U.S. Office of the Comptroller of the Currency Announces Notice of Proposed Rulemaking for Fair Access Requirements

Regardless of one’s view of the policy implications of a “fair access” mandate for banks, an assessment of the NPR itself must start with the scope of institutions subject to the new requirements. The preamble indicates that the defined term “covered bank” is designed to provide a measure of whether the subject institution is able to exercise “market power” warranting application of the proposed fair access mandate. To give substance to this objective, the definition of “covered bank” in the NPR is based on the ability of the bank to either (i) raise the price that a person has to pay for a financial service or (ii) significantly impede the business of one person in favor of another. While pricing power is a commonly used element of antitrust analysis, the NPR focuses only on the ability of a bank to raise prices, while ignoring the critical related element necessary to analyze market power — what impact the pricing change would have on the bank’s sales volume of the financial service at issue. This fundamental flaw renders the definition effectively meaningless; a bank that can raise prices only with a significant loss of business can hardly be said to have market power.

Furthermore, based on the unsupported assumption that “large” institutions generally have market power in all financial services, the NPR would create a presumption that banks with $100 billion or more in total assets should be considered “covered banks,” while banks with less than $100 billion in total assets would be presumed not to meet the definition. The precedent created by such a presumption likely will be a concern for subject institutions.

The OCC is also seeking comment on whether there should be a separate presumption based on the percentage of the national market share of a financial service held by an institution, specifically inquiring whether a market share as low as 10% might be sufficient. The NPR offers no empirical support for any of the suggested thresholds, which are very low in comparison to other standards of competition analysis, or any indication whether other factors considered in antitrust analysis, such as market concentration, would be considered for this purpose.

For institutions that satisfy the definition of a covered bank, the following standards for fair access to financial services would apply:

(1) Make each financial service it offers available to all persons in the geographic market served by the covered bank on proportionally equal terms;

(2) Not deny any person a financial service the bank offers except to the extent justified by such person’s quantified and documented failure to meet quantitative, impartial risk-based standards established in advance by the covered bank;

(3) Not deny any person a financial service the bank offers when the effect of the denial is to prevent, limit, or otherwise disadvantage the person:

(i) From entering or competing in a market or business segment; or

(ii) In such a way that benefits another person or business activity in which the covered bank has a financial interest; and

(4) Not deny, in coordination with others, any person a financial service the bank offers.

The proposed standards raise a number of questions. For example, it is unclear how the geographic market under clause (1) would be determined. Would it be based on where the covered bank offers a particular financial service or where the bank offers any financial services? The preamble to the NPR indicates that this provision is intended to prohibit covered banks from “engaging in geography-based redlining,” which suggests that any geographic differentiation is prohibited, regardless of how broadly a geographic market might be defined, an open-ended concept that has potential application much more sweeping than under existing fair lending jurisprudence. Furthermore, the phrase “proportionally equal terms” also is ambiguous, begging such questions as “proportional to what” and does proportionality require volume-based pricing of all financial products?

Under clause (2), the standard suggests that a covered bank should not include qualitative factors, as that would not be a “quantitative, impartial, risk-based standard.” It is unclear to what extent the OCC would continue to permit historical judgmental underwriting systems under this restriction.

Finally, clauses (3) and (4) are the most potentially overbroad. For example, although the denial of a financial service may not “prevent” an applicant from competing in its market if other firms are willing to provide the desired financial product or service, clause (3) goes further to preclude even a decision that “disadvantages” a person from competing in a market or business segment. Such a loose standard arguably could be met by virtually any denial of a financial service, even a financial service that is available elsewhere at competitive rates, but only with additional time and effort. Further, it is unclear what is meant by “in coordination with others” under clause (4). Presumably it was intended to capture coordinated efforts among banks to restrict access to financial services to a particular industry group, but the phrase could easily also capture any involvement of a third party, for example, a model developer or credit bureau, that provides inputs to a bank’s underwriting decisions. The overbreadth of clauses (3) and (4) are particularly significant because, as proposed, a misstep under any one of the standards at clauses (1)-(4) arguably would result in a violation.

Comments on the NPR are due on or before January 4, 2021. Assuming that industry comments address the points above, as well as other issues with the NPR, it seems unlikely that the OCC will be able to release a final rule before the Biden administration takes office.

¹  Notice of Proposed Rulemaking — 12 CFR Part 55, Office of the Comptroller of the Currency (Nov. 20, 2020), https://www.occ.gov/news-issuances/federal-register/2020/nr-occ-2020-156a.pdf.

² The NPR defines “financial services” to include both financial services and financial products. Natural persons and legal entities are referred to below as “persons.”