De-Banking Is an Avoidable Consequence of Strict Financial Regulation

In the modern world of finance, regulation has become the name of the game. Governments across the globe, particularly in the United States and Europe, have ramped up their efforts to ensure that banks operate under a single set of strict rules and guidelines. While this may seem like a necessary step to curb financial misconduct, it has inadvertently led to a surge in compliance costs and an alarming increase in the debanking of customers. Nigel Farage’s high-profile case may have captured headlines, but the real victims are the countless individuals and businesses losing access to their bank accounts due to sloppy risk management.

The U.S. Treasury Department rightly recognizes the potential dangers of de-risking, which refers to the indiscriminate termination or restriction of business relationships with broad categories of customers over “compliance” concerns. In a reportmandated by the Anti-Money Laundering Act of 2020, the Treasury Department shed light on the adverse consequences of de-risking. 

They found that it poses not only a threat to national security but also disrupts the very fabric of the financial system, driving legitimate financial activities away from regulated channels.

Deputy Treasury Secretary Wally Adeyemo emphasized that “broad access to well-regulated financial services is in the interest of the United States.” This statement underscores the importance of striking a balance between regulation and access to financial services. Risk mitigation must have limits. 

The heart of the issue isn’t the profit motive of banks, but more so the overwhelming burden of compliance costs and poorly written regulations directed at banks’ customers. Banks, as profit-driven entities, must allocate their resources efficiently. When compliance costs skyrocket due to complex and ambiguous regulations, they are forced to cut corners, often resulting in the hasty termination of customer accounts as a risk-mitigation measure. 

It’s not uncommon for this to be an automated process, similar to the automation of content moderation on social media platforms, which so often leads to deplatforming without transparency or explaination. 

Everyday consumers, small and medium-sized money-service transmitters, and nonprofit groups operating in high-risk jurisdictions bear the primary burden of de-risking policies. These entities are the lifeblood of many communities, enabling remittances, facilitating humanitarian aid and disaster relief, and providing financial resources to low- and middle-income populations. 

What a human supervisor within a bank might understand as the flow of money between international nonprofits, an automated system developed for de-risking might flag as money-laundering. The old adage of “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck” does’t apply well to regulating global finance. 

The Treasury Department’s report offers a glimmer of hope by suggesting policy recommendations to address the issue.

It advocates for consistent supervisory expectations of anti-money laundering regulations, and support for international financial institutions’ efforts to combat de-risking. However, these recommendations must translate into tangible actions to make a real difference.

One of the most troubling aspects of de-risking is the lack of transparency and accountability in the process. Banks tend to operate as judge, jury, and executioner when it comes to terminating customer accounts. They often fail to engage in meaningful dialogue with their customers, leaving them without recourse or the opportunity to address concerns or rectify perceived compliance issues. More competition in the banking system and allowing more market entrants such as neo banks would boost choice and enable business models around serving consumers with a higher risk profile.

In the quest for a safer and more transparent financial system, it is crucial that regulators and banks find a middle ground. While compliance is vital, it should not come at the expense of legitimate businesses and individuals. 

Clear, concise, and fair regulations, coupled with a willingness to engage with customers in the debanking process, can go a long way in mitigating the negative impacts of de-risking.

It is high time for regulators and financial institutions to heed the call of Deputy Treasury Secretary Adeyemo and work collaboratively to strike a balance between stringent compliance and maintaining broad access to well-regulated financial services. The livelihoods of countless individuals and businesses depend on it, as does the national interest.

Originally published here

The Sanders, AOC Credit Card Interest Cap Will Only Hurt Consumers

Washington, D.C. – Today, Sen. Bernie Sanders and U.S. Rep. Alexandria Ocasio-Cortez are introducing legislation in their respective chambers to put a cap on credit card interest rates.

Yael Ossowski, Deputy Director of the Consumer Choice Center (CCC), said “This measure to cap credit card interest rates may be well-intended, but it will ultimately end up hurting low-income Americans who need access to credit most desperately.”

“By placing a cap on credit card interest rates, borrowers who would otherwise use credit cards to pay bills and buy groceries for their families will be the first ones forced out of the credit system,” said Ossowski.

“The people who need access and who depend on credit cards to cover large transactions between paychecks are usually those who cannot otherwise gain access to credit and loans from banking institutions. If a cap on rates is passed, these borrowers will be pushed out of the credit card market and will be forced to take out loans at exorbitant rates by other, possibly illegal, means.

“Thankfully, there are legions of credit cards and credit unions that can offer low or zero interest rates to consumers as introductory offers. Mandating a cap would mean these offers would virtually disappear, making it even harder for the less well-off to afford to pay bills.

“At the same time, extending the U.S. Postal Service’s mandate to become a bank is just inviting trouble, especially for a government service that can barely make a profit as it is. It is wishful thinking to suggest that politicians in Washington will be the ones to revolutionize banking for everyday Americans.

“Reducing credit card interest rates for ordinary consumers is a noble goal, but a federal cap will do more to harm consumers than good, especially the people that depend on these cards to cover their week-to-week expenses,” said Ossowski.

The Consumer Choice Center is the consumer advocacy group supporting lifestyle freedom, innovation, privacy, science, and consumer choice. The main policy areas we focus on are digital, mobility, lifestyle & consumer goods, and health & science.

The CCC represents consumers in over 100 countries across the globe. We closely monitor regulatory trends in Ottawa, Washington, Brussels, Geneva and other hotspots of regulation and inform and activate consumers to fight for #ConsumerChoice. Learn more at consumerchoicecenter.org.

Read more here

Legal Cannabis Is Here to Stay, and Consumers and Entrepreneurs Deserve Safe Banking Options

On Wednesday, US Rep. Gregory W. Meeks (D-NY) will lead a subcommittee hearing on access to banking services for cannabis-related businesses. For hundreds of millions of Americans across the country, cannabis is no longer the “reefer madness” street drug it once was. Much like alcohol before it, the cannabis plant has evolved from a narcotic […]

Do credit unions still warrant a tax exemption?

AMERICAN BANKER MAGAZINE: Yael Ossowski, the deputy director at the Consumer Choice Center in Washington, D.C., said he began to pay more attention to credit union taxation after being struck by the presence of several large credit unions in his home state of North Carolina. “The huge footprint with a lot of these credit unions sparked […]

Cryptocurrency Regulations Should Not Stifle the Innovative Potential of Blockchain Technology

By Nur Baysal | 12. February 2018 Recently, the prices of cryptocurrencies like Bitcoin and Ethereum made new headlines: After reaching a staggering all-time-high of $19,783 in December, the price of Bitcoin lost more than half of its value in January and February, dragging the price of other cryptos down alongside it. During this time, a plethora […]

Europe has the potential to become the global blockchain powerhouse – Let’s not miss it!

VOCAL EUROPE: The last year marked unseen price surges of cryptocurrencies. Now 2018 seems to challenge Bitcoin and Co. on how resilient these innovations and their investors will be. Though blockchain is famous for creating a new class of millionaires it provides many applications beyond mere cryptocurrencies including identification, verification, immutable databases, and many more.

Consumer Choice Center Calls for End to CU Tax Exemption

ABA BANKING JOURNAL: CCC calls on the Trump administration and Congress to take steps to eliminate the credit union tax exemption as part of the broader plan to reform the U.S. tax code.

Why should banks pay taxes while credit unions get a break?

CHARLOTTE OBSERVER: If Congress and the administration are serious about making America’s tax structure fairer, their first action should be to end the free ride enjoyed by large credit unions at the expense of banks and taxpayers.

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