in the States, and one it's
called the Anti Economic Discrimination Bill, that punishes banks in
any company that have a stated policy of discriminating a
specific against the specific industry. It doesn't regulate that's obviously
preempted by federal law, but it uses the role of

(01:21:16):
the states as customers, which obviously they're very large customers
in their own states for the banking system, and the
banks themselves have been some of the biggest opposition to
this legislation. It doesn't and again this we got brought
up earlier. It doesn't say that you can't decide that
you focus on forestry instead of you know, oil and
gas lending. That's totally within your purview. You could make

(01:21:37):
for business reasons those decisions. But it says if you
have a stated policy. As I mentioned, many of them
had an explicit stated policy as members of net zero
Banking Alliance and other commitments that they've made outside of
that of discriminating. I like our international our back wise
data is international. I like our both our national ant
our international banking system. And what the banks are doing
by latching on and defending this ability to punish people

(01:22:01):
or debank people. Is they are going to blow it up?
Because I can tell you as somebody who's out in
the hinterlands with the public thirty to forty times a year,
if people have to choose between a national banking system
that is more convenient or their rights to purchase a
gun or express their political speech, they are going to
choose their rights over a national banking system. I think

(01:22:23):
that's a shame. And I'll just say I think one thing.
I completely agree with both Todd and row Hit on this.
It's like a it's a different type of product. When
I go to a restaurant, I don't say I'm engaging
with the restaurant system, but I go to Starbucks, I
don't say I'm going to deal with the coffee delivery system.
But when I go to the bank, I think I'm
dealing with the banking system. And that's the difference. Is

(01:22:43):
these banks are all intertwined in a way that individual
providers of other products aren't.

Speaker 4 (01:22:48):
Well.

Speaker 6 (01:22:49):
Can I add to that that they have been there
has been from the bank lobby, have fought every single
piece of policy at the federal and state level to
try and address this. I still can't believe some of
the ways in which this is being fought. And I asked,

(01:23:11):
I sometimes ask what why do they care so much?

Speaker 5 (01:23:16):
What?

Speaker 6 (01:23:16):
Why don't they just want to accept because we heard
this statement from Brian and from Brian moynihan and Jamie
Diamond that oh, they would never do this, Well, then
what is going what is going on with this scorched
earth tactics? To stop some of this, We'll mention these
state laws under you know, under we have we have

(01:23:40):
state chartered banks, and we have nationally chartered banks. The
nationally chartered banks, which is the big guys. They want
to say, well, we shouldn't have to follow these state
laws because they're nationally chartered banks. And I think, you know,
this issue of the federal government just hitting delete on
all state laws that are protecting people's rights in consumer

(01:24:05):
finance and banking. We went through this and to lead
up to the financial crisis, and it was a disaster
to delete all of those state consumer laws. So I
think we need well, if we do state law, we'll
also need to make sure that it's not preempted or
that there is a corollary rules by the CFPB or

(01:24:27):
OCC to stop that whoever ends up succeeding me. I
hope that they will continue to steward that proposed rule
which would prohibit debanking on political or expression religious views.
And I don't understand still and will maybe you can
tell me why on earth have they opposed all of

(01:24:51):
these state laws and common sense federal rules.

Speaker 8 (01:24:57):
Well, this maybe you where we start to disagree, because
I I think a large part of it has to
do with infiltration from regulators who, like I said, like
I use the example of what happened with Twitter and Meta,
they basically became an arm of Democratic Party, And you know,
part of that had to do with Larry Fink. Ironically,
Black Rock and our efforts against them have not nearly

(01:25:18):
been as tenacious at the state level. They've usually tried
to actually buy off the right rather than fight us.
It's really been the banks who've been our main antagonists
in pushing some of this stuff that would cut down
on debanking and discrimination of both individuals and industries. And
to the extent they've even tried to use some of
the state banking trade associations to push This was ironic

(01:25:38):
because the bills that we put forward would actually benefit
their memberships at the detriment of the national banks. It's
mostly the national banks that are engaging in this kind
of industry discrimination, and so the local and the regional
would actually be at a better advantage to scoop up
some of the business with these states that are passing
things like what West Virginia did, like what Texas did.

(01:25:59):
And yet it's the state banking trade associations. I have
a strong suspicion they've been incentivized by the national.

Speaker 6 (01:26:05):
A b A.

Speaker 8 (01:26:06):
I just think unfortunately, you saw what happened to Davos
and and and the pushback they had even when they
were just simply being asked to cut this obnoxious activity out,
and it took, frankly, the threat of an antitrust suit
to get them out of the Net zero Banking Alliance,
which I think was a pretty obvious violation of of
of their of their you know, role under the under
the Clayton are obligations under the Clayton Act. So, uh,

(01:26:29):
you know, I'm not trying to I've said, there's been
a lot you've said today that I could not agree
with more. Uh uh, Director Choprop, So I sorry to
maybe end us here on a on a point of uh,
of disagreement. But unfortunately, I think the whole e SG
complex has incentivized companies to become part of basically become
democratic or excuse me, political utilities for the Democratic Party.

(01:26:51):
And I think that's a large part of this.

Speaker 2 (01:26:53):
All right, I'm gonna have to end that here, but
I I do actually want to highlight it's in the
Q and A section, but it's not really a question,
but I like it. So I'm going to close with
this from an anonymous attendee who says I was a
federal processor prosecutor and open numerous legitimate criminal investigations based
on sars, but I acknowledge that the vast majority of

(01:27:15):
SAARs are totally worthless. It seems that a system should
be created so is to place some obligation on the
bank if it files an SAAR, so as to ensure
that it does not file it for the sake of it,
thereby watering down the use that law enforcement makes of them,
similar to a small copay for medical visits. So let's
I'm going to close with the suggestion that what we

(01:27:36):
really need is copays for SAARs, is that we should
make the banks pay to file them and pay the
government back if they're if they turn out to be
an unapproved use of an SSAAR. I can see Nicholas
Anthony's smiling at that, So this has at least one
fan I see among men. All right, everyone, I just

(01:27:57):
want to ask everyone to join me in thanking our
amazing panelists who have had such a lively and informative discussion,
and thank you all for being with us and giving
us such great questions.

Speaker 1 (01:28:11):
Thank you so much, Megan on behalf of the Federalist Society.
I want to thank also thank our panelists, also our
fantastic moderator Megan McCardell, for the benefit of their time
and expertise today. And thank you to our audience for
joining and participating in this event and offering up just
such great comments and questions. We welcome listener feedback by

(01:28:33):
email at info at fedsock dot org. Thanks everyone for
joining us today.

Speaker 2 (01:28:39):
We are adjourned

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