Donald Trump and the GOP have a surprising new ally in their push to clamp down on "debanking": Elizabeth Warren.
The Democratic senator from Massachusetts outlined her support for the issue known during a Senate banking committee hearing Wednesday when she commended the president for confronting Bank of America (BAC) CEO Brian Moynihan last month.
"Donald Trump was on to a real problem when he criticized Bank of America for its debanking practices,” Warren said in her opening remarks.
The confrontation Warren referred to came at at the World Economic Forum in Davos, Switzerland, where Trump told Moynihan that "I hope you open your banks to conservatives because what you're doing is wrong."
Big banks, Warren added Wednesday, "may be taking shortcuts when it comes to assessing risks rather than investing the time and the resources to identify true criminal risks and shutting down those accounts," she added.
The claim that big banks have discriminated against certain customers is gaining new visibility as the GOP presses for legislation that would better define when banks can decline service. The crypto industry has joined the call for changes after alleging that digital asset companies were unfairly denied bank services in recent years.
Bank of America as well as JPMorgan Chase (JPM), including its CEO Jamie Dimon, have denied that they debank customers based on their personal or political views.
What Dimon and other bankers have instead argued is that US rules such as the Bank Secrecy Act discourage banks from dealing with customers that are considered high-risk — and that there needs to be clearer regulation on that front.
Under the Bank Secrecy Act and related anti-money laundering laws, US banks are required to monitor and report customer transactions to the government to help prevent money laundering, fraud and other financial crimes.
In practice that means large banks file tens of thousands of suspicious activity reports on customers each quarter to the government. Because it could hinder law enforcement if something illegal happens, banks are specifically not permitted to alert customers when they file one of these reports.
When a lender doesn’t debank a high risk customer and illicit activity happens, banks face heavy penalties via fines and a potential downgrade in their supervisory rating score.
"We agree with President Trump’s diagnosis that much debanking occurs as a result of an anti-money laundering and 'reputational risk' regime administered by the federal banking agencies where certain types of customers are designated as 'high risk,'" Greg Baer, CEO of bank lobbying group Bank Policy Institute said in a statement last month.
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The early actions from the GOP include bills from Sen. Kevin Cramer and House Rep. Andy Barr that would set clearer standards for when banks can choose to debank customers.
The bills are largely the same but Cramer's bill applies to lenders with over $10 billion in assets while Barr's would only apply to banks with $50 billion or more in assets.
Warren made separate recommendations on Wednesday.
She sent a letter to Trump citing the work the Consumer Financial Protection Bureau (CFPB) has done to root out debanking.
She recommended that US Treasury Secretary Scott Bessent, who is also acting as the CFPB's acting director, unfreeze "rulemaking enforcement investigations and litigation against financial institutions that are breaking the law, including the banks that are wrongfully de banking their customers."
David Hollerith is a senior reporter for chof360 Finance covering banking, crypto, and other areas in finance.
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